Global luxury brands rethink Indian JVs

Some global luxury retailers operating in India are again scouting for new partners as their existing tie-ups have failed to meet expectations in the sub-continent. Perhaps one reason could be due to the existing foreign direct investment (FDI)

regulations which allow only 51 per cent stake in single-brand retail. In fact, many luxury brands have been forced to either enter into joint ventures with local companies or forge tie-ups with a group of Indian investors. Some global retailers, push for short durations alliance with call options as they anticipate that the government will eventually allow 100 per cent foreign investment in single-brand retail.

In the last five years, several leading luxury brands have parted ways with the partner and have formed new alliances. Several have gone and changed partners more than twice. The best example, of a break-up between a global brand and an Indian partner was between the poster boy of luxury in India, the Murjanis, and Jimmy Choo and Bottega Veneta. Both the brands dumped the Murjanis for Genesis Colors. Similarly, Ermenegildo Zegna, one of the first luxury brands to set up shop in the sub-continent, has now tied up with Mukesh Ambani’s Reliance Brands, while Paul Smith chose to ally with Genesis Colors. Even Genesis, with quite a few well-known luxury brands in its portfolio, was dumped by German luxury brand Aigner last year.

Even now two prominent brands who are scouting for new partners are Giorgio Armani and Salvatore Ferragamo. The buzz is they who want to opt out of their joint venture with DLF Brands. The two marquee international brands are in talks with various corporate groups and investors in search of potential partners. This is part of a trend where global brands are looking around for new entities who believe in the brand. Sources say that another top luxury brand, which has already parted ways with its joint venture partner and tied up with a silent partner in Mumbai some time ago, is now facing some difficult times with its existing arrangement.

Experts like Reliance Brand’s president and CEO Darshan Mehta feel luxury brand owners are fast realizing that given the size and complexity of the Indian market, the standard template of a relationship that is short term and one sided in favor of the brand owner, will not woo the deep pocketed and strategic Indian partners. The size of the prize calls for a rework of their mindset to a long term and win-win partnership model. He should know as Reliance Brand has joint ventures with brands likr Zegna, Diesel and Paul & Shark. He says they are being approached by numerous global fashion houses and brands retailer regularly.

But it does bring into focus the huge interest the Indian market holds for global retailers. Indeed, selling high-value luxury products in India does have its downside beginning with the shortage of good real estate to house these outlets, high customs duties that push up retail prices and the buying habits of the Indian consumer who very value-conscious. However, despite these challenges the fact is there is a potential for nearly 60 to 80 million consumers buying luxury products as a matter of routine by the turn of the current decade. And this surly makes India very difficult to ignore or walk away from.