Mukesh Ambani’s Reliance Industries is rapidly expanding its fashion retail footprint in India in an effort to tap a market that has enormous scope for growth, with consumer spending only set to rise in the world’s most populous country.
The conglomerate is focused on expanding an array of international brands in India.
In its latest move, the group’s Reliance Brands – part of Reliance Retail – on Wednesday announced a joint venture with the UK fashion brand Superdry, acquiring the company’s intellectual property assets for India, as well as for Bangladesh and Sri Lanka.
The move will see Reliance Brands owning 76 per cent for $48 million, while Superdry will own the remaining 24 per cent stake. Reliance Brands already had a long-term franchise agreement with Superdry, which began in 2012.
While announcing the deal, Reliance Brands said the “strategic evolution of brand ownership aims to capitalise on the increasing affluence and evolving consumption patterns of Indian shoppers”. That “coupled with Reliance Brands’ appetite to invest in accelerating Indian consumption narrative, the deal paves way for Superdry’s future expansion in the country and neighbouring territories”.
Reliance Retail has brought some of the biggest international fashion and retail brands to India. Its other partnerships include Jimmy Choo, Burberry, Michael Kors, Armani Exchange, and Coach. Reliance Brands operates 905 stores and 1,264 shop-in-shops in India.
India’s $3.75 trillion economy is a consumption-driven one – and consumer spending is only expected to increase over the coming years in what is the world’s fastest-growing major economy.
The country’s retail sector took a hit during the Covid-19 pandemic, but since then, it has recovered to surpass pre-pandemic levels. It is expected to see 10 per cent growth annually and reach $2 trillion by 2032, according to a report by the Boston Consulting Group.
Reliance and foreign brands aim to tap a market in a country of more than 1.4 billion people with an increasing propensity to spend and a rising appetite for branded goods.
“The younger population is open to spending more, offering opportunities for brands to explore the Indian market … with its growing importance,” says Anil Joshi, managing partner at Unicorn India Ventures, a venture fund.
India is offering a growth opportunity at a time when some other markets for retailers are sluggish.
Superdry's joint venture with Reliance comes as the British retailer has been struggling in its home market. Last month, Superdry reported a loss of £148 million ($181 million) for the year to April 29, as its sales were hit amid a cost-of-living crisis in the UK. The company said this had impacted its liquidity and needed to shore up its balance sheet as part of its turnaround plan.
For Reliance, there are clear advantages to partnering with well-established names.
“Rather than initiating new brands and businesses from scratch, Reliance is actively pursuing mergers, acquisitions, partnerships and collaborations with established brands and companies,” says Parul Saxena, associate professor of management at Sharda University in Noida in the northern Indian state of Uttar Pradesh.
“This approach offers the advantage of rapid portfolio expansion and the assimilation of valuable expertise and market presence from these existing entities.”
For international brands, while India is an increasingly important potential market, Ms Saxena explains that it is also one that has a complex regulatory landscape, including restrictions on foreign ownership in certain sectors, and requirements for compliance with local sourcing requirements, as well as the challenges that come with navigating varying state-level regulations. This means that foreign brands often partner with local companies to enter India.
“India's burgeoning middle class, expanding urban consumer base, increasing purchasing power, untapped retail potential, and government initiatives have collectively contributed to making India an immensely promising and attractive marketplace for multinational corporations in the retail sector,” says Ms Saxena.
“The country's retail industry is poised for exponential growth, with opportunities not only in major cities but also in smaller towns and cities, setting the stage for a transformative period of development and expansion in the organised retail market.”
During the current financial year, which runs until March 2024, the brick and mortar apparel segment of India's retail market is expected to have revenue growth of 7 per cent to 8 per cent over the previous year, according to Crisil Ratings, a global analytics company based in India, which is part of S&P Global.
It says that this is buoyed by the festive and wedding season demand and that continued store expansion, including to smaller cities, will also help growth this year and over the medium term.
“Demand from the premium segment is rising gradually with consumers increasingly preferring branded garments,” says Anuj Sethi, a senior director at Crisil.
This bodes well for foreign brands such as Superdry in India, as well as for Reliance as it expands its retail business.
“We believe that the spree of acquisitions and joint ventures of Reliance with several foreign brands is aimed at capturing the growing affluence and increasing shift of Indian consumers towards premium brands,” says Manish Chowdhury, head of research at broker StoxBox.
“With India’s per capita income set to increase to $4,000 from $2,500 in the next five to six years, the discretionary spending is set to rise which would benefit companies with a presence in the mid-to-upper spend range.”
There is an opportunity in premium fashion that is still “relatively untapped” across much of India, he adds.
“Also, Reliance has aptly built its presence across product categories including clothing, furniture, toys, FMCG [fast-moving consumer goods] and cosmetics, thereby creating a complete ecosystem in the retail space which it would leverage with its pan-India presence,” Mr Chowdhury says.
Other factors that are likely to support rising demand for premium retail, including fashion brands over the coming years, include the “influx of population towards urban and semi-urban areas, rise of nuclear families, easy availability of credit and rising penetration of digital channels for information on social media, and shopping through e-commerce”, he adds.
For Reliance, which has interests across sectors including energy and telecommunications, its retail expansion “diversifies its revenue streams, thereby mitigating risks associated with reliance on a single industry”, according to Ms Saxena.
“Furthermore, in its pursuit of becoming a ‘house of brands’, Reliance is poised to challenge some of the world’s largest consumer groups and established brands that have operated in India for decades,” she says.
Entering joint ventures, as Reliance has done with Superdry, can open up new sourcing channels, and allow the introduction of products aimed at the Indian market, and ultimately help to create cost efficiencies and improve profitability, analysts say.
“Owning a brand will help Reliance to have better control on market demand and cost,” says Mr Joshi of Unicorn India Ventures.
“This acquisition will help get a decent market share of the growing demand for their range of products. Reliance has been acquiring brands to have better control on supply and cost, and the acquisition of Superdry appears to be a part of their strategy.”
One of the reasons Superdry entered the joint venture is that it will enable the brands to expand more rapidly in India.
“India represents an incredible opportunity for Superdry, and our excellent existing relationship with Reliance means we will be able to hit the ground running,” Julian Dunkerton, Superdry’s chief executive and founder, said.
“Under our new partnership, I am confident that the brand will … become a major force in the Indian fashion market.”
Superdry said it will continue to support brand development, sharing expertise in design, product development, and marketing in India.
