NEW YORK — America’s oldest retailer is jumping into the Indian market.
Brooks Brothers Group has formed a joint venture with Reliance Brands Ltd. to open monobrand stores in India. The first three stores will open this fall and the companies expect to operate multiple units in the country’s 10 largest cities within three years.
Under the terms of the deal, Brooks Brothers will hold a 51 percent equity stake and Reliance will own the remainder. Reliance, part of the Reliance Industries Group, was formed in late 2007 to launch and build business with apparel, footwear and other lifestyle brands in the premium to luxury segment. Its current portfolio includes Ermenegildo Zegna, Thomas Pink, Kenneth Cole, Paul & Shark, Timberland, Diesel, British toy store Hamleys, Steve Madden, Superdry and Quiksilver. Its most recent deal was with Iconix Brand Group and its 25-plus labels.
“We have partnered with Reliance Brands Ltd. because of their passion for the Brooks Brothers brand, their track record with other premium brands, and their expertise and connections within India,” said Claudio Del Vecchio, chairman and chief executive officer of Brooks Brothers.
Darshan Mehta, president and ceo of Reliance Brands Ltd., said he has been talking to Brooks Brothers for several years about “planting more geographical flags outside of Europe, particularly in Asia.” But the idea really took off after Brooks Brothers appointed a managing director for the Asia-Pacific region about two years ago. “This was the logical next step,” said Mehta.
Paulette Garafolo, president of international, wholesale and manufacturing for Brooks Brothers, called India “the next China. There’s a lot of wealth and a large middle class. That plays into Brooks Brothers’ strength. There’s a huge professional community, much larger than China’s, the educational level is much higher and it’s a democracy.”
Mehta said the country counts a large number of “gold-collar professionals — top level people earning world-class salaries.” Many of these people have been educated in the U.S. or the U.K., “so the recognition of Brooks Brothers is very high.”
Brooks Brothers operates 210 stores in the U.S., and 200 in other countries, including Korea, Japan, China, Taiwan, Singapore, France, the U.K., Chile, Canada, Italy, Mexico and Greece. Garafolo said that with the exception of Japan, also a joint venture, all of Brooks Brothers’ other international associations are either licensing deals or run by operating partners. “But we believe India has such long-term growth potential, we created a joint venture,” he said.
Mehta said that under current Indian law, a foreign company can own up to 51 percent of a mono-brand retail business. However, the government is considering changing the regulation to allow non-Indian companies to own 100 percent of their retail businesses in India.
He said the first Brooks Brothers stores will open in Chandigarh, Elante and Delhi later this year. The Chandigarh unit will be 3,600-square-feet in a new luxury mall currently being built by Larsen & Toubro. The other two units will be 1,800 square feet.
Mehta said the Chandigarh store will be an anchor in the mall, which he said “has the potential to be one of the finest malls in India. And we have a great location.”
Chandigarh is “one of the markets that sets trends,” he added, and has one of the highest per capita income levels in the country. “The local customer there embraces new brands,” he said. “And it actually has a winter. The weather in India is usually hot or raining, but Chandigarh has two seasons which should be good for selling coats and suits.”
For the first season, the stores will carry men’s wear exclusively, including the Thom Browne-designed Black Fleece collection. Women’s and children’s wear will be added next year.
Mehta said that within 10 years, the joint venture could potentially operate as many as 100 stores. But the first phase will target the most international cities: Delhi, Chandigarh and Ludhiana in the North; Bangalore, Chennai (formerly Madras), and Hyderabad in the South; Bombay, Dune and Ahmedabad in the West, and Kolkatta in the East.
“These are the 10 cities with the purchasing power and aspirations [for international brands],” Mehta said. “That’s our footprint.”
Because these cities are so large — Mehta said small cities in India house 1 million people and large ones around 12 to 15 million — the companies could easily operate numerous stores in each city.
India’s luxury market is currently estimated at around $6 billion and growing at 20 percent a year, according to Sumeet Yadav, head of international business development for Reliance Brands. U.S. brands account for $2 billion of that figure, a number that is expected to jump to $5.5 billion by 2015. India currently has about 5 million households with annual income of $85,000, whose members actively purchase premium and luxury products, he said. It also has 50 million households characterized as middle class, and that number is expected to reach 583 million by 2025, he said. India was ranked fourth in the world in purchasing power parity, and is expected to jump to number two, after China, by 2050.
According to Tushar Poddar, managing director and chief India economist at Goldman Sachs, India will play an increasing role in the global economy as demand from a growing working-age population will continue to drive consumption. He projects that India will add about 100 million workers to its labor force over the next few decades, more than the U.S., China, Russia and Japan combined.
There are concerns, however. Crisil Research, an independent research house in India, on Monday lowered India’s gross domestic product growth forecast for 2012 to 2013 to 6.5 percent from its estimate of 7 percent in March, due in part to risks of a recession from the Eurozone that would result in slowing export demand, domestic policy logjam and a limited fiscal action to stimulate the economy.
Jean-Marc Bellaiche, senior partner at Boston Consulting Group, said Monday, “Fifteen years ago, everyone was talking about growth in China and India. Today, India is still behind China. Growth [in consumer spending] has to come with change in the infrastructure [such as more malls and different retail formats].” Bellaiche said one important logistical problem concerns how to deliver goods to the consumer. Improved roadwork is a necessity to enable consumers to move from one place to another. “Long term, there is a big opportunity in India. Right now there is about a seven- to 10-year year lag between where China and Brazil are at [among the emerging markets] and India,” Bellaiche said.
Mehta acknowledged the issues with the Indian infrastructure, and said the country’s well-educated consumers, who have gained exposure to international brands while traveling or in the media, are also seeking a better shopping experience.
Calling Brooks Brothers “an immensely distinguished heritage brand,” he said the challenge is “how to reach consumers, not the existence of consumers. So when we set up the stores, we believe pent-up demand exists. But with fashion brands, you need to be in the correct market with the right adjacencies.”
He said Brooks Brothers is a “very classic brand” that will provide “a ladder to luxury” in the country. “Everyone has heard of Brooks Brothers,” he said. “The bigger challenge is that the stores live up to the expectations. Brands are constantly evolving and we need to present it in the most contemporary way in our store design, format and product offering.”
Reliance Industries Ltd., is India’s largest private sector company with sales of $66.8 billion and profits of $3.9 billion. It ranks 119th among the Fortune Global 500 companies.