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| Foreign apparel brands fail to find the right fit |
| Raghavendra Kamath / Mumbai Jul 14, 2009, 00:30 IST |
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When people back home in the UK ask Mark Ashman to spell out the success mantra in India, he says: “Be patient”. The CEO of Marks & Spencer Reliance India (MSRI), who has spent two years in India, has been religiously practising what he preaches – the M&S-Reliance combine has been able to open just one store in the past one year. It plans to open six more, but Ashman wouldn’t say by when.
Patience, however, ran out for over a dozen global brands, including GAS, Replay, Etam and Argos. All of them have ended their joint ventures or franchisee arrangements with Indian retailers in the last one year due to reasons ranging from poor sales and high rentals to mounting losses and failure to open stores on time.
Ashman says the biggest issue is to be able to find mall space at the right price. “New mall openings are at least six months behind schedule.” MSRI runs 14 stores, which come into its fold from its earlier arrangement with Planet Retail. Last year, M&S ended its franchisee agreement with NRI businessman V P Sharma-led Planet Retail and tied up with Reliance Retail as it could not expand the way it wanted to. “India is over-hyped. People thought they could quickly open stores, but it takes time. You have to think about the right products and prices,” says Ashman.
Many others agree. Domestic textile and apparel major Raymond recently closed down stores of GAS, its joint venture with Grotto SPA of Italy, due to mounting losses, which creased to Rs 50.46 crore in 2008-09 from Rs 19.33 crore in the previous year. “Although the brand (GAS) was well received among its target youth audience, the company has been incurring steep losses due to brand building expenses, high cost of imported merchandise and very high rentals and other operating costs for its stores,” Raymond's 2008-09 annual report says.
There’s more. Kishore Biyani's Future Group has ended agreements with Italian brands Etam and Replay after running the operations for a couple of years.
Reliance Brands, a unit of Reliance Retail, could not open a single store of Italy's Diesel and Dama SPA's Paul & Shark, with whom it has joint ventures, though it planned to open them by April this year.
“When we signed the JVs last October, rentals were very high. One needs to enter into nine-year leases, which was not rational at that point in time. We waited and signed for properties which are 30 per cent lower than when we initiated these ventures,” says Darshan Mehta, CEO of Reliance Brands.
Some experts blame slower expansion by Indian partners. UK’s Mothercare is reported to be unhappy with the decision of Raheja-owned Shoppers Stop to make it a shop-in-shop format (space within a shop instead of individual outlets).
Earlier, Shoppers Stop’s sister company Hypercity and UK’s Argos discontinued catalogue retailing in the country as the venture did not meet planned performance levels.
Retail consultants say high import duties, as high as 40 per cent in apparels, are responsible for the high merchandise prices of international brands and lower sales. “When you import and sell, you need to keep price points high. This is sometimes not appreciated by price-sensitive Indian shoppers,” says Purnendu Kumar of Technopak Advisors, a retail consultancy.
M&S under Planet Retail used to import goods from Europe but had to cut prices by 40 per cent to check drop in sales. The M&S-Reliance combine is increasingly focusing on local sourcing to keep prices competitive. It sources 39 per cent of its requirement from the Indian sub-continent and plans to take it to 70 per cent.
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