Corporate M&As led by Aditya Birla Fashion and Retail and Reliance Brands are set to reshape the industry
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The year 2021 has been a defining year for Indian luxury designers. And a string of corporate mergers and acquisitions led by Aditya Birla Fashion and Retail Ltd (ABFRL) and Reliance Brands Ltd (RBL) is set to reshape the narrative for fashion labels.
Earlier this year, ABFRL set up a new entity with designer Tarun Tahiliani for an affordable range of men’s ethnic clothing and accessories, eyeing a ₹500-crore business over five years. It acquired a 33.5% stake in a company housing Tahiliani’s couture business for ₹67 crore. In January, it had acquired a 51% stake in designer Sabyasachi Mukherjee’s fashion house for ₹398 crore.
More recently, RBL and couturier Anamika Khanna launched a 60:40 joint venture for owning and developing the designer’s ready-to-wear AK-OK brand selling chic skirts, dresses and pants.
In October, Reliance Retail Ventures Ltd acquired a majority stake in fashion designer Ritu Kumar’s Ritika Pvt. Ltd. Reliance Brands also has equity investments in Indian couture brands Manish Malhotra and Raghavendra Rathore.
The convergence of top retail companies with legacy brands comes at a time when the dynamics of India’s fashion industry are changing with social media helping young consumers in large and small cities discover new brands. Covid has also shrunk demand for fashion apparel, prompting brands to seek the financial backing of large companies.
For legacy brands, known to dress the rich and affluent, this rapid shift in the market prompted them to reach out to a wider set of shoppers with accessible price points, deep distribution and wider collections.
Harminder Sahni, founder and managing director, Wazir Advisors, who advised several design houses on such deals, said India’s ethnic luxury brands, which have been around for two-to-three decades, had reached a point of saturation. “They know they cannot invest and build as well as scale brands themselves," he said.
Meanwhile, for retail conglomerates, the interest to back luxury labels is clear. For years companies such as RBL and ABFRL built a portfolio that was skewed towards western clothing. ABFRL operates men’s formal wear brands such as Louis Philippe, Van Heusen and Allen Solly besides Forever21, among others, in India. RBL’s portfolio of brand partnerships comprises Burberry, Coach, Jimmy Choo, Diesel, Kate Spade New York, Michael Kors, Pottery Barn and Steve Madden, among others.
“Now the option for them is to create Indian brands. While the large fashion groups can do so on their own, they choose to partner with brands that have an already established name and recognition in the market as well as ready-made talent," Sahni said. Besides, for large retailers, the cost of acquisition of some of these labels is not so high, neither are they risky bets, he added.
Worldwide, too, a clutch of companies lord over top luxury labels.
Kering, for instance, manages the development of renowned luxury houses, including Gucci, Saint Laurent, Bottega Veneta, Balenciaga, Alexander McQueen, among several others. French multinational LVMH is home to 75 distinguished brands spanning six different sectors.
However, the evolution of homegrown luxury wear has been more gradual. Designer Shantanu Mehra, chief executive and co-founder of Finesse International Design Pvt. Ltd, which sells bespoke occasion-wear for men under Shantanu and Nikhil, said in the past two-to-three decades the Indian fashion industry created designers who have built aspirational and distinct couture along with an enviable clientele but lacked “structure" and “scale".
Mehra said designers have been donning too many hats—that of a marketer, a business person, and the creative force—giving them little scope to expand businesses beyond the core affluent consumer base. Partnering with big retailers helps them scale, he added.
In 2019, ABFRL acquired a 51% stake in Finesse International for ₹60 crore. Months after the acquisition, the brothers launched a new bridge-to-luxury brand S&N by Shantanu and Nikhil. The store count has doubled from five to 10 since then with two more under construction. The designer label has also forayed into e-commerce.
Mehra said if it wasn’t for the merger, the label would have not embarked on the digital commerce journey. “Now, we consider it as a separate business vertical, and it plays a very important role in the bridge-to-luxury side of our business," he added.
The announcements also come at a time when covid-led disruptions squeezed the overall retail market in India. Luxury and formal wear brands were severely impacted as social activities and weddings were put on hold. However, the market has since recovered.
“For almost 18 months, this market was non-existent and those weddings which happened also had curtailed spends. While margins have been coming down for several designer P&Ls, the last two years of losses further aggravated the scenario," said Navroz Mahudawala, managing director, Candle Partners, a Mumbai-based boutique investment bank.
Mahudawala said that the popularity of brands such as Manyavar and FabIndia that operate at affordable price points and cater to the occasion wear market have changed the dynamics of the organized wedding wear industry.
Initially, large retail firms, which acquired designer labels, preferred to build a portfolio of global luxury brands through long-term licensing deals, said Mahudawala. “However, one cruel realization was that most affluent Indians still preferred to shop abroad for western luxury brands," he said. He said options do not exist for Indian designer brands.
Big fashion houses also realized that without ethnic luxury designer brands, they were losing out on a fair share of the wallet of large wedding spends, as spending on western-wear was limited, he added.
Besides, as millennials and Gen Zs reshape the trajectory of Indian fashion, shoppers beyond top metros are also increasingly opting for designer labels, but often do not have access to the brands. Partnering with large retailers can provide brands the depth of distribution. Listing their collections on luxury marketplaces can help discover and service such shoppers, Mehra said. ABFRL and Tahiliani plan to open over 250 outlets under the new entity.
Designers such as Manish Malhotra agreed. “The consumer today is changing—thanks to social media and thanks to the youth today which is so clear about what they want, who they are and what they want to wear… people just don’t fear being themselves and there is such fluidity that’s coming to the way they think or wear," Malhotra said in an earlier interview. “You have to remain relevant if you wish to cater to the youth."
In October, Reliance Brands said it was picking up a 40% stake in MM Styles Pvt. Ltd owned by Malhotra, to work towards expanding the brand into a “larger lifestyle consumption portfolio" and grow into other adjacent categories, while retaining its affluent positioning in the occasion and wedding wear market. The brand continues to be led by Malhotra as the managing and creative director.
Mahudawala said there was a visible appetite for such brands in tier-2 towns. Designers neither had the capital or the management bandwidth to have a pan-India retail reach. “By tying up with some large houses, their ability to expand beyond metros has increased immensely," he said.
Abhishek Agarwal, founder, Purple Style Labs that runs Pernia’s PopUp Shop and bought over Wendell Rodricks’ brand in 2020, agreed: “The problem with designer labels was not of demand but supply. We will see big boost to the Indian designer luxury industry because of institutionalization or corporatization."
Both Mahudawala and Sahni concurred that such deals are far from over. New companies, such as beauty and fashion retailer Nykaa, could bid for homegrown designers, joining the league of storied investors backing homegrown labels.
“The current set of buyers (both Reliance Brands and Aditya Birla Fashion) would await some of the initial results of the integration of these brands before attempting the next set of deals. One may, however, see some of the larger digital marketplaces making selective investments in this sector," said Mahudawala.