After Aditya Birla Fashion and Retail (ABFRL), the Reliance group seems to be on a designer label shopping spree. Reliance Retail Venture on Tuesday announced that it has acquired a 52 percent stake in Ritika Pvt Ltd, which owns Ritu Kumar, Label Ritu Kumar, RI Ritu Kumar, aarké, and Ritu Kumar Home and Living. This the second investment by the group in a designer label in a week’s time. Last week, Reliance Brands had signed a definitive agreement with Manish Malhotra for a 40 percent minority stake in his eponymous brand.
Reliance Brands had also invested in Satya Paul and menswear ethnic label Raghavendra Rathore in the past.
ABFRL too has been making similar bets. In January this year, it took a 51 percent stake in bridal couture brand Sabyasachi, established by Kolkata-based designer Sabyasachi Mukherjee, and later in February partnered with Tarun Tahiliani, taking a 33 percent holding in his men’s ethnic wear label house. The retail major had also acquired Shantanu & Nikhil's apparel brand Finesse in 2019.
So why are retailer biggies suddenly making a beeline for designer labels?
The ethnic bet
Retail majors that had so far been focusing on western wear for men and women have of late realised the potential ethnic wear holds in the country. The market for ethnic wear was growing at a rapid pace before the pandemic derailed it, giving deep-pocketed retailers an opportunity to step in.
“Ethnic wear has become mainstream and the growth of several home-grown brands in the segment has proved that this a segment which can be organised and it is a category which signifies excellent brand recognition,” said Ankur Bisen, senior vice-president of the retail and consumer products division at management consulting firm Technopak.
The category has seen the emergence of brands such as Fabindia, Biba and W and Aurelia. According to market estimates, these brands are individually are valued at about Rs 1,000 crore.
The potential the segment holds, according to Bisen, is the reason for retail biggies acquiring couture brands. “Given the brand recall and legacy of the designer labels, it makes sense for retail majors to buy a stake in them instead of building new brands,” he added.
The lack of competition from multinational majors in the segment also makes it a lucrative bet for Indian retailers.
“Ethnic wear is a clear focus area of the company. Ethnic is the largest segment in the fashion and apparel sector with a significant profit pool,” Kumar Mangalam Birla, chairman of Aditya Birla Fashion, told shareholders at the company’s annual general meeting in September.
“It is also a sector that has strong resilience to apparel cycle fluctuations and is least impacted by competition from global brands,” he added.
Luxury in the ‘new normal’
The ethnic wear market in India, according to industry estimates, is valued at Rs 1 lakh crore, of which only 12 percent or Rs 17,000-18,000 crore falls in the organised category.
In the organised segment, 40 percent is commanded by value players such as Biba, Aurelia, Rangriti, etc., and 30 percent by premium brands such as Fabindia, Global Desi, Jaypore and others. Luxury brands account for the remaining 30 percent.
“The organised part of the ethnic wear market was growing at 20-25 percent between 2015 and 2019. The growth was fuelled by the increasing presence of designer wear in the luxury segment, growing at 40 percent year-on-year,” said Siddharth Jain, a partner at consulting firm Kearney’s India unit.
This was of course before the Covid-19 hit, which saw the segment shrink by 30-35 percent. Industry watchers indicate that due to the impact of the pandemic several of these brands might have been available at lower valuations, which gave an opening to retail majors.
“The demand for luxury products had suffered due to the pandemic so some of the companies might have been impacted,” said an industry source.
According to sources, Reliance would have bought the Ritu Kumar brands at a valuation of about Rs 300-400 crore. ABFRL had acquired Sabyasachi for Rs 398 crore, Tarun Tahiliani for Rs 67 crore and Shantanu & Nikhil's Finesse for Rs 60 crore.
Tapping the masses
The bet on these brands, however, comes with its own set of challenges. Market experts said on the one hand these brands will have to address the fragmented supply chain for the ethnic wear category while trying to move to the mass-premium segment from luxury.
“Designers like J.J. Valaya had made attempts to go mass in the past but that did not fare well given that the awareness for these brands is limited to the top 10-20 cities and the brand gets diluted as they target masses,” said Sandeep Goyal, MD, Rediffusion, and chief mentor, Indian Institute of Human Brands.
Despite the roadblocks, the ethnic luxury wear segment holds immense potential for retailers as the economy emerges from the woods with the ebbing of the second Covid wave. Experts believe the market will bounce back strongly, led by the luxury segment, with Jain of Kearney expecting it to recover and grow by 20 percent in the next four to five years.
Disclosure: Moneycontrol is a part of the Network18 group. Network18 is controlled by Independent Media Trust, of which Reliance Industries is the sole beneficiary.