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Tuesday, 14 December 2010 |
Italian high street brand Benetton has been in India for nearly
30 years but now it sees its business booming like never before. Its new strategy has been purpose tailored to minimize risk in this time of expansion and profit. It offloaded its 100 directly owned stores to franchisers to reinvent its local arm as a purely wholesale trading entity. This comes amid growing excitement on the possibility of the government relaxing foreign direct investments (FDI) norms in retailing. While most foreign brands are looking at a toehold in the Indian retail business, Benetton is facing increased competition from international peers with rivals such as Zara entering the country.
Interestingly, Benetton had partnered with DCM when it entered India in the ’90s. Subsequently on splitting with its local partner in 2004, was the only foreign retail brand with 100 per cent owned operations in India. It was much later that the Indian government allowed 51 per cent foreign direct investments. It seems all that is about to change as the government considers opening up to 100 per cent FDI for single-brand retail. According to industry experts Benetton’s move will ensure better working capital cycles and inventory management following the move to exit between 80 to100 stores.
According to executive director of KPMG, Ramesh Srinivas with increased competition there is also a possibility that the retailer wants to grow but capital availability can be an issue if the stores are company owned. A model like this facilitates rapid expansion with no risk attached to the retailer. Now, Benetton can solely focus on promotion, branding and managing its supply chain. Apparently the brand has recouped investments worth $50 to $60 million by disinvesting its direct ownership of those 100 retail units. |
