How to set up shop in India
For foreign fashion brands, India's complex market and byzantine regulations make partnering with local players an attractive option. But data shows the model is bleeding.
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Soumya Gupta
28 Jun 2018
PRADEEP GAUR/MINT VIA GETTY IMAGES
What's happening? A horde of foreign brands, large and small, are making their way to India's fashion market. Last year, Franchise India said almost 50 global retailers were planning to set up shop in India, including Greek footwear brand Migato, Japanese denim wear brand Evisu, and Greek personal-care brand Korres. Last month, Japanese fast-fashion brand Uniqlo said it was going to open stores in India with a licence for foreign direct investment (FDI) in single-brand retail.
What's the right way for the new guy to set shop in India?
Option #1: Go it alone. The last one in the news to do this was Swedish fast-fashion biggie H&M, which came to India in 2015. This involves getting single-brand FDI licence from the government. Advantage: total control over your operation. Challenge: getting local knowledge of the Indian market.
Option #2: Get a partner. You’re intimidated by India’s language and consumption complexity, and you’ve heard government regulations can be notoriously difficult to handle. It makes sense to pick a local partner. You can franchise your brand out to a reliable firm that has experience running retail in India. You control the design, the look of the store, in exchange for a fixed income. Your partner makes the investments and could even manage the manufacturing. Of course, for some more control and skin in the game, there's always the option of a joint venture with the local partner.
Which model should you choose if you are a foreign retail brand eyeing India? Data from the Registrar of Companies shows times are bad for franchisee operators.
Apart from Page Industries (Jockey and Speedo) and Genesis Luxury (Burberry, Tumi), which have been there for a while, the large franchisee operators in apparel retail are bleeding money.
There has been a lot of churn in this business as well. DLF Brands, for instance, has almost completely stopped selling premium and luxury brands in India. In its heyday, it was the repository of top-notch foreign designers including Armani, DKNY, and Salvatore Ferragamo. The last straw came when it lost rights to run stores of Spanish fashion brand Mango to apparel e-commerce firm Myntra. In October 2016, DLF Brands said it would exit the luxury business.
Major Brands, one of the biggest names in premium and luxury fashion in India, has recently launched American personal care brand Bath & Body Works in India. Its arsenal is formidable: Aldo, Nine West, and Charles and Keith, all marquee names globally. Yet, the losses continue.
The franchisee space is now dominated by one player: After acquiring a controlling stake in the Genesis Group, Reliance Brands has become the single largest repository of foreign brands in India. Last week, we had written how Reliance Retail became India’s largest retailer — the foreign-brands business, from Gas and Diesel to Marks & Spencer and Muji, has played a large role in its success. Meanwhile, high-end brands like Bally, a Swiss luxury brand, re-opened stores in India in a partnership with Reliance Brands last year.
VF Brands, one of the oldest to operate in India, has maintained a profit margin, although it’s thin.
Here is a sample of some leading companies in this business model.
Uniqlo is the next big thing to come to India, and has chosen to do business independently with 100% FDI. So has Swedish furniture retailer IKEA that will open its first store here in Hyderabad, while French fashion icon Louis Vuitton got a licence to open its own stores in India last October. Lesser-known brands like Swiss watchmaker Daniel Wellington also decided to set up their own stores.
"If you need to control the service element a lot more, it makes sense to go it alone," says Abhishek Malhotra, partner, Asia-Pacific, at consulting firm AT Kearney, who leads the consumer industries and retail products practice in India and Southeast Asia. "That's the only place where a franchisee model might try to cut corners because everything else — the products, the manufacturing, the look and feel of the store, will be controlled by the foreign brand."
But franchisee operators can bleed money because they end up having little control over their own business cycle, says Govind Shrikhande, former managing director of department store chain Shopper's Stop. "In the distribution model (where you are selling the products made by a foreign brand), everything is imported into the country. So you have little flexibility on pricing, margins, etc. Then, brands will have a policy of same retail price globally, (which often means a very high price for the Indian customer). So your margins can suffer," he says. "When a partner has control over the manufacturing, and thus on the retail cost and pricing, it becomes easier to scale and get returns."
The bottom line: Shrikhande and Malhotra both say the appeal of the franchisee model lies in companies that have small markets in India. "For high-end brands that do not have a market for more than 20-30 stores in India, it makes sense to go in with a partner instead of investing in a full team, a country manager, and so on," Malhotra says. "[However,] if you're looking to sell a "masstige" brand (mass-prestige), and you want to open 50-100 stores in the country, then it makes sense to do it on your own. The fixed costs are worth incurring over that scale in the long term," adds Shrikhande.
For foreign fashion brands, India's complex market and byzantine regulations make partnering with local players an attractive option. But data shows the model is bleeding.
Share Gift this article
Soumya Gupta
28 Jun 2018
PRADEEP GAUR/MINT VIA GETTY IMAGES
What's happening? A horde of foreign brands, large and small, are making their way to India's fashion market. Last year, Franchise India said almost 50 global retailers were planning to set up shop in India, including Greek footwear brand Migato, Japanese denim wear brand Evisu, and Greek personal-care brand Korres. Last month, Japanese fast-fashion brand Uniqlo said it was going to open stores in India with a licence for foreign direct investment (FDI) in single-brand retail.
What's the right way for the new guy to set shop in India?
Option #1: Go it alone. The last one in the news to do this was Swedish fast-fashion biggie H&M, which came to India in 2015. This involves getting single-brand FDI licence from the government. Advantage: total control over your operation. Challenge: getting local knowledge of the Indian market.
Option #2: Get a partner. You’re intimidated by India’s language and consumption complexity, and you’ve heard government regulations can be notoriously difficult to handle. It makes sense to pick a local partner. You can franchise your brand out to a reliable firm that has experience running retail in India. You control the design, the look of the store, in exchange for a fixed income. Your partner makes the investments and could even manage the manufacturing. Of course, for some more control and skin in the game, there's always the option of a joint venture with the local partner.
Which model should you choose if you are a foreign retail brand eyeing India? Data from the Registrar of Companies shows times are bad for franchisee operators.
Apart from Page Industries (Jockey and Speedo) and Genesis Luxury (Burberry, Tumi), which have been there for a while, the large franchisee operators in apparel retail are bleeding money.
There has been a lot of churn in this business as well. DLF Brands, for instance, has almost completely stopped selling premium and luxury brands in India. In its heyday, it was the repository of top-notch foreign designers including Armani, DKNY, and Salvatore Ferragamo. The last straw came when it lost rights to run stores of Spanish fashion brand Mango to apparel e-commerce firm Myntra. In October 2016, DLF Brands said it would exit the luxury business.
Major Brands, one of the biggest names in premium and luxury fashion in India, has recently launched American personal care brand Bath & Body Works in India. Its arsenal is formidable: Aldo, Nine West, and Charles and Keith, all marquee names globally. Yet, the losses continue.
The franchisee space is now dominated by one player: After acquiring a controlling stake in the Genesis Group, Reliance Brands has become the single largest repository of foreign brands in India. Last week, we had written how Reliance Retail became India’s largest retailer — the foreign-brands business, from Gas and Diesel to Marks & Spencer and Muji, has played a large role in its success. Meanwhile, high-end brands like Bally, a Swiss luxury brand, re-opened stores in India in a partnership with Reliance Brands last year.
VF Brands, one of the oldest to operate in India, has maintained a profit margin, although it’s thin.
Here is a sample of some leading companies in this business model.
Uniqlo is the next big thing to come to India, and has chosen to do business independently with 100% FDI. So has Swedish furniture retailer IKEA that will open its first store here in Hyderabad, while French fashion icon Louis Vuitton got a licence to open its own stores in India last October. Lesser-known brands like Swiss watchmaker Daniel Wellington also decided to set up their own stores.
"If you need to control the service element a lot more, it makes sense to go it alone," says Abhishek Malhotra, partner, Asia-Pacific, at consulting firm AT Kearney, who leads the consumer industries and retail products practice in India and Southeast Asia. "That's the only place where a franchisee model might try to cut corners because everything else — the products, the manufacturing, the look and feel of the store, will be controlled by the foreign brand."
But franchisee operators can bleed money because they end up having little control over their own business cycle, says Govind Shrikhande, former managing director of department store chain Shopper's Stop. "In the distribution model (where you are selling the products made by a foreign brand), everything is imported into the country. So you have little flexibility on pricing, margins, etc. Then, brands will have a policy of same retail price globally, (which often means a very high price for the Indian customer). So your margins can suffer," he says. "When a partner has control over the manufacturing, and thus on the retail cost and pricing, it becomes easier to scale and get returns."
The bottom line: Shrikhande and Malhotra both say the appeal of the franchisee model lies in companies that have small markets in India. "For high-end brands that do not have a market for more than 20-30 stores in India, it makes sense to go in with a partner instead of investing in a full team, a country manager, and so on," Malhotra says. "[However,] if you're looking to sell a "masstige" brand (mass-prestige), and you want to open 50-100 stores in the country, then it makes sense to do it on your own. The fixed costs are worth incurring over that scale in the long term," adds Shrikhande.
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