How Mukesh Ambani plans to make India a luxury hub

Think the six-figure price tag on a designer lehenga translates into big bucks for the fashion industry? Think again. “The topline—mind you, topline—of the country’s top three or four fashion labels combined cannot buy a house in south Mumbai,” says Darshan Mehta, CEO of Reliance Brands, the luxury arm of Reliance Industries and the country’s most recent entrant into the luxury market. “This needs to change if India is ever going to become a luxury hub.”

And that change is the mission Reliance Brands has set itself, although it’s not exactly shouting it from the rooftops. “Hey, we don’t even have a website yet,” says Mehta, who was head of brands at textiles major Arvind Mills for 23 years.

Mukesh Ambani’s Reliance Industries (ranked No. 2 on the Fortune India 500) had a revenue of more than Rs 2 lakh crore last year. Reliance Brands is thus part of an energy-to-retail conglomerate whose legendary war chest is a game changer in almost every industry it enters. Industry experts see its entry into the luxury business, with Darshan Mehta at the helm, as a definitive Indian corporate play in a sunrise sector.

As for Mehta’s personal track record: He brought Tommy Hilfiger to India as a joint venture between Arvind Brands and the Murjani family, who are promoters in the fashion industry, and was instrumental in the brand’s growth to six stores nationwide between 2004 and 2006. Although not in the league of Prada and Hermès, Tommy Hilfiger’s success in India—then still a developing market for high-end apparel—paved the way for more expensive brands.

When Tommy Hilfiger entered India, shirts such as Arrow (also a brand brought in by Mehta through Arvind Brands), which cost under Rs 2,000, were considered high-end. But a Tommy Hilfiger shirt cost more than Rs 4,000. Over time, customers became used to paying higher prices for quality and prestige, and today, the likes of Ermenegildo Zegna, Brioni, and Canali have their own stores in India.

Now that international competition is here, Indian designers may have little choice but to take notice. One of the biggest questions in the industry today is: Who will buy a black suit by an Indian designer, when brands from Armani to Zegna have set up shop? Indeed, Reliance Brands is pitted against the world’s biggest luxury conglomerate: French luxury behemoth LVMH Moët Hennessy Louis Vuitton (LVMH) is on the prowl in India. The European company’s chairman and CEO, Bernard Arnault, is France’s wealthiest man with a personal fortune estimated at $19 billion (Rs 85,823 crore). He’s perhaps the most powerful man in luxury, having bought international labels such as Marc Jacobs, Donna Karan, Dior, Givenchy, Kenzo, Dom Perignon, and Moët et Chandon. He’s now engaged in a headline-making international battle to acquire Hermès.

Reliance Brands, with its inherently Indian advantages and disadvantages, will have to fight it out. It has the inside track in the Indian market, where it can more efficiently build scale, and where it has a retail business. And there’s much to be done.

Eleven years after India got its own fashion week, fashion remains a boutique industry. Indian labels face two critical hurdles. One, they haven’t developed the capability to sell new collections every season in a wide range of stores to high-end customers. And two, anyone can enlist a good darzi and make knockoffs. The latter is not entirely a bad thing, as it can spur business for the original creator. However, although India doesn’t yet have a globally competitive luxury brand, many elements of indigenous design—especially artisan work—have the potential to be spun into one.

What can Reliance change? “Everything,” says Sunil Sethi, head of the apex Fashion Design Council of India. What the fashion and luxury industries lack, he points out, are big money, and the business expertise that comes with big money. “Reliance is well placed to provide both those things,” he adds.

Reliance Brands has a two-pronged strategy. First, it’s the Indian partner of international luxury brands such as Zegna, and trendy labels such as Diesel, spanning the range of the industry. Second—perhaps more important—it is making strategic investments in the country’s most prominent fashion labels; things are currently in the due diligence and negotiation stages.

Mehta is in talks with some of the country’s most talented and bestselling designers. Industry insiders say these are Rajesh Pratap Singh, Ashish Soni and Manish Arora, but Mehta’s lips are sealed. Reliance Brands is also said to be in talks with one of the biggest names—Rohit Bal—who has also spoken to LVMH in the past couple of years. Given the small size and competitiveness of the industry in India, such talks cannot be confirmed.

“There’s no doubt that an investor like Reliance can work wonders in improving organisation, supply chain management, and production quality. But what many brands are seeking are global marketing skills and access to different markets,” says Dilip Kapur, president of Puducherry-based leather goods maker Hidesign, in which LVMH has bought a 20% stake.

But Mehta is taking a different tack. He says Reliance Brands will not pitch the global market access route to the Indian designers it seeks to invest in. Rather, it aims to convince them that in order to be successful abroad, they must first be able to sell to thousands of customers and build a strong brand at home. “In India, most labels don’t even have retail outlets in two major cities—Delhi and Mumbai—leave alone a multi-city approach,” says Mehta. “Designers here work to see their faces on Page 3, and are more concerned with whether they’re applauded at fashion week.”

Mehta points out that almost all Indian fashion labels struggle to deliver volumes, and that when Indian designers say they sell at Selfridges or Browns, they more likely than not have a few pieces on a corner rack, rather than an entire section. A leading designer, who asked not to be named, concurs: “It’s true that we’ve never really moved beyond exotic value at stores abroad. We need to sell many times what we sell now, to be taken seriously. But most of us lack the manufacturing capability to deliver 100 or 1,000 standardised, quality-controlled pieces, forget branding and marketing them properly. That takes big money and organisational skills.”

This is the gap that Reliance aims to fill. “I have absolutely no doubt that there’s world-class talent here,” says Mehta. “The problem, often, is in the execution.” This is why, he says, Reliance Brands seeks to enter the process “many steps before a label can go global”. Once it invests in a brand, one of the first things it will look at is processes.

The money and processes muscle of a giant like LVMH or Reliance can help protect and market traditional high-value skills. For instance, it could enable a traditional weaver to get best value for her or his skills, and thus make the family business a more viable livelihood than odd jobs in the nearest city. Investing in brands not only nurtures specialised skills but also develops the assembly line. Artisans can be organised into subsidiary producer companies that have a stake in the supply chain, thus reducing the risk of them switching to a rival.

Most design businesses in the country are run by the designer and his or her family. This, says Mehta, is a major hurdle to attracting business talent that can push the label and grow with the brand. Reliance will introduce professional managers with clear targets, and will leverage its strengths in managing supply chain and distribution logistics. It will fund manufacturing infrastructure and organise tie-ups with suppliers in a way that will help standardise production. It will also fund the building of retail outlets.

Reliance will invest up to Rs 10 crore in each business, usually for a majority stake and with an exit horizon of five to seven years. “It’s a very small amount of money,” says Mehta. “The initial investment is not important. What’s important is how much it will cost to build the brand—that’s where the real expense is, and it depends entirely on the vision of the designer.”

Mehta likens Reliance Brands to a venture capital company. “We want to make strategic investments to help labels become big brands at home,” he says. “We don’t speak about opening international doors, but we’re saying that we can help you become a major Indian player. With a Louis Vuitton, you’d just be one more on a long list of designer names that have been acquired.”

Mehta argues that Indian designers are better off with the backing of a homegrown giant like Reliance, rather than a huge global company, because their tiny businesses would get lost in the crowd. Louis Vuitton, for instance, owns more than 67 brands around the world. “We’re saying: Be a big fish in the small pond called home, before you try to become a big fish in the sea of the global market,” he says. “Since Indian labels are at the stage where they need to first develop a large presence in the home market, they’re better off with backing from people who understand this market the best.”

The problem with Indian labels, says Mehta, is that they’ve refused to see what Goldman Sachs did for Ralph Lauren, for instance. “He gave up control, grew big, made money, and bought back his stake. This needs vision, and the penny is finally dropping here,” says Mehta. “This entire thing about Indian designers going international is very far away. Anyway, markets in Europe and America are slowing, and all the brands are making a beeline for India. At a time like this, it’s silly to think the reverse journey can be made effectively for Indian brands that have no sense of Western markets.”

Designer Sabyasachi Mukherjee, whose six stores in the country generate an annual turnover of Rs 39 crore, says: “The biggest advantage of an acquisition is scale. Only scale, which comes with a massive infusion of money and distribution muscle, can help capture the imagination of millions of customers.”

“Indian labels have to shed the cottage industry mindset,” says Mehta. “The world is here, and the only way to fight the battle is to become bigger, stronger, and deliver world-class quality with an Indian twist. Otherwise, the game is over.”