British department store chain Marks and Spencer Group Plc. is set to open company-owned stores and expand Indian operations following a joint venture with the Mukesh Ambani-promoted Reliance Retail Ltd.
Marks and Spencer, which currently has 14 franchisee-run stores in India, will apply to the Foreign Investment Promotion Board (FIPB), the government agency that approves investments in the country from abroad, to own a 51% stake in the joint venture, Marks and Spencer Reliance Pvt. Ltd.
Reliance Retail and Marks and Spencer will invest £29 million (Rs228 crore) to set up at least 50 stores over the next five years.
The new stores will be large format stores of around 20,000 sq ft. Currently, the stores are 6,000 sq ft, said Mark Ashman, chief executive of the newly formed company. This will allow the company to introduce new categories of products such as home furnishings, gifting and children’s clothes into the stores.
Marks and Spencer’s franchisee agreement with Planet Retail Holdings Pvt. Ltd, which comes to an end on 31 July, will also be extended.
“Both stores will continue to coexist,” Ashman said. “We want to be flexible on on this. But our focus will be on opening larger stores.”
Marks and Spencer stores have been running through the franchise agreement for about six years but they have not had a huge success.
There are two reasons behind it. India’s high duties mean that products are more expensive here than in the UK. The limited roll out is also partly responsible for their modest success.
Now, Ashman said, the company will look to increase manufacturing in India and also crunch margins to bring prices down to UK levels.
“We will see many others choosing the joint venture route soon rather than franchising,” said Harminder Sahni, chief executive of Technopak Advisors, a retail consulting firm.
“India and China are large markets, and retailers will come here to create wealth for their shareholders in the long term rather than just make incremental money on their brands through the franchisee route,” he added.
Planet Retail, which is also the Indian partner for premium international brands such as Debenhams, Guess, Next and The Body Shop, is a joint venture between V.P. Sharma and Future Group, which runs India’s largest listed retailer Pantaloon Retail India Ltd.
Its promoters had earlier tried to bring US coffee chain Starbucks Corp. to India but decided to hold back on it after FIPB asked for changes in the proposal.
For Reliance Retail, which runs a neighbourhood store chain, a hypermarket, bookstore, wellness and jewellery store chain among others, this is the second tie-up with an international brand after its Reliance iStores, which sells Apple Inc.’s technology products.
But it is running behind schedule for its expansion plans of its largest format, the Reliance Fresh neighbour stores, because small retailers have been staging nationwide protests.