New Delhi/Mumbai: Indians who can afford the good things in life may soon be able to browse for exclusive labels without having to leave the country following recent changes in investment rules.
The controversy that’s been touched off by retail reforms has been focused on the key decision to allow 51% overseas investment in multi-brand retailing. The move to increase the 51% limit on foreign direct investment (FDI) in single-brand retail to 100% hasn’t attracted as much attention, but could see a change in existing relationships plus lead to a transformation of the Indian high street, such as it exists in upscale malls and shopping districts.
Other labels that aren’t visible in India but may be persuaded by the rule change are UK-based Arcadia Group Ltd’s brands such as Topshop, Dorothy Perkins, Miss Selfridge and Burton, besides labels from GAP Inc. that include Banana Republic, GAP, Piperlime, Athleta and Old Navy.
That’s because the earlier 51% rule, which dates to 2006, didn’t enthuse those who prefer to go solo in order to preserve brand integrity.
Premium play: A file photo of a luxury brand shop in New Delhi. Experts say that most luxury brands would want 100% ownership . Priyanka Parashar/Mint
There are many labels wanting to enter the market with their own operations, said Ankur Bhatia, executive director, Bird Group Pvt. Ltd, a Delhi-based company with interests in aviation services, retail, travel and technology.
“Many premium brands have global mandates that they don’t want to work through a franchise agreement and be in the country,” he said. Brands such as GAP and Prada, have been waiting for this, wanting to see if the environment is right for them, he said.
Prada’s international office in Milan refused to comment on the story. GAP and Arcadia Group did not respond to queries. Swedish fashion retailer Hennes and Mauritz said that while India was an interesting market, it was too early to comment on stores in the country.
“There are no concrete plans for if, and in that case when, we would open stores there,” said a company spokesperson.
The rule change could lead to existing partnerships, which were mandated by the old rule, breaking up as foreign brands seek to control operations and strategize in accordance with global directives.
International brands such as Louis Vuitton, Christian Dior, Bottega Veneta, Canali, and Jimmy Choo are among those that have entered India through local subsidiaries, joint ventures and franchisees. Some brands may have already begun the groundwork to understand the market better. Ashok Goel, luxury brand consultant to many high-end watch companies and distributor for the likes of Hublot, Breitling and Gucci in India, has been asked to prepare a plan for independent stores. The upscale watch brand also wants Goel’s company to manage the stores.
“Basically, I have told them to wait till there is more clarity on the FDI policy,” Goel said.
The government is currently in the middle of defending its decision against the political storm that has been set off by the reform move. Although the FDI policy is designed for the “mass market” and not “luxury brands”, given that multi-brand retail essentially relates to supermarkets, Goel said it has opened a forum of sorts for the sector. The most recent ventures include one between fashion designer Suneet Varma’s company Unique Eye Luxury Apparel Pvt. Ltd and Giorgio Armani to bring Armani Junior to India next year. The franchisee will open three stores, the first of them early next year at DLF Emporio.
Luxury brands prefer to control every aspect of their operations and style of functioning, said Kalyani Saha Chawla, vice-president, marketing and communications, Christian Dior Couture, the French company owned by Christian Dior SA.
“The sector—being niche— requires tremendous discipline, so its brand philosophy can be replicated across countries, wherever the brand is present,” said Chawla.
Christian Dior Couture entered India in 2006 through Christian Dior Trading India Pvt. Ltd. Goel agreed that most luxury brands would want 100% ownership.
“In single-brand retail, the brand is supreme. They want to put the right face forward,” he said. “Whether brands will come on their own or with a partner will depend on how hungry the brand is. If it is very hungry, it will be 100% independent. If it is testing waters, it may partner somebody.”
Overseas labels want to control operations because they’re more about brands than stores, said Pinakiranjan Mishra, partner and national leader, retail and consumer products, Ernst & Young India Pvt. Ltd.
“The decision of the single-brand retailers who are already in India to be in the country on their own minus their partners will depend on the kind of agreements they have with their Indian partners—whether they have the flexibility to exit the partnership,” Mishra said.
Those in the trade feel the real action will be in the already existing brands, and that some brands could pay their partners to exit, he said.
Markets such as India pose a challenge in terms of luxury segment experience.
“It is mostly a struggle to align views in terms of (brand) experience and training,” said Radha Chadha, a marketing and consumer insights expert who runs Chadha Strategy Consulting, also co-author of The Cult Of The Luxury Brand: Inside Asia’s Love Affair With Luxury. When it comes to big luxury brands with deep pockets and vision, they would want control and ownership of their India operations, she said. Smaller boutique brands will be happy to go with local partners, she said.
While reputed international luxury brands will get more serious about investments in the country, local partnerships can add value, said Tikka Shatrujit Singh, adviser, Louis Vuitton, India, a division of French holding company, Louis Vuitton Moet Hennessy.
“India is a unique market,” he said. “A cut-and-paste business model cannot be replicated here.”
In India, Louis Vuitton operates through a joint venture, said Damien Vernet, general manager, Middle East and India, Louis Vuitton. “Everywhere we are present, we are always keen on maintaining a full control over our operations, thereby ensuring to our clients the benefits of an integrated structure, which include consistently high level of service and the guarantee of authenticity,” he said.
Local partners will be welcomed provided they add value, whether in terms of their existing footprint, knowledge of the consumer or supply chain management, said Devangshu Dutta, chief executive, Third Eyesight, a specialist management consulting firm focused on retail.
Such partnerships cut down the learning curve and hasten the process. This also depends on the company’s operational philosophy and structure.
For instance, “Ikea has always maintained that it sees very limited value in bringing on a local partner,” said Dutta.
Ikea president and chief executive officer Mikael Ohlsson was in the country recently to study the retail investment changes.
“The Ikea Group has decided to take some more time to plan the next action in regard to its entry strategy into India. We look forward to present more information about our expansion plans shortly,” said an Ikea spokesperson.
The single-brand retailing decision is unlikely to lead to an immediate flood of international premium brands into the country, said Arvind Singhal, founder, Technopak Advisors Pvt. Ltd.
“Some of the brands will be careful as they are currently facing problems in their own markets in the US and the UK. Yet others may want the dust to settle as the situation is politically volatile,” he said.
Dutta of Third Eyesight said those present in India may take “more control of their operations and buy out local partners or strengthen their presence here.”
Sapna Agarwal contributed to this story.