In the recent few months, the piqued interest of conglomerates taking significant stakes in the luxury and retail industry especially in luxury and retail is something unlikely. Here is how the conglomerates have been going with the stakes.
Reliance Retail has acquired a 52 percent stake in the luxury fashion brand Ritu Kumar which was its second investment within a week after acquiring a 40 percent minority stake in Manish Malhotra.
Equally wanting to firm its claws in the luxury and retail segment, Aditya Birla Fashion Retail Limited (ABFRL) in January 2021 took a 51 percent stake in bridal couture brand Sabyasachi followed by a 33 percent ownership in Tarun Tahiliani’s men’s ethnic wear range. Back in 2019, the retail conglomerate had acquired Finesse – an apparel brand from Shantanu and Nikhil.
This puts forward a question what is luring the conglomerates to own stakes in the luxury and retail industry?
Ethnic wear market: no more a blindspot for retail biggies
The total Indian ethnic wear market has a size of Rs 70,000 crore, according to Technopak in which almost 80-90 percent of the market is unorganised. Given its unorganised nature, several conglomerates found the ethnic wear market a tough nut to crack. But, in the past decade ethnic wear brands like W, Aurelia, Fab India, and Biba have changed the narrative by introducing an organised format. Today, the above mentioned have carved a niche for themselves by becoming Rs 1000 crore brands and have revealed the potential of the organised ethnic market to catch the eye of these majors.
Moreover, what makes it deliver profits, in the long run, is its strong resilience to apparel cycle fluctuations. As compared to western wear Indian traditional outfits such as sarees, kurtas, lehenga cholis, sherwanis, Kurtis, etc are hard to go obsolete in styles and are least impacted by global brands.
Aspiration for better lifestyles and high purchase power is also driving the migration of buyers from the unorganised to organised retail in tier II and tier IV market and the increased shopping from the e-commerce only brands.
Aspiration for better lifestyles and high purchase power is driving the migration of buyers from unorganised to organised retail in tier II and tier IV cities.
Value, premium, and luxury
The conglomerates are expanding their retail offerings to cater to the customers of all three segments ie. value, premium, and luxury. Reliance retail under the brand Trends is its economic range. With its recent initiative to introduce its new brand Avantra, it wants to target the mid-premium ethnic wear category and with the recent stake in Manish Malhotra and Ritu Kumar, it will foray into the luxury segment. On similar lines, Aditya Birla with Pantaloons is now targeting the premium segments by owning stakes in Tarun Tahiliani and Sabyasachi.
Entering into the luxury and retail segment
The preventive measures to contain has impacted these luxury brands causing their businesses to shrink by 30-35 percent and therefore needed funds to stay afloat. This is where the luxury brands and the conglomerates formed a symbiotic relationship as now the brands will now be available at lower valuations. As India accelerates its vaccination rate the restriction on weddings and festivities will be eased and is expected to bounce back and grow by 20 percent in the coming 4-5 years.