Mid-sized global brands like UK-based Dorothy Perkins and Raised on Denim are increasingly opting for tie ups with leading e-retailers, as part of their entry strategy for the local market. No doubt, this strategy helps these global brands to reach consumers on a pan India basis, but at the same time they do not need to incur large costs related to setting up a distribution network.In addition, this strategy helps foreign brands to overcome the local sourcing norms.
As a result, Dorothy Perkins entered into an agreement with Jabong, while Myntra has launched more than ten global brands in the country including Supra, Raised on Denim and Stanley Kane.
Arun Mohan, Chief Executive and Co-Founder at Jabong, in a recent media interaction, said, “These brands considered an entry via brick-and-mortar stores, but online operations seemed more viable.”
Ganesh Subramanian, Chief Operating Officer at Myntra stressed that they plan to expand their repertoire through this strategy.
Media reports also indicate that the global giant Walmart is also planning to launch its online ‘platform’, but details are sketchy.
High infrastructure costs
Store rentals often account for 20-25 per cent of total operating costs for brands, and a key factor in putting operating margins under pressure for the broader retail sector over the past few years. As a result, retail consultants stressed that global brands are increasingly evaluating “alternative” entry strategies for the local market.
Karan Ahluwalia, Chairman, ASSOCHAM National Council on Luxury, said, “Rentals at high streets locations and popular malls are rather high, and limit the viability of new entrants.”
Striking a similar view, Sanjay Kapoor, Managing Director, Genesis Luxury, said, “Shortage of high quality standalone retail outlets is a cause of worry.
Overcoming regulatory requirements
Overseas brands also need to conform to 30 per cent local sourcing requirements in multi-brand retail, and in several cases, senior managers at these MNCs have expressed their inability to confirm to this norm. As a result, retail consultants point out that tie ups with e-retailers, substantially simplifies the day-to-day operating requirements for foreign brands.
However, the import duty on these products is high, and it limits the target audience for these products. Tarun Shienh, Co-chairman, ASSOCHAM National Council on Luxury, said, “No doubt duties have declines over the years, but they are still very high.”
Nevertheless, foreign brands are wooing e-retailers in their India-centric strategy