Beyond break-up blues

The Indian market is too alluring for global apparel brands to stay away from. But their ambitions can turn sour when they try to fit in without being locally relevant.

This is perhaps best explained by Esprit’s divorce with Madura Fashion & Lifestyle when the two called off their seven-year-old distribution agreement, despite last-ditch efforts.

As Ashish Dikshit, CEO, Madura, said in a statement, “After reviewing the performance of the business, Madura and Esprit have mutually agreed not to renew the contract after the distribution agreement expired earlier this year. The retail stores will continue to be operational till the end of this year.”

A few Esprit stores have already been converted into stores of Madura’s brands. According to industry sources, Esprit’s revenues in India were around Rs 70-80 crore and the brand has been making losses of Rs 25 crore every year. The brand had reached Rs 60 crore four years ago, but remained stagnant since then, say sources.

“It is not as if the choice of partner was wrong. The Aditya Birla group is a well-known name and its retail capability is no less than any other player’s. Globally, Esprit is struggling across markets and it needs to re-look its approach to retailing,” says Ankur Bisen, Associate Vice-President, Technopak Advisors.

Esprit, whose European headquarters are in Germany and Asian base is in Hong Kong, tried to push globally-made products, sourced at higher prices, into the Indian market, says Bisen. Coupled with high import duty, Esprit products became too expensive for the Indian consumer. At Rs 2,500-3,000 a shirt, Esprit was always more expensive than its peers such as Mango or Zara. Esprit is a mid-segment premium brand, not a luxury one, and the prices didn’t reflect that.

“I can buy a Tommy Hilfiger shirt for Rs 1,500 and my wife can buy a Zara top for as little as Rs 800,” says Siddharth Gupta, a mall-hopping techie. “And if I am in the mood for luxury products, I would go to a Gant or J. Crew.”

Buy local

Retailers such as Marks & Spencer, Benetton and Tommy Hilfiger have learnt that to succeed in India, it is important to get the pricing right and that is possible only by sourcing from local vendors. Today, these brands source more than 60 per cent of their wares from India.

Tommy Hilfiger is reportedly one of the best selling international brands at multi-brand stores such as Kapsons and Shoppers Stop. Its exclusive outlets too are doing well. M&S too seems to be getting its act together, having brought down prices.

When getting customers to the store itself was proving to be difficult, despite huge discounts and end-of-season sales, high rentals made life more difficult for Esprit. “It was not sustainable for Esprit to be present at expensive malls and on high streets with huge sizes of 8,000 to 10,000 sq. ft.,” says Raghu Viswanath of Vertebrand Management Consulting.

Esprit was perhaps expecting good sales per square foot when it signed on expensive properties. When that didn’t happen, the brand burnt its fingers. Also, the strategy of having new merchandise every month wasn’t viable, says an industry peer.

Brands need to realise it is important to make each store count, says J. Suresh, CEO, Arvind Lifestyle Brands, which has got licensing arrangements of American lifestyle brand Nautica and British fashion retailers Debenhams and Next from Planet Retail.

“We will take a measured approach while opening stores and make sure each store is profitable. We have examples of successful brands in US Polo and Gant. We opened only two Gant stores in the fashion-conscious markets of Delhi and Chandigarh. Only now we are opening in Bangalore and Mumbai. Had we mindlessly opened stores, we would have incurred losses.”

Format matters

Arvind will open six stores of Nautica and two of Debenhams this year. “We will also explore the shop-in-shop model for Nautica,” says Suresh.

“The shop-in-shop model, as well as multi-brand product retailing, gives better return on investments compared to exclusive brand outlets,” says Viswanath.

Global brands also need to customise the product portfolio to suit the heterogeneous Indian sensibilities and sizes, while retaining the international flavour. “Many brands are also guilty of making India a dumping ground by bringing in the off-fashion, out-of-vogue stuff to India after their run in the Western world and expect the Indian market to lap it up. The well-heeled Indian knows what is happening outside India and expects the same products to be available in India as well,” says Viswanath.

Esprit-Madura is not a stray case making the headlines. Reportedly, Milan-based Gianni Versace has also snapped ties with Blues Clothing Company. A few years ago, UK retailer Marks & Spencer UK ended its franchisee with Planet Retail and joined hands with Reliance. Last year, Tommy Hilfiger bought out the Murjani group’s stake in the Arvind Murjani Brands joint venture. Today, Arvind and Tommy have a 50:50 joint venture in India.

When there is a mismatch of aspirations and expectations, brands must be willing to reassess the capability of their partners. “Planet Retail was perhaps not ready to expand as much as Marks & Spencer wanted to. So M&S decided to go with a bigger name which would foster its ambition to grow faster,” says Technopak’s Bisen.

Hurry won’t help

Indian partners have come out of their trading mentality and want to be treated as an equal partner. Unfortunately, “Indian partners also want a quick turnaround of things and view most opportunities as a T20 rather than as a test match. Indian partners expect the international brands to invest in brand-building, while international brands want everything to be managed within the revenue /profit model,” says Vertebrand’s Viswanath.

Many global brands assume that since they are known the world over, Indian consumers will accept them immediately. International brands cannot simply hope to ride on their global legacy. They often need to build their brands from scratch in India.

“While some international brands might have instant recognition, most brands fall short. Unless brand-building efforts are made, there is no way they can get customer franchise,” advises Viswanath.

It is important to keep in mind that home-grown players and brands are also sprucing up their capability to roll out stores faster, get their retail ambience and service right.

Finally, patience is the key. “Unless an international brand has deep pockets and the patience to wait and watch, the possibility of success is distant,” says Viswanath.

Can Esprit, which is pulling out of India for now, learn its lessons well enough to come back with a bang? Perhaps, if the esprit is willing.

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