Mumbai: Blues Clothing Co., which recently parted ways with luxury Italian menswear brand Corneliani and shut its multi-brand retail chain Blues Galleria, said its franchise agreement with Gianni Versace S.p.A isn’t going to be terminated and may be strengthened through a joint venture.

A luxury retail industry executive familiar with the developments said, however, that Versace may be looking to end its tie-up with Blues Clothing, or scale it down.

Blues Clothing managing director Dinesh Sehgal would only say that talks with Versace are ongoing.

“We have put forward a proposal to Versace to increase investments in the brand and focus exclusively on scaling (up) its operations in India," said Sehgal, who is hoping that the Italian company reverts on his proposal by 10 January.

Currently, the Milan-headquartered luxury chain’s corporate office is closed and most of its top executives are away for Christmas and New Year holidays.

Emails sent to the Versace press office on Thursday were acknowledged, but did not elicit any response.

In a separate development, another firm, Versace 19.69 Abbigliamento Sportivo, set up in 2001, has tied up with Majgenta Fashions, a fashion apparel and leather exporter, for its India entry.

Blues Clothing has been the franchise partner for Versace since 2005-06.

In India, the luxury brand retails and markets its home furnishings, fashion apparel, shoes and accessories for men and women across six stores in Delhi, Mumbai, Bangalore and Hyderabad.

For the past month, the label has been clearing goods from its Indian shops with discounts of up to 70%. “The sale is to clear the old stock in the system and also help us prepare for the new agreement," said Sehgal.

The overall Indian luxury goods market was $2.18 billion in 2011, a little more than 10% of China’s $17.94 billion luxury market, according to an October report by Euromonitor.

As brands try to scale up operations in the nascent market, they change business models and strategies, according to an October study by Booz and Co. One out of every four brands that enters India hasn’t been able to get its India strategy right the first time out, it said. These companies have either changed their operating model or India partner, or both, or have exited the market, it said.

Moreover, at the time of entry, 71% of the firms chose a low-commitment model involving a franchisee or limiting themselves to licensing and distribution. Over time, companies have graduated to joint ventures or have an Indian subsidiary for greater control, said the study.

For instance, brands such as Marks & Spencer and Ermenegildo Zegna have changed from franchisee operations to joint venture partnerships. Both brands have tied up with Reliance Retail Ltd.

Marks and Spencer, which entered India in 2001, also cut prices by around 30% and began sourcing from the country when it formed its venture with Reliance Retail in 2008.

Indian rules allow 100% foreign investment in single-brand retail; but most luxury brands have entered India through partnerships.

In 2009, Mohan Murjani, chairman, Murjani Group, one of the first movers in this space in India with franchise operations for luxury brands such as Gucci, Jimmy Choo and Bottega Venetta, decided to exit as the market was nascent. Luxury Goods Retail Pvt. Ltd is the franchisee for Gucci, while Genesis Luxury Fashion Pvt. Ltd has tied up with Jimmy Choo and Bottega Venetta.

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