Debojyoti Ghosh, Fortune India

April 21, 2021

Billionaire entrepreneur Kumar Mangalam Birla-led retailer Aditya Birla Fashion and Retail Limited (ABFRL) has continued its build-up in the ethnic wear market with its fourth deal since 2019 and second this year. In February, the Mumbai-based fashion retailer picked up a 33.5% stake in fashion designer Tarun Tahiliani’s Goodview Properties—that will own and operate the designer’s eponymous couture label—for ₹67 crore. That was a month after ABFRL acquired a 51% stake in Kolkata-based designer Sabyasachi Mukherjee’s company, Sabyasachi Couture, which sells garments, accessories, and fine jewellery, for ₹398 crore.

ABFRL, which owns fashion brands such as Louis Philippe and Van Heusen, said in a statement that ethnic wear “is a large and growing market with a significant opportunity to build scale” and expects it to be an important category over the next few years.

Experts note the two recent deals come as the luxury industry, including fashion, has been hammered by the pandemic. The year-long shutdown in global travel has slowed over a decade of growth across luxury categories. Indeed, the global fashion industry’s profit is expected to have slumped about 93% in 2020, according to a report by consulting firm McKinsey and The Business of Fashion in December.

“[Luxury] business has been hit hard during the pandemic, like all fashion and retail businesses. And a significant injection of money is needed to maintain the business momentum, and to scale it further,” says Devangshu Dutta, chief executive of retail consultancy Third Eyesight.

In March, Italy’s billionaire Agnelli family—best known as the founders of automaker Fiat—acquired a 24% stake in French luxury shoemaker Christian Louboutin for $642 million. Three months before that it paid $95 million for a controlling stake in Shang Xia Paris, a Chinese luxury goods business founded by French luxury brand Hermès and Chinese designer Jiang Qiong Er.

Many fashion firms have used the Covid-19-induced slowdown to reshape business models, streamline operations, and sharpen their customer propositions, said the report by McKinsey and The Business of Fashion.

And that is exactly what Tahiliani plans to do with his new corporate partner. The duo will create a new entity—80% held by ABFRL and 20% by Tahiliani—to launch a new brand of apparel and accessories in the affordable premium ethnic wear segment, while it also plans to launch a men’s ethnic wear brand.

“Discussions with ABFRL have been in the works for nearly two years. I couldn’t be happier about entering into this partnership. They understand scale and numbers like no one else in the market today. Each of their home-grown brands is a resounding success,” Tahiliani, founder and CEO of Tarun Tahiliani Brand, tells Fortune India. “This collaboration permits me the financial freedom to focus on designing,” he adds.

ABFRL aims to build the new ethnic wear brand into a ₹500-crore business in the next five years, with more than 250 stores across India. The first tranche of stores is expected to open by September. “This new entity with ABFRL currently concentrates only on menswear. In our collective opinion, at present, there is only one branded national player in the Indian ethnic [wear] for men space. In order to scale this up, we need to be in three or four categories of clothing. This will give depth, both in terms of style and sizing to the men who come into the store,” says Tahiliani.

Currently, the top panIndia ethnic wear brand for men is Vedant Fashions’ Manyavar. The Kolkata-based company forayed into women’s wear in 2016 selling lehengas, saris, and the like under the label Mohey,

ABFRL’s previous deals in the segment—both in 2019—were a 51% stake in fashion designers Shantanu & Nikhil’s Finesse International Design for a reported ₹60 crore, and its ₹110-crore acquisition of Jaypore. Both make apparel, footwear, accessories, and other items.

ABFRL’s managing director, Ashish Dikshit, declined to comment for this story. ABFRL had, when announcing the Sabyasachi Couture investment, said it expected that deal to accelerate its strategy to build a comprehensive portfolio of brands across segments, occasions, and geographies.

Experts say ABFRL’s recent investments allow it to tap into the designer’s creative stream and goodwill, while providing the financial and organisational muscle of a large corporate. Albeit one that is not aiming too far upmarket.

“We shouldn’t see the ABFRL [stake] acquisitions as entry into couture, which is a different business from the ready-to-wear market. It is the expansion of these brands into ready-to-wear, tapping into the desirability of the designer brand, while making it accessible and affordable to a larger market is what will be of interest,” says Third Eyesight’s Dutta.

Indeed, Mukherjee, in a press release in late January, noted, “As my brand evolved and matured, I began searching for the right partner in order to ensure continuity and long-term sustainable growth.”

Nonita Kalra, a veteran fashion editor, says that the ABFRL deal shows the growing heft of the [Sabyasachi] brand in the fashion business. “Corporates aren’t sentimental. They are hard-nosed about investments, with careful due-diligence. ABFRL is paying what it is worth and expecting it to grow bigger. They are never going to invest in a stagnant business,” she says.

Experts, though, caution that while corporate partnerships and acquisitions allow a designer-entrepreneur and their investor partners to unlock some of the value being built, it is essential to have clarity about each brand’s design language and target consumer. “With [ABFRL’s] new venture [in men’s ethnic wear with Tahiliani], the key thing to understand is how the company will differentiate it from Shantanu & Nikhil’s positioning and focus, which is also menswear-driven,” says Abneesh Roy, executive vice president, Edelweiss Securities. “The challenge will be ensuring that each brand maintains its distinctive identity, while deriving synergies from the group.”

ABFRL has stitched up some unique deals; it now has to ensure they don’t unravel.

(The story originally appeared in Fortune India‘s April 2021 issue).

Written By Aditi Shrivastava & Samidha Sharma, ET Bureau

BENGALURU | NEW DELHI: In what would be one of the most significant consolidation moves in the sector, Uber Eats, the food delivery arm of the global ride-hailing platform, is in final stages of negotiations to sell its India business to rival Swiggy, three people privy to the development told ET. The deal, which is expected to close by next month, will be Swiggy’s largest acquisition till date, and Uber’s first divestment of its food business globally.

The transaction is likely to be a share swap, sources said, giving Uber about 10% stake in the Bengaluru-based company last valued at $3.3 billion.

The development is in line with Uber’s global strategy to cut down on losses as it prepares for a public offering at a possible valuation of $120-150 billion. For the ride-hailing giant, Uber Eats alone is estimated to be valued at over $20 billion. The business generated $1.5 billion in revenue globally in the first quarter of 2018, according to US-based tech news portal, The Information.

High Cash Burn

“It is prudent to be invested in Swiggy than burn capital competing for the same set of restaurants and consumers,” said a source in the know of the deal. “This should bring some rationality to the cashguzzling food-delivery market,” this person added, hinting that discounts are likely to significantly reduce post integration.

In the past year or so, both Swiggy and Gurgaon-based Zomato have been raising capital as they have gone on a tear to acquire new customers. Along with these two, the market has seen heightened discounting by Uber Eats and Ola’s Foodpanda which has led to high cash burn by these companies.

Sources said that Uber Eats had also held discussions with Zomato, but those talks fell through. In an emailed statement to ET, spokespersons for Uber and Swiggy said, “We do not comment on rumour or speculation.”

Uber Eats India racked up a cash burn of around $25 million on an average 9 million orders a month, a top executive at the firm told ET. Swiggy burns about $40-45 million a month on its food business, according to industry estimates.

The deal talks come at a time when Uber’s India rival Ola has put its food business under Foodpanda in the slow lane, and cut marketing and customer acquisition costs by two-thirds. The company is now focusing on its own private labels and cloud kitchens which include The Great Khichdi Experiment, Lovemade and FLRT brands.

“Last-mile logistics is an operations-heavy, low-margin business. In the long run, I don’t see how the market can sustain so many parallel micro-logistics networks,” said Kartik Hosanagar, professor of technology & digital business at The Wharton School.

Over the last couple of months, Uber Eats has grown in markets such as Hyderabad, Chennai and Pune. Experts say consolidation has been on the cards in the food-delivery business. “Consolidation will happen due to the thin operating margins and market acquisition costs, which will place enormous pressure on the companies to raise capital,” said Devangshu Dutta, chief executive of Third Eyesight, a specialist retail consulting firm.

In India, Uber Eats was launched in May 2017 and is currently present in 37 cities across the country. Swiggy’s largest investor, South African media and internet conglomerate Naspers, has been particularly bullish on the market potential in the Indian food delivery space.

“Food delivery is a perfect example of our strategy in action with online platform capabilities that address a large offline societal need in a high-growth market. It’s still early days, but if you look at the growth in revenue and the underlying operating metrics, it gives us real confidence in the potential here,” said Naspers CEO Bob van Dijk in a recent investor call.

Source: economictimes