Major Brands-Promod JV plans 40 stores in five years

26th May 2011, By

Major Brands (India) Pvt. Ltd, the local franchisee for fashion apparel and accessories brands such as Mango, Aldo, Charles & Keith and Nine West, will form a joint venture with French women’s wear retailer Promod.

The existing franchise agreement between the two will now be changed. Both firms will raise their investment in the brand locally, said Kamal Kotak, country head, Major Brands. Promod will hold a 51% stake in the venture and Major Brands the rest.

Promod was created in 1975 as a French family boutique dedicated to the sharp design, the production and the retailing of women's ready-to-wear and original accessories. Promod is today one of France's biggest fashion store chains and the brand enjoys huge international success with 873 outlets in 49 countries.

Currently, in India there are nine Promod stores that contribute less than 3% of the brands global revenue. The venture will set up 40 stores the five years, with contributions from the region expected to account for 15-20% of Promod’s global revenue, Kotak said. The venture will also explore opportunities to raise sourcing from India for Promod’s global operations of more than 900 stores. It may also consider price cuts in India.

Brands such as Marks & Spencer and Ermenegildo Zegna have also changed from franchisee operations to joint venture partnerships in the past and  both these brands tied up with Reliance Retail Ltd. Marks and Spencer, entered India in 2001, also cut prices by around 30% and started sourcing from the country when it formed its venture with Reliance Retail in 2008.

The business model for such businesses has drastically changed over the past three-four years, said Devangshu Dutta, chief executive officer, Third Eyesight, a consulting firm that is focused on the retail and consumer products sector. “Earlier in the 1990s, the preferred route to enter India was (being a) licensee as import duties were high,” he said. “Then, in the last decade, it changed to franchise, and in the last three-four years, it’s a joint venture as India becomes a strategic market for global marketers.”

Major Brands currently has 80 stores and a portfolio of 10 brands specializing in women’s fashion, footwear, accessories and kids apparel, Kotak said. “By 2015, the company plans to have 500 stores and revenue of Rs.1,000 crore,” he further added. For fiscal 2011, the firm’s revenue grew 40% to Rs.200 crore. Kotak declined to give details on profit made by the privately held firm.

“Over the next 12 to 18 months, we will add four-five new brands to our portfolio,” said Kotak, who is in talks with some 10 European and US brands that are looking at an India presence. He refused to name any of them.

Late last year, Major Brands launched its apparel brand Queue Up and will launch kids wear brand JFK later this year. The average investment for a 1,500 sq. ft store is Rs.80 Lakh to Rs.1 crore. “In next 12 months, we will invest Rs.50 crore for expansion,” said Kotak. The capex will come from promoters’ equity and bank debt.

The Spanish brand, Mango appointed DLF Ltd as another franchisee as it sees opportunity for growth, earlier this year. Mango contributes close to 25% of Major Brands’ revenue in India and has tripled the number of stores and turnover in the past five years. “We believe that India will be within our top 10 countries in terms of turnover in 2015,” Daniel Lopez, managing partner and deputy general manager of Mango, said in an email. Globally, Mango has 1,400 stores and revenue of €1.27 billion.

The existing franchise agreement between the two will now be changed. Both firms will raise their investment in the brand locally, said Kamal Kotak, country head, Major Brands. Promod will hold a 51% stake in the venture and Major Brands the rest.

Promod was created in 1975 as a French family boutique dedicated to the sharp design, the production and the retailing of women's ready-to-wear and original accessories. Promod is today one of France's biggest fashion store chains and the brand enjoys huge international success with 873 outlets in 49 countries.

Currently, in India there are nine Promod stores that contribute less than 3% of the brands global revenue. The venture will set up 40 stores the five years, with contributions from the region expected to account for 15-20% of Promod’s global revenue, Kotak said. The venture will also explore opportunities to raise sourcing from India for Promod’s global operations of more than 900 stores. It may also consider price cuts in India.

Brands such as Marks & Spencer and Ermenegildo Zegna have also changed from franchisee operations to joint venture partnerships in the past and  both these brands tied up with Reliance Retail Ltd. Marks and Spencer, entered India in 2001, also cut prices by around 30% and started sourcing from the country when it formed its venture with Reliance Retail in 2008.

The business model for such businesses has drastically changed over the past three-four years, said Devangshu Dutta, chief executive officer, Third Eyesight, a consulting firm that is focused on the retail and consumer products sector. “Earlier in the 1990s, the preferred route to enter India was (being a) licensee as import duties were high,” he said. “Then, in the last decade, it changed to franchise, and in the last three-four years, it’s a joint venture as India becomes a strategic market for global marketers.”

Major Brands currently has 80 stores and a portfolio of 10 brands specializing in women’s fashion, footwear, accessories and kids apparel, Kotak said. “By 2015, the company plans to have 500 stores and revenue of Rs.1,000 crore,” he further added. For fiscal 2011, the firm’s revenue grew 40% to Rs.200 crore. Kotak declined to give details on profit made by the privately held firm.

“Over the next 12 to 18 months, we will add four-five new brands to our portfolio,” said Kotak, who is in talks with some 10 European and US brands that are looking at an India presence. He refused to name any of them.

Late last year, Major Brands launched its apparel brand Queue Up and will launch kids wear brand JFK later this year. The average investment for a 1,500 sq. ft store is Rs.80 Lakh to Rs.1 crore. “In next 12 months, we will invest Rs.50 crore for expansion,” said Kotak. The capex will come from promoters’ equity and bank debt.

The Spanish brand, Mango appointed DLF Ltd as another franchisee as it sees opportunity for growth, earlier this year. Mango contributes close to 25% of Major Brands’ revenue in India and has tripled the number of stores and turnover in the past five years. “We believe that India will be within our top 10 countries in terms of turnover in 2015,” Daniel Lopez, managing partner and deputy general manager of Mango, said in an email. Globally, Mango has 1,400 stores and revenue of €1.27 billion.