India: Home for foreign brands

Licensing

Article written by : Vrinda Oberai

As India is progressively becoming a lucrative market for foreign brands, the same comes tagged with questions like what is encouraging these brands to enter India; aren't these brands as ordinary as any other Indian brand; what is that is clicking? The major part of the truth, undoubtedly remains to be that people are brand hungry in this country. Liberalisation, in the right sense has taken place in the last decade when the economy really took off and Indian consumers have been able to unleash their pent up desires and indulge with regards to mass consumption. To top it all, a 'foreign' brand sells and sells real well! Brand awareness and recognition is also a vital factor and India is a well-connected market. Brand recognition scores are normally high and therefore work.

We can refer to various routes via which these brands enter a foreign land, be it franchising, distribution, licensing, joint venture or a wholly owned subsidiary. We can refer to brands like Louis Philippe and United Colors of Benetton, Allen Solly, Van Heusen, Puma, Adidas, Reebok, Diesel, Also, Marks and Spencer and Tommy Hilfiger to name a few. Last year, Spanish fashion brand-Zara opened its first Indian store and a month later, it was the turn of Chinese clothing giant Yishion to follow suit. They were preceded by at least three more - Diesel, Vero Moda and 7 For All Mankind.

Recent development

However, the latest has been DLF's license deal with Spanish clothing major- Mango. Real estate giant DLF Ltd is set to ramp up its presence in the fashion retail industry after striking a licensing deal with the Spanish brand. Mango boasts of over 1,700 doors worldwide and has been in partnership with Major Brands through which it opened 15 stores. Brands are keen to scale up briskly as competition is hotting up in India's top-end fashion retail, not to forget Spanish rival Zara's big push into the country last year.

The question which arises here is that why another deal with DLF Ltd when they already have Major Brands in India? We spoke to Kamal Kotak, CFO, Major Brands to understand it better. He shared that when MANGO spoke to them about opening stores in the South and some pockets of the West, they were given the first right of refusal. The brand has been managing MANGO for the last 10 years in India and has 14 stores of the brand. As the first company that MANGO established a partnership with in the year 2001, they have put up flagship stores, some of which are the highest grossers in Asia. "However, we did not see a great economic opportunity in the South and some pockets of the West, and hence we asked MANGO to look at an alternative franchisee for that region. That's how DLF came in as the second franchisee," avers Kotak.

To quote Daniel López, Managing Partner and Deputy General Manager of MANGO, "We are opening 6 new stores with Major Brands in Mumbai, Chandigarh, Ludhiana, Mohali and Ahmedabad. Major Brands has been not only our retail partner, but a committed communication partner as well, making MANGO a household name among the affluent class in India. We have no licensing agreements with any other partner in India. What we do have is another approved franchisee-DLF Brands for the South, some regions of the West and our Delhi airport stores. This is an exciting development for us."

Major Brands also boasts of a wide and impressive portfolio inclusive of other brands like Aldo, Aldo Accessories, Promod, Charles & Keith, La Senza, Nine West, Inglot and Okaidi. "We are bringing some more exciting international brands into the country. It requires a mindset to do this kind of work and we have the right approach," adds Kotak.

India: works better for foreign brands?

Brands with an overseas origin, to begin with, have an added advantage of brands that come with heritage of a foreign origin. This works for every category, be it dog food or high end fashion couture. Harish Bijoor, Brand expert and CEO, Harish Bijoor Consults Inc. puts it logically, "There is a fundamental difference in dollar-denominated brands and rupee denominated brands. What is a popular brand overseas therefore becomes a premium offering in India. As the dollar to rupee differential eases, this will ease as well!"

However, it is to be understood that what is working at large in India today is franchising arrangements. "Brand owners are willing to experiment with franchising more than with licensing. Licensing means handing over the reins of the brand to Indian operators while franchising means only offering the front end competence in the market-place to the Indian operator," opines Bijoor.

Also, when researched a bit, I came across the fact that there exists a pattern of brands that are at the middle of the Western market which promote themselves at the top end of the spectrum when they go to India. One explanation remains, that in doing so they charge a premium over what they would abroad. Explaining it further and putting it across in economic terms, a luxury brand tends to face a demand curve that is less price-sensitive, or less "elastic" in jargon, supporting a higher mark-up over cost, and hence a higher profit level. There are two points (a contradiction to what has been said above) which need to be kept in mind here. Firstly, the prices actually aren't that much higher than abroad, making allowances for the higher taxes in India. Secondly, the sophistication levels of the Indian consumer have increased exponentially lately, making it difficult to palm off an inferior product as a superior one.

Licensing agents work big time

When launching a brand in a foreign market, help provided by licensing agents is irreplaceable. Not only are they knowledge experts of their local markets, but also provide you complete guidance with many other pertinent matters which are tagged along the launch and consequent success of a brand.

It's just a matter of time that the country wakes up to the lucrative business of licensing, enlargening the present scope and opportunities that market offers as we will witness the retail industry explode like never before!