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Versace, Guess, Corneliani set to split from their Indian partners

 
 

Sarah Jacob , The Economic Times

Bangalore, March 28, 2012

International fashion brands Versace, Corneliani and Guess are all set to break away from their Indian partners, joining a growing list of international fashion brands struggling to settle down in India.

Italian luxe brands Versace and Corneliani are expected to part ways with little-known Delhi-based firm Blues Clothing Company , three industry executives with knowledge of the development told ET.

"It is the case of a small firm going beyond its means," a retail executive said. "This business needs deep pockets." He said a team from Versace would be travelling to New Delhi this week and could scout for new partners. Email queries sent to Versace and Corneliani remained unanswered.

Dinesh Sehgal, MD of the family-controlled Blues Clothing, denied a split. But he admitted that a Corneliani store and one or two Versace stores are being shut.

Sehgal said his company, formed in 1996 with the aim of becoming the largest retailer of suits in the country, plans to pump in funds into the business but would not dilute equity. Other international brands Blues Clothing retails in India include Cadini and John Smedley.

PLANET RETAIL'S WRONG GUESS

Meanwhile, Guess is changing hands after its long-time partner Planet Retail decided to restructure its business. The American clothing maker will now tie up with Major Brands, the marketer of Mango and Aldo in India.

Ramesh Tainwala, co-owner and chairman of Planet Retail, says letting go of Guess is part of the firm's restructuring plan.

Planet Retail had expected increasing buying power in India to help it break even by 2012-13. But it will take twice the time now, says Tainwala.

That is mainly because most Indians prefer to buy luxury products from abroad because high import duty makes these products costlier here than elsewhere. Also, while rentals in a metro like Mumbai is comparable to global cities, the average sales per sq ft per day in a shop in Mumbai is one-tenth of Hong Kong and one-fourth of Dubai.

"Controlling the bleed is the name of the game," says Tainwala. "I have no doubt that retail will be profitable. But I doubt if that is two, five or seven years from now," he adds.

Despite such issues, the luxury garment business is thriving in India with foreign brands rushing in to make the most of a fast-growing economy, thriving middle class and Indian consumers' rising aspirations and growing exposure to western products.

Madura Fashion & Lifestyle, in fact, is in talks to convert its licensing and distribution deal with Esprit into a joint venture.

BREAK-UPS GALORE

While India recently allowed 100% foreign investment in single brand retail, most international brands prefer to have a local partner for the complex Indian market. But often, the partner does not invest enough to scale up the brand.

About one-third of the more than 150 international fashion brands launched in India over the past seven years have either changed partners or exited the market. Around 26 brands have changed partners, while 23-26 exited the market with at least half of those later returning either as a wholly-owned subsidiary or with a new partner, says consumer goods and retail consultancy Third Eyesight.

Reliance Brands President and CEO Darshan Mehta says, "The single-biggest reason for conflict between foreign brands and their partners is when the interests of both parties are not aligned."

Differences also crop up over brand positioning , choice of store location and partners' inability to offer services at global standards, industry players say.

"There has been an explosion in the number of brands entering India but there have not been as many stores," Devangshu Dutta, chief executive of Third Eyseight, says. "This suggests either that brands have to wait it out or their proposition is not as relevant to the market," he adds.

 
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