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Fashion and Lifestyle – Designers sell a stake to big companies

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Fashion and Lifestyle – Couturier Ritu Kumar and her CEO son, Amrish, have been working at breakneck speed to set up new brands under her label. In the last three months, her company announced the launch of two: Aarke, a “belowpremium” brand targeting the masses, and Label Basics that caters to post-Covid loungewear demand.Kumar’s original couture business has expanded into both high-end and high-street ready-to-wear labels, but these haven’t achieved the scale of better-funded multinational or even corporate Indian fashion brands. For designers in India, even those at the top end like Kumar, it’s a struggle to get access to the capital that would help them grow their brands into the fashion big leagues. “In the last 12-18 months post-Covid, finding investors and strengthening online digital channels to grow the business and visibility (have been) important for designers to survive,” says Kumar, 76. Designer Ritu Beri echoes Kumar’s views that it is a common phenomenon in the world of fashion globally. So the increasing number of corporate deals in Indian fashion are a welcome trend.Up until three years ago when Reliance Brands first picked up a stake in fashion label Raghavendra Rathore, acquisitions in the Indian designer space were unheard of. Then the floodgates opened. By mid-2019, Aditya Birla Fashion and Retail (ABFRL) invested in acquiring a majority stake in Delhi-based Shantanu & Nikhil. ABFRL and Reliance Brands have put together a portfolio of marquee names, including Sabyasachi, Shantanu & Nikhil (S&N), Raghavendra Rathore and Satya Paul. Now, it’s Kumar’s fashion house that’s reportedly the next target, with Reliance Brands said to be interested in a majority stake.For founder-designers, it is capital that helps expand both distribution and scope of business. Industry insiders say that the top 10 Indian couture houses had turnovers between Rs 200 crore and Rs 800 crore in 2019-20, before the pandemic hit. “While we believe fashion is incomplete without its blithe side, this has brought with it a safety net of sorts. It has allowed us to push the envelope and be more extravagant and creative. Several brands across the globe have got corporatised and have reached new heights in terms of scale, branding and customer reach,” say Shantanu and Nikhil in an email. The company had five stores pre-acquisition and added another three in 2020. They are now preparing to launch another two stores in Delhi-NCR. According to insiders, S&N turnover pre-buyout was around `30-35 crore annually, with approximately Rs 5-7 crore as net revenue. Sales are projected to reach Rs 100-150 crore in 2024, when they have the option to sell their remaining stake at a valuation of Rs 300-400 crore.Mukesh Sawlani, chairman, House of Anita Dongre, says for a lot of established designers who want to scale up, lack of capital is a huge handicap. General Atlantic took a 38% stake in the House of Anita Dongre back in 2013 for about $50 million and it’s been a successful marriage, says Sawlani, stressing that the investor has respected their creative boundaries. Opening a flagship store in a big city costs an established designer Rs 5-10 crore, including the cost of inventory. Close to 700 stores were added since 2013, taking it to a total of 1,100 stores in 2021 and sales have gone up 3.5x, he adds.For a business house, the value is in the potential of a top designer’s name, which can be leveraged into more brand spinoffs that extend the scope of the business. “When you do the cost benefit analysis, it is a no-brainer that they should be investing or acquiring these designers’ businesses because of their brand name and design talent for as long as they can. The alternative of that is too difficult, complicated, risky and expensive,” says Harminder Sahni, founder, Wazir Advisors, who was involved in deals like the Rathore and Shantanu & Nikhil ones.Most “corporate” fashion houses stuck with menswear or women’s western wear, often in partnership with international designers to create brands like Allen Solly or Peter England. Indian couture was largely missing from the scene. Anyone who wanted to buy a designer Indian couture outfit had to go directly to their boutiques in metros But the spate of acquisitions as well as a shift in strategy towards including Indian-owned brands in big portfolios is changing that. “Most top designers, albeit small, are working at a profitable scale,” says Sahni. He adds that it’s easier for a corporate house to buy a brand that’s been running successfully and has brand equity, as most big Indian design houses do.For a business house, the big questions are how much to pay for these businesses and how long should a designer be kept on, until they are given an exit. Usually, Sahni says, that period is 10-20 years. The first 10 years of being locked in is not negotiable. The next five years are optional. After that, upon mutual agreement, most designers sign a 100% buyout. Business houses are keen to take 100% control of a designer’s firm and this formula of the valuation has an exact date and time that is agreed upon at the early stages of the deal.Designer Varun Bahl says after a point of time, many designers think it would be natural to institutionalise their brands. While it is difficult to ascertain what happens to a brand post-acquisition in terms of its design sensibilities and aesthetics, a lot of these brands would not let their names be diluted, he says.What does this mean from a creative standpoint? Some say designer-led business houses can only grow to a point. Sunil Sethi, president, Fashion Design Council of India, says such tie-ups with corporate entities secure the creativity of the designer, who doesn’t have much knowhow in supply chain-logistics, finance and administration. The business houses act as a platform for the already established designer. It doesn’t always work out. Schulen Fernandes, creative heir of the late designer Wendell Rodricks, had to step down from Purple Style Labs, which acquired his label last year, owing to creative differences. Around a decade ago, designer Manish Arora’s Indian line started as a JV between BIBA Apparels and him (51-49%) to promote Indian by Manish Arora but shut down by 2017 due to a reported “disagreement between stakeholders”. Purple Style Labs’ founder Abhishek Agrawal says his business is an endeavour to build a luxury fashion house comprising of two multi-designer platforms — Pernia’s Pop-Up Shop and The Stylist — which act as a designer wear discovery. He says that investors are wary of fashion businesses that are too dependent on a designer’s personal presence: “I think you should have the ability to run it without their existence.”And that is the international trend —there are just a few examples of fashion businesses globally that are still led by designers themselves. Giorgio Armani, for instance, is one name that stands out for someone who managed to build an empire of his own. But couture brands like Karl Lagerfeld and Alexander McQueen have gone from strength to strength even after their founders’ deaths, and brands like Missoni have seen founders step down. “At some point of time, a designer’s involvement becomes irrelevant,” says Sahni.
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