DLF to end partnership with Salvatore Ferragamo to exit luxury brands business

Less than a fortnight after ending its joint venture with Giorgio Armani, DLF said it is in the process of breaking its partnership with another Italian luxury brand Salvatore Ferragamo as part of a move to exit luxury brands business.

“Luxury is a futuristic business in India at the moment and does not have scale,” DLF Brands Chief Executive Officer Dipak Agarwal says.

The real estate major will instead focus on selling premium and bridge-to-luxury fashion brands such as Boggi, Alcott, Mango, Mothercare, Claire’s and DKNY. “This segment is much more profitable and scalable,” Agarwal says.

He says that while luxury brands have a big future in India, it will require another five to seven years to achieve scale and market size. “For us, size with speed was important,” he says. The company has had only four Ferragamo and three Armani stores since it entered the luxury brands segment in 2008 as expansion of these brands in a limited market was getting difficult.

In comparison, UK retailer Mothercare, which sells prams, pushchairs, car seats, baby clothes and also maternity clothes, entered India in 2009 and already has 42 stores in the country. It will add 15 more stores this year. Boggi has 12 stores and DLF will add another three stores in the next one-year.

The luxury market in India is bogged down with issues such as high import duties and lack of skilled manpower and quality real estate. There is only one luxury mall in the country currently, the DLF Emporio in Delhi, and brands are reluctant to enter high street locations due to poor infrastructure around them.

The cost of retail real estate is very high and that has been nibbling into the profits of luxury retailers in the country.

Today, it costs Rs 8-10 crore to set up a luxury store while a store for a premium brand can be made for Rs 70-80 lakh. To offset this cost, some luxury brands have resorted to reducing the size of their stores to improve the sales per sq ft of space.

DLF Brands currently operates 120 stores for its brands and Agarwal hopes to take the number to 500 in the next three to four years. While the company has decided not to invest in new luxury brands at the moment, Agarwal says it may help some top brands enter the country through support on the real estate and supply chain fronts.