The $100 billion branded fashion and apparel industry in India is in upheaval as corporate behemoths are snapping up niche, regional, boutique and pan-India brands to add to their portfolio and scale up rapidly.

There was a time when companies grew brands and products the hard way, organically, over decades, gaining market share, reach, and brand recall until it became irrevocably embedded in consumers’ minds. Now, the strategy — at least in fashion retail — is to buy existing well-established brands and expand businesses.

Weaving big plans

Last month. Aditya Birla Fashion Retail (ABFRL) signed an agreement to buy out premium women’s ethnic wear retailer TCNS Clothing for close to ₹3,000 crore (including ₹1,650 crore for an initial 51 per cent stake), its fifth acquisition since 2019 and the largest to date. Before TCNS, the company had spent ₹2,300 crore on acquisitions that were strategically filling gaps in its portfolio of brands.

Ashish Dikshit, MD and CEO, ABFRL, speaking to businessline after the acquisition, had said that the company has been taking “several, very careful sequence of steps” to build its comprehensive ethnic portfolio across the spectrum from the affordable to the premium.

Reliance Industries, a recent entrant to the segment, is powering ahead through acquisitions, partnerships, joint ventures and franchise agreements. The company has spent thousands of crores of rupees in its acquisitions, one or two of them going over ₹3,000 crore. The group has a lot at stake because it has billions of dollars of foreign investor money riding on it, including KKR, Mubadala, General Atlantic and TPG.

“India is a growth market and there are a lot of opportunities,” says BS Nagesh, former head of Shoppers Stop. “But it is a market that takes time and capital to grow brands and brand building is very tedious because cost of customer acquisitions has shot up. If it makes sense financially then mergers and acquisitions are a good way to go forward,” he adds.

In the premium branded fashion apparel wear market, there is little customer loyalty while creating a brand takes a long time.

But there is money to be made. According to Jay Gandhi of HDFC Securities, if done well the premium ethnic wear segment has the potential to deliver operating margins of 12-15 per cent, compared to 8-9 per cent in the value segment. Hence, the acquisitions.

ABFRL: Stitching it slowly

Aditya Birla Fashion Retail came into existence in 2015 and since then its revenues have grown at a steady rate of 13 per cent annually (barring the two pandemic years). While Covid dented its profitability in the last three years the company is back in the black and expects its ethnic portfolio to record revenue of ₹5,000 crore in the next three years aided by the TCNS acquisition.

The Birlas are traditionally conservative and most of their growth is organic. However, in the fashion and apparel segment the group has taken a different tack altogether, banking on buy outs.

It started in 2016 with the Pantaloons acquisition when it brought all its branded apparels business under Aditya Birla Fashion Retail. Since then it has been doing judicious acquisitions at regular intervals such as Jaypore in 2019, majority stakes in Shantanu & Nikhil and Sabyasachi, a minority stake in Tarun Tahiliani and now TCNS.

Devanshu Bansal, research analyst with Emkay Global Financial Services, terming the TCNS buy as “not a bad deal” said that if the company had attempted to get the reach (600-plus stores in 50-odd cities) and add a topline of ₹1,800 crore organically, it would have taken considerable time.

Apart from the apparel segment ABFRL also acquired a number of online e-commerce properties such as Berrylush, Bewakoof Brands and Omega Design in order to widen its digital reach. Last year it also signed a licensing agreement with Authentic Brands Group to run and operate Reebok stores in India, making its entry into the footwear segment. It also has franchise arrangements to sell global youth fashion brand Forever 21 and American Eagle Outfitters products in India.

Nagesh points out that most companies with premium products were targeting the same consumer segment and building brand loyalty for this consumer class was difficult.

ABFRL has set a good track record for itself by successfully integrating its acquisitions as well as turning around large businesses as it did with Pantaloons.

ABFRL’s CFO Jagdish Bajaj says that the acquisitions have been done with an eye to make the company a “fashion and lifestyle powerhouse of brands.” He said that discretionary spending was on the rise post-Covid, and apparel and fashion were among the fastest rising segments, growing annually at 15 per cent.

Reliance Retail – Threading ahead

A significant chunk of Reliance Retail’s revenue in the apparel segment comes from its value fashion portfolio. The Reliance Industries group has so far not been very successful in creating a consumer brand. And in the branded fashion segment it has adopted the extremely successful strategy of acquisitions, JVs and partnerships.

It has made around 10 acquisitions and investments over the last four years spending close to $2 billion. It started off 15 years back with the formation of a joint venture with Marks & Spencer, which is a premium brand in India due to its pricing. Along the way the group has acquired lingerie retailers Clovia and Zivame, Qalara, and taken significant stakes in companies of fashion designers Ritu Kumar and Manish Malhotra among others.

The group on its own generates significant cash flows while in 2020 it raised close to ₹50,000 crore by selling 10 per cent in Reliance Retail to about eight foreign investors. The funds have been largely utilised in acquisitions and to expand its retail footprints across categories.

It has also partnered with global brands such as Gap, Armani Exchange, Diesel, Giorgio Armani to name a few.

The numbers and the names speak for themselves — Ambani’s acquisition strategy is not just to fill in the gaps in its portfolio but to be a dominant and leading player in every segment. With $28 billion in revenue, Reliance Retail is already the second fastest-growing retail company in the world. Media reports have said that the company intends to have revenues of $6.5 billion from its retail business in the next four years.

The fact that it let go of a ₹25,000-crore deal to acquire Future Group’s assets without flinching speaks volumes about the internal resources that the group has. Considering its deep pockets, for RIL the challenge lies only in identifying the best brands to add to its growing portfolio.

As HDFC Securities’ Gandhi points out, there are a number of good brands in the branded ethnic wear space that are struggling for survival due to an inefficient cost structure. There is room for more acquisitions out there.