PremiumNEW DELHI : Rahul Mishra, the country’s first designer to make it to the Paris Haute Couture Week —one of the most coveted fashion shows globally—has had a busy few months preparing for the latest season. In January, he presented his flower-inspired collection of jackets, gowns and ballooning tops to his global audience.
Mishra’s rise in the world of fashion has been on the back of handmade artisanal embroideries. His latest effort is a ready-to-wear line that was acquired early this year by Reliance Brands Ltd (RBL), a subsidiary of the oil-to-telecom behemoth Reliance Industries Ltd. The brand is born out a 60:40 partnership agreement between RBL and Mishra. The yet to be named brand will have Mishra as its creative director. It will market accessories, footwear, home, beauty, and jewellery collections primarily to international buyers in foreign fashion capitals such as Paris, Milan, New York and London.
“There have been many conversations over the last couple of years regarding investment in our brand. We are excited to start this new journey to grow a global ready-to-wear brand from India with Reliance Brands in whom I have found the right partner," said Mishra, who calls the partnership “democratic luxury". The partnership is only the latest in a series of aggressive moves by RBL that has bought out or tied up with close to half a dozen Indian couturiers just in 2021.
RBL is not the only company interested in boutique fashion brands. Aditya Birla Fashion and Retail Limited (ABFRL), part of the business conglomerate Aditya Birla Group, has been equally aggressive. Over time, it has built up a collection of ‘artisanal brands’ and partnerships, that includes ace designer brands such as Shantanu & Nikhil, Sabyasachi and Tarun Tahiliani.
Hot couture, cold numbers
Large corporates have always been interested in global luxury brands. Many stitched up impressive international portfolios through long-term licensing deals only to realize that the rich and discerning Indian customer still preferred to shop abroad when it came to western luxury brands. Heavily taxed India was never really a destination of choice for international luxury purchases. But the corporates also figured out that affluent Indians splurge on ethnic luxury designer brands, particularly during big fat Indian weddings. Without such ethnic wear in the kitty, they were losing out.
In its annual report of 2020-21, ABFRL notes: “In last 4 -5 years, the rising Indian diaspora to a rise in Indian pride and trust within products of Indian origin is driving the Indian ethnic wear market, that is expected to reach ₹1.70 trillion by 2023 from a market size of ₹925 billion in 2018. Other than impetus on overall premiumization of category, this boost can also be attributed to the recession-proof wedding wear market, further augmented by increased consumption of ethnic wear for special occasions, traditional festivals and even work wear".
Ergo, ABFRL bagged arguably India’s most coveted designer Sabyasachi Mukherjee in early 2021 for ₹398 crore. The Kumar Mangalam Birla-led firm had also acquired Shantanu & Nikhil’s apparel brand Finesse for around ₹60 crore besides spending ₹67 crore for a 33.5% stake in the luxury couture business of Tarun Tahiliani. In January, the company picked up a 51% stake (for ₹90 crore) in Masaba Gupta’s House of Masaba Lifestyle Private Ltd, the entity that houses her apparel, non-apparel, beauty and personal care and accessories business under the brand ‘Masaba’.
RBL, however, has managed to bag many more brands in its kitty in a much shorter time. It acquired Satya Paul when it bought out L Catterton Asia’s 40% stake in Genesis Luxury in 2017. Last year itself, RBL bought out or tied up with close to half a dozen Indian couturiers.
In October last year, Reliance Retail Ventures Ltd (RRVL)—the holding company of RBL —acquired a majority stake in fashion designer Ritu Kumar’s Ritika Pvt Ltd. The size of the deal was not disclosed, but RRVL acquired a little more than 52% of the company. A few days before that deal, RBL agreed to buy a 40% stake in MM Styles Pvt Ltd, owned by Bollywood favourite Manish Malhotra. Beyond plain vanilla acquisitions, RBL has also taken the strategic route. It teamed up with designer Anamika Khanna to create AK-OK in a 60:40 joint venture for owning and developing the brand. This week, RRVL also acquired a majority stake in fashion brand Abraham & Thakore.
This isn’t the first time that RBL or the ABFRL have gone shopping. RBL’s long list of acquisitions began with international brands. Until the pandemic hit, it had a heady list of 21 foreign labels that it had licensed besides 34 brands it had brought to the country and operated either in the form of joint ventures or long-term master franchise agreements. Today, it has 47 brands in its portfolio including the likes of Burberry, Bally, Ermenegildo Zegna, Pottery Barn and Jimmy Choo.
The market seems a tad indifferent in this season of designer mergers and acquisitions as evidenced by the red ink of the balance sheets. For instance, RBL posted a net loss of ₹211.2 crore in 2020-21 as against a loss of ₹176.88 crore in 2019-20, according to the company’s filings to the registrar of companies. The company’s total income decreased by 26.29% to ₹796.14 crore from ₹1,080.11 crore in 2019-20.
Sales figures for ABFRL in 2020-21 stood at ₹5,249 crore, down 40% compared to 2019-20. EBITDA for 2020-21 was ₹628 crore, which is just about half of that clocked in the previous year. Net loss for the company widened to ₹736 crore from ₹165 crores in 2019-20.
The behemoth & the boutique
Business logic notwithstanding, the current wave of consolidation in Indian hot couture is also necessitated by brutal market realities. Designers are increasingly being forced to “corporatize" and migrate to the formal economy as the covid pandemic hacked away at their cash lifeline. Many designers that Mint spoke to admitted that they are paid mostly in cash for big ticket events and weddings. The pandemic and the slowdown slashed the “take home margins" for designers and this formalization of purchases is putting increasing pressure on them to corporatize.
Navroz Mahudawala, managing director of Mumbai-based Candle Partners, an investment banking and advisory services firm, said a large part of the purchases of luxury wear, especially in the apparel space, has been linked to weddings. Due to the turmoil in the wedding business, customer spending has been restricted. “While margins have been coming down for several designers, the last two years of losses aggravated the scenario. Popularity of brands like Manyavar and Fabindia apparel (and their price points) have also made a sizeable difference," he added.
Bimal Sharma, head of retail, advisory and transactions services at CBRE South Asia, said that in the current business landscape, brands and retailers alike are rethinking their business strategies: not only to meet the evolving customer demand but also to increase profitability.
It is the right time for designers to capitalize on the brand value they have created. Brand consolidation is one such step taken to boost reach and marketability. In most cases, ace designers will continue to function independently of the larger conglomerate, but they can now scale up at a much faster pace, thanks to stronger financial backing. On their part, larger conglomerates have not just gained a brand name, but the talent for growth. In fact, such brands, in the future, can cater to the larger luxury clientele globally, said Sharma.
Aping the trend
The wave of consolidation is also great news for independent retail outlets whose single biggest issue has been supply, and not demand.
Abhishek (Monty) Agarwal, founder of Purple Style Labs that runs multi-brand distribution website Pernia’s Pop-Up Shop, said as more and more designers get organized, it makes for a smooth supply of stock. “That is what a distributor like us wants at the end of the day because our industry does not have a demand problem. There are supply issues. We have enough buyers but not enough products," said Agarwal. In 2020, Purple Style Labs acquired resort wear label Wendell Rodricks.
“It is definitely great for the longer-term vision of the industry and if we compare what is happening here with what happened in the west in the 1980s, you will see many similarities," he added.
Agarwal is referring to two of the biggest corporate fashion houses Pinault-Printemps-Redoute (PPR) that now goes by the name Kering Group, and LVMH Moët Hennessy Louis Vuitton, the French holding multinational corporation headquartered in Paris. Brands that are now owned by these businesses were originally run by promoter families themselves. These existed as relatively smaller regional brands until they were brought under a bigger corporate umbrella.
By the 1990s and in the early 2000s, these groups ensured that any brand which was not able to grow multi-fold on its own could be a part of the house and grow. It all began when PPR took a 42% stake in Gucci Group NV. It then took over brands like Bottega Veneta, Balenciaga and established partnerships with brands like Alexander McQueen and Stella McCartney in the early 2000s. It later bought out Yves Saint Laurent which is now known as Saint Laurent Paris, YSL Beauty and Sergio Rossi.
Boussac group, which owned Christian Dior in 1984, was bought out by Bernard Arnault of LVMH in association with a group of investors. The company has brands like LV, Marc Jacobs, Givenchy, Kenzo, Berluti and Fendi under its belt.
That brings us to another unique conundrum. The boutique designer shops became what they are today mostly because they didn’t have to compromise when it came to their creative freedom. Now that many are becoming part of a Reliance or a Birla Group venture, will they end up becoming run of the mill?
Purple Style Labs’ Agarwal said that is a wrong notion pushed by skeptics. “It doesn’t work that way. A buyer is not foolish," he added, citing the example of Pernia’s Pop-Up Shop. It has been three-and- a-half years since the company bought out the Shop and today, they have scaled it 50 times of what it used to be.
If a brand wants to grow itself into a Ralph Lauren or a Tommy Hilfiger, then obviously they will have to pursue more mass styles, Agarwal held. But if they want to pursue the journey of luxury brands such as Chanel, Louis Vuitton or Hermes, then they don’t have to become ‘mass’ at all. “It’s not forced upon them. Maybe, the bigger corporates think that way for one of their brands. Not necessarily for the others," added Agarwal.
The business houses believe that it’s not always the value that defines how large they are, but also the potential that the brand holds. RBL president Darshan Mehta has a business term for this: patient money.
“There have been, globally and otherwise, what I call failed marriages. There have been successful marriages and I don’t think there is one common geographical template to it. Fashion is something that requires patient money. In fact, anything that is of substance will require, for want of a better word, patient money. And that’s what we bring to the table," Mehta had told Mint in an earlier interview. The fact that we are not a fund…this is not only patient money, this also strategic money because this is a business that we truly understand," he said.
Sharma of CBRE said he saw great potential for this acquired talent to create more mainstream brands that target the upper-middle class–similar to notable western brands popular in India today.
“I foresee many such consolidations in the future, owing to the benefits and advantages gained by the first movers," he said.
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