NEW DELHI, India — Call it the biggest shake-up in the luxury sector in India in the last decade: In September, Genesis Luxury, which has brought more than a dozen global brands into the country — from Giorgio Armani to Coach and Canali — found itself with a new board member.
The surprise was that said board member came from one of the company’s archrivals, Reliance Brands. The move happened after private equity firm L Catterton sold its 40 percent stake in Genesis to Reliance. The new ownership also came within weeks of Reliance’s 10th birthday.
“I had to observe confidentiality as asked for by the seller and make the next call to the Genesis management, after L Catterton themselves made the announcement,” Darshan Mehta, president and chief executive officer of Reliance Brands, told WWD.
Reliance already has more than 16 international brands in its stable, including a recently announced agreement to launch Valentino in India, with Bally and Kate Spade introduced earlier this year. The company has joint ventures with Ermenegildo Zegna, Paul & Shark, Brooks Brothers, Diesel, Muji, Gas and Iconix. Other long-term franchises include Steve Madden, Scotch & Soda, Hunkemoller, Thomas Pink, Super Dry, Juicy Couture, Kenneth Cole and Quiksilver, among others.
The price of the Genesis deal was an estimated 2.8 billion rupees, or $42 million, according to industry insiders. Mehta declined to reveal the cost of the acquisition, citing confidentiality.
Either way, analysts estimate the deal represents a healthy profit for L Catterton.
The transaction is noteworthy, too, in that it marks a final withdrawal from the investments made by the-then L Capital in India over the last six years. These included PVR, a publicly listed cinema; FabIndia, an ethnic retailer, and Genesis Luxury. L Capital became L Catterton in January 2016 with the merger of U.S. private equity firm Catterton and France-based L Capital, part of LVMH Moët Hennessy Louis Vuitton.
In an interview with WWD in March 2014, Ravi Thakran, managing partner and chairman of L Capital, noted that more needed to be done by Genesis. “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,” he said at the time. “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.”
As for the impact of the deal on India’s luxury market, Nishant Tiwary, executive vice president of Edelweiss Financial Services, noted that Reliance’s purchase of the stake in Genesis Luxury, “though unusual and a first in the Indian fashion luxury space, augurs very well for this space. It’s a sign of long-term corporate interest entering Indian luxury. Also an endorsement of the future potential and the growth head room seen here.”
Other analysts observed that it could mean Reliance eventually takes full control of Genesis, leading to a single dominant force in India’s luxury sector. In turn, that could provide Reliance and its luxury brands stronger negotiating power for retail space, which has grown increasingly scarce, especially in prime malls.
Reliance’s Mehta refuted both theories, however. “We have never been a predatory investor,” he said. “Paying a huge price to buy into a competitor with the intent to then destroy that company so that the investor company would grow would be a very stupid thing to do from a business viewpoint and we would never do that. We paid significant value to acquire this strategic stake with the intent to nurture and grow the shareholder value. We will thus do all and more as a good partner, as a good board member, towards this end. The goal for us is clearly that of value creation.”
As for improving collaboration in rent negotiations, the power of collective bargaining is already apparent in the chains of stores owned by both companies in premium malls such as Select City Walk mall in Saket, New Delhi; Ambience Mall and DLF Emporio mall in Vasant Kunj, New Delhi, and Palladium in Mumbai. Genesis has more than 50 stores in premium malls and Reliance Brands more than 200.
Mehta is also clear about the path ahead.
“Unlike a private equity fund, our strength is that we don’t have a time horizon for an exit,” he said. “While funds typically have a five- to seven-year exit timeframe, we can stay invested for as long as we believe that there is a beating heart to the investee company/brand, and hence more value to be created. Besides, unlike financial partners, as a strategic player and investor we can add a lot of value in areas ranging from technology to supply chain and human resource development.
“It’s a myth that Reliance only thinks scale and size and that incubating and curating niche businesses would not be their area of focus; also that they would always want to be in the driver’s seat and not play a copilot’s role,” he said. “We have nurtured many interesting and niche luxury partnerships – Zegna, Paul & Shark and Bally, to name a few. Further, in many of our joint ventures we have a less than a majority stake and yet run them as consensus partnerships, where we play a critical role at board level.”
Genesis has seen lots of changes over the last year. In anticipation of the end of the L Catterton investment, Genesis Colors — Genesis Luxury’s parent company – had planned an initial public offering for late 2016, to raise an estimated 6.8 billion rupees, or $105 million. This was intended to fund expansion, as well as the estimated 2.8 billion rupees, or $42 million, that industry analysts believe L Catterton would receive. A restructuring process at Genesis resulted in Sanjay Kapoor becoming executive chairman (he had been managing director since the company started in 1998) and Nikhil Mehra the new ceo (he was formerly the chief operating officer).
However, India’s de-monetization in November 2016 hit businesses in numerous ways, as 80 percent of the currency was withdrawn from the system in Prime Minister Narendra Modi’s drive to fight corruption. As a result, Genesis Colors’ IPO was delayed but was revived in early 2017, after which an additional 200 million rupees, or $3.07 million, came into the group via an investment by Sequoia Capital. Industry experts noted that after additional investment, the company results need to be re-audited and a fresh IPO proposal submitted.
Genesis Colors has other big investors, including Sequoia, Henderson Private Equity and Mayfield, who own 41.5 percent of the company. Several smaller private investors are believed to own less than 10 percent, with Kapoor holding the remainder.
Meanwhile, India’s $650 billion retail market continues to grow in double digits, with the luxury market accounting for only a small part at around $18 billion in 2016, according to industry figures.
While the estimates for expansion of the country’s luxury sector have been at more than 20 percent over the last few years, new government regulations have put a dampener on the industry’s growth. These include the regulation of big-ticket transactions worth more than 200,000 rupees, or $3,075.