The Hindu Business Line : Global retailers eye franchise route to India

Mumbai, Feb.10 As the slowdown takes its toll in their original home markets, international retailers seem keen to try out the franchise route to test their brand in the Indian market. With almost 700 franchises today, brand licensing is estimated to be a Rs 30,000-crore industry growing at 30 per cent today.

According to Mr Gaurav Marya, President, Franchise India Holdings, “With the slowdown, large businesses have been collapsing. In this scenario, franchising is considered to be a safe option and we expect to maintain the growth rates at their current levels at 30 per cent in this industry.”

With people losing jobs across various sectors, self-employment is seen to be a safer option and becoming a franchise is the preferred choice. Besides, those who are already in business and have stopped investing in the stock and property market might be sitting on a pile of cash which could be used to start a franchise operation.

“The returns on investment from the franchising business range between 15 per cent and 20 per cent. A new audience of entrepreneurs is joining the franchise business comprising those who were making passive investments in areas such as mutual funds and the property market in the past,” observes Mr Marya.

While the big retailing companies might need joint venture partners, the smaller format retailing outfits do not have similar requirements. “The small format brands and stores do not need any kind of handholding and are open to participate with international retailers by becoming their master franchise today,” says Mr Marya. However, the franchise model today might work for premium brands and not necessarily in the luxury segment.

“Most of the luxury brands overestimated the Indian market and this applies to even the luxury malls in the country. The last three-four months have been bad for luxury brands as the market is still not ready for them,” observes Mr Marya.

With recent reports of the Murjani group planning to divest brands such as Gucci, the luxury segment has been under threat and it is the premium brands which still have a chance in the Indian market. At the same time, joint ventures formed for premium brands such as Etam (with the Future group) and Gas (with Raymonds) might still look for new joint venture partners and might also consider converting into a franchise operation.

“It is unlikely that most of the joint ventures that have failed would like to completely exit from India. Companies such as Gas and Etam might look for new partners as they would not like to lose out in a market such as India,” claims Mr Marya.

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