Some of the largest franchisee operators in India are scaling down operations with tough competition from new entrants and online rivals. For example, Kapsons has shut more than 50 Benetton stores, Wrangler and Lee stores, among other brands, in the past year. A Delhi-based franchisee store operator of various global brands has closed some outlets and now plans to exit the business and move to hotel venture. With growing competition from fast fashion giants such as Zara and H&M and the deep-discounting strategies adopted by Flipkart, Amazon and Myntra, many franchisee operators are finding it tough to sustain growth.
Vipin Kapoor of Chandigarh-based Kapsons said recently running a franchisee business is no more a lucrative proposition – except for some brands. Over the past couple of years, India has seen unprecedented discounting by foreign fund-heavy e-commerce companies aimed at acquiring online customers. That has badly hit the legion of brick-and-mortar retailers, which had to offer larger discounts at the expense of their margins.
Discounting strategy hits franchisees
Talking about widening discounts and there impact, Pawan Khandelwal, Chief Executive, Samarth Lifestyle, which operates Tommy Hilfiger, US Polo, Puma, Lee and Calvin Klein outlets explains the average yearly discount provided by brick-and-mortar stores has widened to 23 per cent — even 30 per cent for some brands — from about 15 per cent three years ago. Consumers are seeking more discounts or value for purchases. Earlier 65 per cent merchandise retailers used to sell at full price and the rest on discount. Now, half of the total products they sell are on discount. Samarth Lifestyle operated about 125 franchise outlets of various brands, which the Jaipur-based company has now cut down to 85 by closing about 40 outlets of Peter England, Louis Philippe, Allen Solly, Arrow and others. Arvind Brands has reached a mutual agreement with Samarth for the return of 4-5 Arrow outlets.
Benetton’s franchisee stores returned by Kapsons have been ‘passed on’ to two other franchisees. As per Sundeep Chugh, CEO, Benetton India the company has a multi-channel strategy for distribution and therefore they keep tabs on each channel’s individual sustainable growth. Throwing light on the franchisee strategy, Harminder Sahni, Founder, Wazir Advisors observes large franchisee operators believe working on creating their own retail brands would bring better valuations for them. Franchisees are realising while they do most of the hardwork, they put the capital expenditure and live on thin margins, ultimately it is the (franchisor) brands whose values are being created.
Retailers’ plan ahead
Kapsons is ramping up its own department store chain, selling a raft of brands under one roof. It operates 17 department stores and plans to take it to 25 by next year. Samarth has rolled out the iconic-branded department store chain. SSIPL Retail, which runs more than 200 franchise outlets of Nike and Levi’s, is ramping up its multi-brand chain called Sports Station.