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Lessons to be learnt from Esprit-Madura divorce

Source : BUSINESS_STANDARD
Last Updated: Tue, Nov 27, 2012 19:32 hrs

In the busy festive season, global fashion brand Esprit and Aditya Birla Group’s Madura have ended their seven-year-old distribution agreement. All operational Esprit stores will be shut next year. Though both haven’t revealed the reasons for not renewing the agreement, analysts and rivals say it is a mismatch between expectations and plans.

Though Madura and Esprit tried to convert the partnership into a joint venture in the past, they could not succeed due to difference of opinion, people in the know say. Esprit’s flagship stores in Mumbai, Delhi and Bangalore were closed earlier this year and converted into stores of Van Heusen, Louis Philippe and Allen Solly brands. Both the parties were planning to rejig operations and announce an ambitious 10-year business plan which included venturing into tier-II towns. But ultimately that did not work out.

According to reports, Esprit stores were losing Rs 20-25 crore annually.

So, what are the lessons to be learnt from the break-up?

Over-scaling of stores was the first flaw in the strategy, says Jaydeep Shetty, chief executive of fashion brand Mineral. “They opened at the most expensive malls and opened huge stores of 8000 to 10,000 sq ft. You can’t build a huge business until you have deep pockets. Whenever you have partnership between an Indian company and a foreign brand, the Indian partner would not put money beyond a point,” says Shetty. Esprit had opened stores on Linking Road, a premium Mumbai high Street and in Select City Walk, a celebrated mall in Delhi.

Over emphasis on imports and high pricing also played a role in Esprit’s challenges in India. “If you maintain global pricing, products will be out of reach of buyers given the high dollar prices,” says Shetty.

The probable solution: “When you bring in a brand, you should source from India itself. That will make a major difference,” adds Prashant Agarwal, deputy managing director of Wazir Advisors, a retail consultant.

Consultants also point out the flaws in Esprit’s positioning. Though it was a mid-market brand globally, in India it was at the premium end of the market partly because of import duty. “Esprit’s basic positioning is that of updated classic while that of Zara and H&M are positioned as fast-fashion which is gaining ground,” Shetty says.

“They didn’t position their brand very well in India and banked on the fact that the name Esprit had internationally would help them in India,” Rahul Mehta, president, Clothing Manufacturers Association of India.

The Madura and Esprit break-up, however, is not the first time that partners are parting ways in retail. In 2008, UK’s Marks & Spencer ended its franchise agreement with Planet Retail and did a joint venture with Reliance for faster roll-out of its stores. In 2010, Italy’s GAS ended its venture with textile and apparel major Raymond and entered India on its own through the cash and carry route.

Last year, Tommy Hilfiger announced that it is buying Murjani Group’s stake in its Indian sub-licensee — Arvind Murjani Brands (AMB). Textile major Arvind and Tommy have a 50:50 joint venture.

As recent as September this year, Arvind Lifestyle Brands acquired the operating, marketing and distribution rights of fashion brands Next, Nautica and Debenhams from Planet Retail.



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