Healthcare, Pharmaceuticals & Life Sciences

Sub-Branding Under Single Brand Retail Trading

I. INTRODUCTION

A Single Brand Retail Trading (“SBRT”) entity refers to entities involved in the sale of products belonging to a single brand, both domestically and internationally. Examples of such entities include Adidas, H&M, etc.

Foreign direct investment (“FDI”) in SBRT entities was increased to 100% from 49% via the automatic route in 2019.[1] This step has helped promote India as an attractive destination for foreign investments in the SBRT sector.

II. AMBIGUITY AROUND SUB BRANDING

According to the ‘Consolidated FDI Policy Circular of 2020’[2] released by the Department for Promotion of Industry and Internal Trade (“DIPP”), effective from 15 October 2020 (“FDI Policy”), an entity seeking FDI under the SBRT regime would be required to abide by certain conditions.

One such condition is that products sold by the said entity should be of a Single Brand only. However, no definition for ‘single brand’ has been provided in the FDI Policy, or under any other Indian regulations. This has led to significant ambiguity pertaining to what amounts to a ‘single brand’ under the FDI Policy, and whether sub-brands by entities may be classified under a ‘single brand’.

As per the information provided on the portal of InvestIndia, investors are required to seek fresh approval under the FDI, under different entities, for each sub-brand. However, in certain scenarios, sub-brands have been allowed to function.

Case Studies

Marks & Spencers
In 2013, a reference was sent by the Department of Economic Affairs to the DIPP against Marks & Spencers, seeking clarification for the sale of items under two separate sub-brands – M&S Woman, as well as Autograph. The need for this clarification arose since Marks & Spencers had received an approval under SBRT regime only for their flagship brand, i.e., Marks & Spencers.

The DIPP however, took no action against Marks & Spencers for selling products under the two sub-brands. The view taken, due to this non-action, was that Marks & Spencers was implicitly permitted to sell their products under different sub-brands. On the basis of this non-action, several other brands are also operating multiple sub-brands, with only one collective approval for the parent brand, as per the list of approved SBRT entities available in the public domain. Examples of such brands include Nike, Decathlon, etc.

Zara / Massimo Dutti
This principle needs to be carefully applied since issues may arise while taking the route of sub- branding. For instance, in the case of Zara and Massimo Dutti, both owned by Inditex, the DIPP stated that Massimo Dutti’s products could not be sold through the approval obtained for Zara, since the two were considered separate brands. Hence, this led to Inditex having to take a separate approval for undertaking the sale of products under the Massimo Dutti brand. To avoid these issues, certain investors have chosen to obtain approval for distinct brands through separate entities. An example of this includes Jack & Jones and Vero Moda, both brands having obtained separate approvals despite being owned by the same company, Bestseller.

Test for Sub Brands

An analysis of market trends and the two case studies would suggest that there are specific aspects one needs to consider, to determine if a particular brand can be construed as a sub-brand of the SBRT entity, and not a separate brand. Interestingly, in the case of Decathlon, we have seen that the products of all their sub-brands are marketed and advertised in such a way that the products can be clearly classified as Decathlon products in the market.

One can also ensure that a particular brand qualifies as a sub-brand and not a separate brand, by having a clear link and indication to the parent brand. An example of this can be seen in the case of Nike, where all products, despite being sold through several different brands are still advertised uniformly with the Nike logo and branding. Therefore, the marketing and advertising of a particular brand can determine whether it will fall under the same brand or will be considered as operating in the capacity of different brand altogether.

III. CONCLUSION

Despite there being such analysis on market trends and practices, there is still a certain level of ambiguity surrounding the concept of sub-brands and what constitutes the same as per the law. It is vital for the DIPP and the government to provide clarity on this concept, since the conditions for entities engaging in multi brand retail trading (MBRT) are much more stringent from an FDI compliance perspective and are strictly regulated by the government, as opposed to the entitles engaged in SBRT. It is also important that the legislation provide guidance/clarifications on how the classification of sub- brands may be undertaken and the conditions to keep in mind, so as to avoid ambiguity with respect to sub-branding.