Brands is a long gestation business, needs deep pockets to grow: Darshan Mehta
Reliance Brands, a unit of Reliance Retail, has been aggressively forming joint ventures (JVs) and distribution agreements with international brands — such as Quicksilver and Brooks Brothers, among others — in the fashion space. It has signed up with a dozen brands so far. Chief Executive Officer Reliance Brands Darshan Mehta discusses the company’s plans and strategy with Raghavendra Kamath. Edited excerpts:
You have formed so many JVs and distribution agreements with international brands. What are you trying to do with Reliance Brands?
We are trying to create value in the business and build a portfolio of brands though we are not stuck with any one segment. We have brands across luxury, affordable luxury and high premium. At higher end, customers are aspiring for international brands and we are tapping that opportunity.
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Are you planning to bring any other brands in the current financial year?
Certainly we are trying to bring more brands but I cannot give you a time frame. We negotiate with brands and sign with them. When time is right, we announce that. Sometimes the negotiations fructify earlier, sometimes they take time. For instance, last year we announced two partnerships, and this year we have announced four.
Earlier this year, an agreement with the UK’s Hamley’s came to Reliance Brands from Reliance Retail. Are you looking beyond fashion, to diversify into other areas?
We are in the business of launching and developing brands. As market opportunity changes, we will take a call. Currently, we are focusing only on fashion. Five years down the line, we could look beyond fashion. As regards Hamleys, we have realised that our expertise lies beyond fashion and it lies in customer delight. We have re-energised Hamley’s stores. We have taken toy out of the boxes and created drama in theatre like environment which boosted the sales.
Reliance Brands has incurred losses of Rs 18.07 crore in 2011-12. When do you expect to break even?
The day we stop growing, we will become profitable. Every baby (brands) needs time to grow. This is a long gestation business and needs deep pockets to grow.
What has the impact of the economic slowdown been on your business? What are you doing to improve sales?
We have not felt any impact till now, but we can get impacted in the future. For the period between January and July 2012, we are ahead of our budgets. We have not extended our sale by a day. How many people can buy or are willing to buy jeans of Rs 15,000 a pair, given that fashion is part of discretionary spending! Brands have to work hard to sell. Besides, we are doing various things to sell our brands in small cities.
You had plans to invest in Indian designer brands and labels. Why could you not progress on that?
First, there was an issue with size. We had spoken to all 10-15 top Indian brands and found that they were doing very small business, to the size of Rs 20 crore. Today, with Rs 20 crore, you can’t even buy a four- bed room apartment in a place like South Mumbai. Most of the designers do wedding business with a billing of Rs 2 crore to Rs 4 crore. It is a private bespoke business which do not guarantee continuous cash flows. Then there was an issue of corporate governance. When private equity funding comes, you need to have a professional board, CEO and CFO. Then top ones want to go abroad and do business there when the entire world is coming to India. It does not mean that five years down the line, we will not invest in them. Indian designers have a lot of talent, but they are trapped.
The government has received six proposals for 51 per cent foreign direct investment (FDI) in single brand retail and only two for 100 per cent, after the government removed FDI curbs. What is your take on that?
My belief is that FDI in retail will not change the sectoral landscape and bring in hundreds of brands here. The Indian retail market is a complex one which needs real partners. In fact, after the government allowed 100 per cent FDI in single brand, we have announced two joint ventures. Quicksilver, with which we have distribution agreement, has approached the government to own 51 per cent in Indian business with us.