Sapna Agarwal, MINT (A Wall Street Journal Joint Venture )

Mumbai, May 26, 2011

Major Brands (India) Pvt. Ltd, the local franchisee for fashion apparel and accessories brands such as Mango, Aldo, Charles & Keith and Nine West, will form a joint venture with French womenswear retailer Promod.

This changes the existing franchise agreement between the two. Both firms will raise their investment in the brand locally, said Kamal Kotak, country head, Major Brands. Promod will hold a 51% stake in the venture and Major Brands the rest.

India has nine Promod stores, and contributes less than 3% of the brand’s global revenue. The venture will set up 40 stores in the five years, with contributions from the region expected to account for 15-20% of Promod’s global revenue, Kotak said.

The venture will also explore opportunities to raise sourcing from India for Promod’s global operations of more than 900 stores. It may also consider price cuts in India.

In the past, brands such as Marks & Spencer and Ermenegildo Zegna have changed from franchisee operations to joint venture partnerships. Both the brands have tied up with Reliance Retail Ltd. Marks and Spencer, which entered India in 2001, also cut prices by around 30% and started sourcing from the country when it formed its venture with Reliance Retail in 2008.

In the past three-four years, the business model has changed for such businesses, said Devangshu Dutta, chief executive officer, Third Eyesight, a consulting firm focused on the retail and consumer products sector.

“Earlier in the 1990s, the preferred route to enter India was (being a) licensee as import duties were high,” he said. “Then, in the last decade, it changed to franchise, and in the last three-four years, it’s a joint venture as India becomes a strategic market for global marketers.”

Major Brands has 80 stores and a portfolio of 10 brands across women’s fashion, footwear, accessories and kids apparel, Kotak said.

“By 2015, the company plans to have 500 stores and revenue of Rs.1,000 crore,” he said. For fiscal 2011, the firm’s revenue grew 40% to Rs.200 crore. Kotak declined to give details on profit made by the privately held firm.

“Over the next 12 to 18 months, we will add four-five new brands to our portfolio,” said Kotak, who is in talks with some 10 European and US brands that are looking at an India presence. He didn’t name any of them.

Major Brands launched its apparel brand Queue Up late last year. It will launch kidswear brand JFK later this year. On average, the investment for a 1,500 sq.ft store is Rs.80 lakh to Rs.1 crore.

“In next 12 months, we will invest Rs.50 crore for expansion,” said Kotak. The capex will come from promoters’ equity and bank debt.

Earlier in the year, Spanish brand Mango appointed DLF Ltd as another franchisee as it sees opportunity for growth. Mango, which contributes close to 25% of Major Brands’ revenue in India, has tripled the number of stores and turnover in the past five years. “We believe that India will be within our top 10 countries in terms of turnover in 2015,” Daniel Lopez, managing partner and deputy general manager of Mango, said in an email. Globally, Mango has 1,400 stores and a revenue of €1.27 billion.