Brand building crucial in JV

Why do some international tie-ups fall apart? If we look at the hyped JVs between Indian retail stalwarts and international retail magnets, many have crumbled like a house of cards. A point in case is GAS and Raymond’s failed marriage. Having started in November 2006, GAS decided to pull back after incurring losses for two consecutive years. Experts commented that the pricing strategy and brand positioning went wrong. A new concept like catalogue retailing through UK-based Argos of the Home Retail Group in partnership with Raheja Group-owned HyperCity too failed after managing to barely sustain itself and the British retailer ultimately quit India.  More recently, DLF Brands has called off its alliance with Italian luxury leather and luggage accessories brand, Piquadro. The development puts brake on its business plan of setting up single brand outlets in India through a JV of 51:49. DLF Brands spokesperson feels India is not yet ready for such a top-end but less-known brand.

What do we conclude from these incidents? Big Indian players in the corporate world have manpower and financial resources to sustain themselves but are not cautious enough when inking joint ventures. Indian players leverage too much on the brand value of the foreign counterparts rather than devoting themselves to tough brand building exercise which results in rapid expansion and unrealistically projected break-even period. As a result, the usual concept of growing from small to big is reversed from big to forgettable.

Large Groups, Multiple Plans

Recent developments show large corporate players with bigger game plans for ushering foreign brands in the country are today scaling down their initiatives, resizing them to the basic level with shop-in-shop formats as point of sales rather than standalones. Future Group pulled back from the joint venture with Lee Cooper and preferred to be the licensee of the same, opening up some standalone stores. But after failing to deliver the expected sales, the company has decided to minimize the cost of operation by accommodating the brand in its other retail formats like Central, Big Bazaar and Pantaloons as shop-in-shop format. Future Retail has also severed its tieup with Italian denim brand Replay and French brand Etam with closure of its standalone stores. Walt Disney Group did not feel the necessity to renew the licensing deal with RK Jaipuria Group for the operation of its stationery retail outlets. “It’s a part of our business strategy and we have more than 100 manufacturers as our licensees and we’re growing in that way,” informs a Disney official. 

Cautious Treading!

The Arvind-Murjani Brands-promoted Tommy Hilfiger apparel line is consolidating its position in the premium range market. Instead of plunging in a full-fledged joint venture, Arvind Murjani Brands is happy to be the sub-licensee of Tommy Hilfiger and Tommy Hilfiger is in no hurry to pump in money to build a business empire. Royalties and brand presence are sufficient as of now. The leading international lifestyle brand Esprit has preferred to tread the safer path as it forged a strategic partnership with Madura Garments through licensing agreement. The brand has been growing without many hiccups. Setting aside any buzz of joint venture that primarily requires holding stocks, Esprit is taking time to do the groundwork meanwhile earning through royalties.

Mid-size companies more alluring

As foreign retailers carefully assess the Indian retail segment for investments, joint ventures with small- and medium-sized retail companies are likely to be in an advantageous position. Small & medium companies are learning new methods of innovation and improvisation and successfully co-exist with these large retailers in India. In the food service sector, McDonald’s has now integrated itself to the Indian culture. The Indian partners ensured brand promotion was always set on high pitch while keeping the brand identity intact and there was no clash of brand philosophy between the principal company and the Indian partners. Domino’s Pizza too entered India through franchise route partnering with a mid-sized company, Jubilant Organosys. Take some examples from the kidswear industry: unlike the big brothers, mid-sized companies are slowly yet steadily building up their business in alliance with their overseas partners. Most of these mid-sized companies started off as exporters and after gaining some fame as a quality supplier, they are tying up with some overseas brand. These brands, like Kanz, Milou or Zudaas France are gradually carving their space in the mid-segment position. Lerros-House of Pearl Fashion Limited joint venture also signalled the single-direction brand building task where House of Pearl basks in the glory of Lerros. This premium brand from Germany has already set up seven exclusive outlets and approximately 40 shop-in-shops.