Q&A with Darshan Meta, President and CEO, Reliance Brands

Robin: Can you give me a perspective as to why our retailers and brands ought to be looking at India more closely now?

Darshan: There are three ways to answer that question. To speak on their behalf, they should be looking at India just because the U.S. is a saturated and mature market with an aging population, so the headroom for growth can only happen by robbing from someone else’s plate. Fundamentally, starting with the Baby Boomer generation, the 40 to 50 years of unmitigated retail and consumer boom that the U.S. went through is in some forms – in many forms – tapering off. So they need to discover unconquered territories.

Logically I had suspected that space should have been Europe. I suspect now that it comes to the third-tier larger markets, in terms of land mass, population, and GDP. It brings one to markets like Brazil, Russia, India and China. From our viewpoint, it is a fallacious approach to bring up India and China in the same breath. Depending on what you base it on, we are seven to 10 years behind China. Although geographically we are neighbors, China is better off spoken in the same breath as the USA.

Why else should someone come to India? By process of elimination, we are one of the largest untapped markets in many, many ways.

Robin: How are American brands perceived by consumers in India compared to those in China? Chinese consumers are totally hot for American brands, no matter what they are. Does that exist in India as well?

The Robin ReportDarshan: Yes, sure, it’s what new money does – it lives in a branded world, in a Western dream. Over the past 30 to 40 years, in the post-colonial world, many Indians have migrated to the U.S. – doctors, engineers, etc. India is neck-and-neck with China as almost the biggest source of foreign students in U.S. universities. There are about 120,000 students coming out of India to study in the U.S. every year. Increasingly, over the past 10 years, a large number of them are coming back, and bringing with them their experiences.

We are the world’s largest English speaking population. Our national language is English. If you travel to India and turn on the television in your hotel room, we have the same or similar shows on half of our 120 channels that you’re watching in New York. I spent a few years in advertising. My guru in the ad business said “Your mother tongue is the one in which you cry.” Most of us cry in English. You have a language asset. You’re not just talking to an audience that understands English, you’re talking to an audience that thinks in English.

Here’s another asset: India is one of the youngest countries in the world. About 500 million people in India were born after 1980. They don’t know what the British Raj was, they have no hang-ups from the colonial era. When you come to a country with a population of 1.17 billion and growing, (even though almost 20 percent, or 200 million are without drinking water), for the next 10 years you still have tremendous growth. India now has 59 cities with at least a million people.

One very large retailer will not go into towns with fewer than a half million inhabitants. There are more than 400 cities with more than half a million people. So wouldn’t you want to go to the youngest population in the planet who loved everything about your brand?

Robin: What about the economic picture?

Darshan: To give you some statistics, the size of the consumption pie is a trillion dollars. GDP is $1.4 trillion, and one of the highest savings rate in the world. Slightly less than one-third of what we earn, we save. The trillion dollar consumption pie will grow to $3.4 trillion by 2020. The number-one expenditure is food; two is housing; three is transportation; and number four is apparel.

And in that growth we’re talking about a $55 to $60 billion apparel market expected to grow to $200 billion by 2020. And, again, it’s a young population (median age is 24), which will continue to grow because there are still a lot of babies. About 35 percent are living in urban areas, which makes a very powerful proposition for a brand marketer from a strategic standpoint.

Robin: What are some of the obstacles, challenges of supplying and entering that market?

Darshan: For those businesses approaching India, they must rethink their strategies for reaching the consumer, rather than just duplicate what they did in the U.S. and hoping it works. I think the largest challenge is what I call the mindset challenge. Most, if not all of the marketers from the western world are tuned to focusing their arsenals on creating the consumer or creating demand. In India, consumers exist; what you need to do is find a way of reaching them.

The biggest challenges are the distribution channels. Of the classic channels of mono-brand stores, multi-brand stores, e-commerce, outlet and department stores, they are either non-existent or still very nascent. E-commerce is eight to 10 years behind the rest of the world.

If you find a way of reaching the consumer, you’ll have no problem with demand. The example I always use is telephony. In the year 2000, there were a total of 25 million phones – land and mobile. Ten years later, there were 747 million phones. The supply created demand. You could not have planned for that.

Robin: So India is poised on the edge of what the U.S. had in front of it at the end of WWII, explosive growth. But, I know there are tremendous issues with distribution infrastructure, legal barriers, etc.

Darshan: One of the things India has not done is make it easy to attract foreign capital. We didn’t have a real estate bubble because a foreigner can’t buy a house in India. The maximum exposure of the banking industry to housing cannot exceed 7 percent by law. If I have a parcel of land, I can build a home, a shopping center, or an office block. The latter two are earning assets. But if I’m a developer, the easiest thing is to build a house. A large component of the landmass in India is going toward housing, because it’s very easy to turn over. The result is that the cost of land is rising rapidly, and there are not a lot of malls or shopping centers being built. However, e-commerce is opening up rapidly. We have the third highest number of Internet users.

Robin: Most U.S. brands in most sectors are focusing on the consumer here. All the localization and customization efforts are examples of that and moving forward rapidly across the board. Is the same thing happening with the apparel players in India?

Darshan: I don’t think the apparel players have discovered India yet. Over the last seven years, I must have met with one large iconic retailer about seven times. But, either they said we have a big upside in the home market, so why should we make the effort to cross the ocean? Or, they had big issues to fix in their home market. On the other hand, the first time I brought the VF Corporation over to India, they said thank you for bringing us here. Let’s do a joint venture.

In footwear, incidentally, Reebok and Adidas are six or seven times bigger than Nike, and the Nike brand recognition is HUGE in India. From 1991 to 2000, they were limited to licensing arrangements. Now all three have a 100% subsidiary, as Reebok and Adidas do, but Reebok and Adidas – they’re five times bigger individually than Nike.

Robin: How do you enter India? VF and Adidas were smart enough to partner with someone who understands the Indian consumer and how to do business.

Darshan: I’ll tell you, and we can talk anecdotally. I’ve seen this from very large luxury brands on the one end and active brands on the other end. They take the business over from the licensee; they pick a person of Indian origin in their system who works in their New York office, someone for example who has lived in the U.S. for the past 10 years, went to business school, is pretty sharp. But typically what happens is that this person becomes whiter than even the New York people, and his nose is in the air. He’s going to live out of a suitcase for the next three years so his children can continue to go to school in the U.S. So unfortunately that guy is neither an American nor an Indian.

Also, there is too much made out of this whole thing about lack of regulation and boundaries and borders. Puma, Nike, Levi, Adidas, these are all extremely large iconic names with 100 percent subsidiaries in India. The same laws exist in the U.S., in the U.K. and India. We still quote English case law in our courts, we use double-entry bookkeeping GAAP accounting standards here just like U.S.

Today, in India, you can set up a company in exactly 24 hours. If I’m not finicky about the choice of name, and it’s available, I can set up a company quickly. You can go on the Internet and fill out the documentation. From that to the banking process, it’s pretty simple. Once you have a DIN number, then you’re all set.

When you come to multi-brand retailing, that means this country has an apprehension just like in the U.S. when Mr. Sam Walton was building the big boxes; no one wanted him to put the little mom and pop elderly couple’s store out of business. Same thing here in India. Having said that, Walmart has 100 stores, and has formed a partnership with India telecom company Bharti. Tesco is forming a joint venture partnership with the Tata Group. My understanding is they’ve chosen these companies because they’re large companies with deep pockets and a big risk appetite. So if I’m a 49 percent partner with my brands, these kind of businesses take 10 years to grow, and for a decade I’m writing a check to fund the losses.

Robin: What about the different models – joint venture, licensing deal, 100% subsidiary. Which are the best models?

Darshan: I don’t think there’s a one size fits all. It’s more the mental makeup of that company. There are lots of models. It would be wrong for me to say that one is better than another. My only advice is once you pick a model, don’t do only a three-year or five-year deal. India is not a three-year or five-year model. If you do a marriage by trial, it remains a short-term arrangement, then the partner milks the brand in five years. It needs to be a win-win situation. Jockey, by the way, is a 25-year license. Arrow is a 20-year deal.

Robin: Who’s on your wish list – the top two or three brands that you’d love to be in India?

Darshan: Indians are more European in their mindset than Americans. The fashion quotient is higher. So an H&M will work here. The women’s side of our market is underserviced. Among the top 5 percent of our society, Indian women are as cosmopolitan as anywhere else. No social taboos, where they can go, nightclubs; it’s a fairly gender equal society. American brands have a very high recall. When we launched Tommy Hilfiger in 2004, even Tommy himself was surprised that everyone knew him. Tommy went from zero to $100 million between 2004 and 2012, and PVH paid a hefty price to acquire 50 percent of that business back from the Murjanis. At the time, when I launched Tommy in India, the next most expensive polo shirt was half the price of Tommy’s. I’m amazed at how much footwear a woman can buy, but we only have six Aldo stores and two Nine West stores in a country this size. Can you believe it? Lingerie as a market is a huge potential here. So my wish list is to have BCBG dresses, Steve Madden shoes, Victoria’s Secret lingerie, and Coach accessories in India

Robin: Why is the women’s share of apparel so much lower than men’s?

Darshan: When the economy comes into new money, men spend on themselves first. Then the women start to get out of the house, and catch up. Very often gaps in the market happen. India sells 130 million pairs of jeans per year –- this in a country that didn’t grow up wearing jeans. That’s a crowded market, like the dress shirt markets, still growing at 15 percent per year

Robin: Any last thoughts?

Darshan: One of the things I tell my people virtually five times every day is ‘Never ever let the thought cross your mind, so that it doesn’t cross your speech, that you work for a company that has $18 billion in cash sitting in the bank, and that we have a sovereign credit rating a notch higher than India’s, because then the arrogance flows in to the partnership. So you approach the partnership with humility and learning. Don’t let the baggage of your success elsewhere blindside you. New markets can be a big blow to your ego.’

Robin Lewis About Robin Lewis

Robin Lewis has over forty years of strategic operating and consulting experience in the retail and related consumer products industries. He has held executive positions at DuPont, VF Corporation, Women’s Wear Daily (WWD), and Goldman Sachs, among others, and has consulted for dozens of retail, consumer products and other companies. In addition to his role as CEO and Editorial Director of The Robin Report, he is a professor at the Graduate School of Professional Studies at The Fashion Institute of Technology.