Less than a year after it opened, Sephora in India has changed hands.

Ravi Thakran, managing partner of L Capital Asia — the LVMH Moët Hennessy Louis Vuitton-sponsored private equity fund — spoke to WWD about the reasons for such a quick change and about the perception of beauty and the response to Sephora in India.

He also talked about some important investment factors with the upcoming elections in India beginning next month, the changing investment climate and how L Capital is looking at India and other Asian countries, including China, in 2014. Thakran spoke about the fact that no new investments were made in India last year, even though Fabindia, PVR and Genesis, the three previous investments, were being watched closely, and some of the key points about Genesis, which has been the star company that has been growing premium and luxury brands in India including Emporio Armani, Burberry and Jimmy Choo.

WWD: Everyone thought it was just a rumor, that Sephora was changing hands from Genesis to DLF Brands.

Ravi Thakran:
No, it has actually happened. It changed hands in December and the transition for Sephora in India is complete at this time.

The new partners are DLF Brands and now we’re looking to grow Sephora in a big way and will look at opening approximately 35 to 40 stores in India over the next four to five years. It did very well as a concept and we will be looking at launching 20 to 25 brands in the Indian market every year for the next two years. Now Sephora is looking to accelerate its growth in a big way. We’re also looking at bigger stores.

After that, we will reduce the number of brands we launch. That will be a huge thing because there is no concept in the world that brings new brands to the market like Sephora does; there is no brand that brings as much excitement and education as we do.

Why the change in partners in such a short time?

R.T.: We have rarely ever changed our partners in any country, but for us, consumers come first. And if our partner is having some challenges and is not able to satisfy customers, we need to change because the customer should have the best experience.

We realized that if Sephora cannot keep growing, it needs to change hands and that’s why the change of hands has happened and we’re working with DLF Brands. We have already planned six more stores that will happen in 2014.
WWD: Was it a hard decision, to make this change?

R.T.: It was. It’s unfortunate, but there were a lot of issues that needed to be resolved.

WWD: But in fact some analysts are saying that DLF Brands doesn’t know beauty markets either. Doesn’t that make it a bigger risk for you?

R.T.: Well, not really because overall the way we have constructed the whole thing, in terms of training, store operations, etc., they will take a lot of guidance from us. Even today if you go to the store in Saket [Delhi], it is very different from what you would have seen one month ago. This is just within a few weeks, the attitude of the staff, the stocks, the testers, everything has changed.

WWD: Would you be looking at making an acquisition of an existing beauty format — for example, Parcos — to grow Sephora faster?

R.T.: No, this is a new build-up. We believe that Parcos is just a fragrance concept. Our concept is already the best, there is no need to go and acquire somebody, destroy it and then convert to Sephora. We would rather build on our own, 100 percent.

WWD: How does the beauty market in India compare with other Asian countries?

R.T.: I think India is poised for a substantial growth of  beauty. The potential and the opportunity in India is humongous. But it is all a relative game, really. If you compare India with China, it is still a very small market, more so when it comes to prestige and the luxury segment — but it is a very high growth market.

The attitudes of young people have changed completely. I remember my young days wearing a perfume was considered loud and people would wear makeup only for marriages or special occasions, not for going out every evening for parties. Earlier they would use only lipstick or moisturizer, but today young people, they love looking after themselves.

I really believe that beauty is the best segment for LVMH to focus on not only through Sephora but through other brands as well, through Dior, Benefit, Make Up For Ever, Fresh, all of those. This is the biggest opportunity for us in the country.

WWD: Make Up For Ever didn’t work out as a stand-alone concept in India, though, as the only stand-alone store in Mumbai was shut down?

R.T.: It’s coming back. We are going to be doing Make Up For Ever through Sephora first and then we will be doing independent stores, as well. The Sephora-Make Up For Ever  partnership works very well in most countries and we think initially we’ll go with that and later on will look at opening independent stores, as well.

WWD: There was a perception in the market that you were withdrawing from India in 2013.

R.T.: The rumors were only about Genesis, nothing else. With PVR, we have tripled our value in one year. We invested at 200 rupees [$3.25 at current exchange], now shares are 600 rupees-plus [$9.60] in one year; we are doing phenomenally well on Fabindia.

WWD: Does this mean you are withdrawing from Genesis?

R.T.: It’s not that we have withdrawn from Genesis — no; we’re very much here. We want them to manage the company better, and we want them to bring in some investment from their side. As 40 percent shareholders, we cannot keep fueling the company. If they are not able to do this, then they need to find a buyer who can take up their share — there are a lot of people who are interested who would want to participate with L Capital to take the company forward.

Our view to them is: “Guys, either you buy us out and you run the company, or you sell to another party. It cannot be that you do not invest.” That’s the stalemate at this time.

Are we unhappy with Genesis? For sure. We are not happy because they are not able to move at the pace we would like them to move, and not able to add value because of the constraint on capital and we alone cannot solve that.

WWD: Is part of the trouble the fact that they are addressing a slower-moving luxury market?

R.T.: Not really. As I said, business per se is OK. They have a good set of brands. For example, in Armani, Giorgio Armani may be difficult, but Emporio Armani is very good.  Similarly, brands like Michael Kors, Bottega Veneta, they are doing well. Jimmy Choo, yes, they may have a limited number of stores, but a lot of the other brands are doing well.

You’re not worried about the fact that luxury itself is slow in India?

No, not at all. We do very well in the luxury market with Vuitton, Dior, Fendi, etc. Better brands will always do well, better-managed businesses will always do well even in a constrained market like this.

WWD: With the elections due this year, are you slowing down growth or looking at India more cautiously?

R.T.: Not really. In fact, we are of the opinion that India is at an inflection point and I think things could only go better from here. I think overall the fundamentals are good and consumption is a very large part of the economy and we certainly believe it that from a business point of view, it is a good time. Because once it gets bullish, the Indian sentiment gets just too bullish and when India gets bearish it gets too bearish — it moves in quick swings.

As of now, we believe it is a good time to invest, valuations are becoming more reasonable, there is less availability of capital in the market, so from an investment point of view, you can invest at a much better value equation at this time. And then if you believe the next four to five years will be good, then it’s a great way to build business at this time.
So, we are not slowing down because of elections at all.

Yet, hasn’t the falling rupee made the going much tougher for international brands in terms of pricing and sales?

We believe that the rupee should get better. We certainly believe that the moves taken by the new Reserve Bank of India governor are good ones. There is a lot of faith in him in the international community and we believe that overall the stewardship will lead the whole mechanism to be better managed and therefore the rupee should come back.

WWD: Is the fact that L Capital did not make any investments in 2013 indicative of a loss of confidence in India?

R.T.: Well, we took a pause in 2013 and did not invest but we were still looking to deploy $250 to $300 million in India. If needed, we could deploy more if we have better opportunities.

We still believe in the consumption side of the Indian economy and are focused only on that. We still believe that that side of the economy will continue to get power whereas infrastructure and others are still weak and they need a lot of intervention.
Now India is at a pretty scary moment but I think from the point of view of a private investor it is good to pick up that bearish swing and invest in that period and we believe that 2014 is that period.

WWD: L Capital was looking at investing in Indian designers as a separate project?

R.T.: Indian designers — as a separate project — is still in place. We are talking to two or three of them and may take several of them on board. We had two plans: One was to do something with Genesis Indian designers, which we have shelved indirectly but the plan to invest in Indian designers directly, that is still there. The problem with some of the designers was that their businesses are not very well organized and they have a very good facade, a very good face in the market; they are big celebrities and are very much talked about, but their business in the back is not organized at all. So some of them are getting their logistics in place before talking to us because we need to have a complete handle on the business and do due diligence properly.

WWD: You mentioned that you’re very happy with the way Fabindia is coming along. What makes this work for you?

R.T.: It’s been about various things. They have invested in a company called Organic India and Bandhage from Ahmedabad. The acquisition is one, second is merchandising, third is opening new stores, fourth is opening much better-looking renovated stores with better layout, much better customer service. So all these things. Then, in each of the product segments, whether it is men’s or women’s or personal care or food, there is a lot of work being done and Fabindia overall has done an incredible job in 2013. In fact, Fabindia is now poised for a takeoff going forward. It’s a great team, great leadership. A key difference is the team.

What kind of investments are you looking at in other parts of Asia?

R.T.: We’re looking at investing at least $500 million in China, which is the number-one focus for us. There is still a lot of growth in that market even though there is a slowdown in China on some fronts; particularly, there is a housing bubble building up and it has yet to be seen how they will land on that one. There is a credit bubble as well — particularly at the provincial level, a huge amount of credit is building up. So all those fault lines are there, but still I would say, relative to all the markets, it is doing well and we will certainly continue our focus of investing in China. The other new focus area which we have not worked on so far is Indonesia, Vietnam — all of Southeast Asia. We did not bother that much about it before. Now we’re looking at a minimum $250 to $300 million for Southeast Asia and $250 to $300 million for India.

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