For Rosso, who launched the iconic brand in 1978, it was almost a personal slight. Born to a family of Italian farmers, his rise to the top is part of fashion industry legend. In 1996, when Rosso took Diesel to the American market at a price of $89 (about Rs 5,600 at current rates), people thought he was crazy. In time, Diesel’s vintage, distressed treatment became a template for other brands. Even though Rosso had been hands-off from the nitty-gritty of the business, he was still known as the talisman behind Diesel’s ‘rebel’ image. Now, his legacy was under siege, and protecting it would take tough calls.

Rosso started with a shake-up at the top. In 2013, he replaced CEO Daniela Riccardi, who had come from consumer goods giant P&G, with Alessandro Bogliolo from luxury bellwether Bulgari. He also brought in a new artistic director, Nicola Formichetti, Lady Gaga’s former stylist, to revitalise Diesel’s line-up for women. Formichetti was a risky hire in Diesel’s grungy design shop that caters mostly to men, but then Rosso is something of an expert at such bets. At Diesel’s sister brand Maison Margiela, for instance, he brought on board ex-Christian Dior designer John Galliano—the same Galliano who had had a meltdown in 2011 and was fired for launching into anti-Semitic invective at a café in Paris.

Then in 2014, Rosso made perhaps his riskiest move: He fired at least 100 Diesel retailers across the world. If the aim was to restore the brand’s ‘exclusive’ aura, he paid a heavy price for it. Almost overnight, Diesel lost 240 million euros (Rs 1,834.6 crore) in retail sales. (Diesel’s revenues of about 1 billion euros are over 60% of the takings of Only The Brave, its parent company.)

Rosso, an unshaven 60-year-old, is meeting me dressed in, what else, jeans, and a custom-washed inky blue denim shirt. The initials “RR” tattooed on his knuckles make for a striking picture as he runs his hands through his hair, his eyes closed and his forehead wrinkled as if in a flashback of a very bad migraine. “You can’t imagine what I went through,” he says, taking a drag from his cigarette. “It was a lot of money to lose,” even if it was essential to what Rosso calls Diesel’s “reboot”.

Rosso says India could become one of Diesel’s top five markets.
Rosso says India could become one of Diesel’s top five markets.

“Business growth that can be immediately ascribed to a new creative direction is not only not possible ... but is also possibly a myopic interpretation of Diesel Reboot,” says a company spokesperson over e-mail, responding to a question about how the comeback bid has fared. Shorn of jargon, that means results will take time. But hidden in that larger story is another charge Rosso made, this one in one of the world’s toughest markets for premium brands: India. Here, in 2010, Rosso entered into his first joint venture—a 51%-49% deal with Reliance Brands, with Diesel holding the majority stake (though legally the two are equal partners).

“I started checking India out 15 years ago, watching the market and observing how licences were doing,” Rosso says. He had stayed away from licensing Diesel, worried that the brand would slip through his fingers and he would end up with a hodgepodge of “different products in different countries”. Going all in with a powerful partner—Reliance Brands’s portfolio includes the likes of Ermenegildo Zegna, Superdry, Kate Spade, Thomas Pink, Kenneth Cole, Paul & Shark, Brooks Brothers, and BCBG Max Azria—made sense.

And it’s paying off: Diesel claims to have broken even in India in 2014 and stayed profitable since. (Fortune India could not independently verify the numbers since the company doesn’t disclose country-specific financials.) In the past six years Diesel has expanded rapidly. It now runs 11 stores and is planning four more in the next two years—one each in Noida, Delhi, Mumbai, and Kolkata, and one in a domestic airport (one store in Ludhiana was shut down for non-performance). A host of Bollywood stars, from Salman Khan to John Abraham, are among the brand’s early adopters, giving it an aspirational glow in a country with rising income levels and a large millennial population. Rosso’s mood brightens as he talks about India. “It’s a beautiful little business that has been built here,” he says.

India is indeed “little” in revenue terms. Diesel sells 5.5 million pairs of jeans across 400 exclusive stores, departmental stores, and online channels in 80 countries. A fifth of those are sold in Japan, one of the world’s most fashion-forward markets where Diesel has been around for 30 years, and about 17% in the U.S. In contrast, Diesel India sells some 45,000 pairs a year. But Rosso believes in time, India could leap to Diesel’s top five markets.

It’s the kind of uplifting example Diesel’s turnaround push could use, and it’s not empty bravado. Unlike in the West, jeans as a category is still growing in India, at a compounded annual growth rate (CAGR) of 6%. By 2020, it will be a Rs 20,000 crore market, per market researcher Euromonitor. Also, contrary to popular perception that the Indian market is perennially in discount mode, the percentage of products sold at full prices is much higher here: 65% compared with 50% in developed markets, says Darshan Mehta, CEO of Reliance Brands. Discounting only happens twice a year, for around 60 days. Mehta recalls a meeting with Claudio Del Vaccio, owner of Brooks Brothers. “We wish we could be more like India,” Mehta remembers being told. “Here in the U.S., we have only 155 full-price days.”

On average, Diesel’s jeans start at Rs 15,000 and go up to as much as Rs 1 lakh for a pair—big bucks for what in fashion speak is defined as “premium casual” or “alternative to luxury”. Rosso points out that Swedish retailer H&M sells a pair of jeans for around 30 euros, which can be the cost to specially treat one pair of Diesel. “Sometimes, parents stop me in the street to say, ‘I want to kill you because my kids want to waste so much money on your products,’” he laughs.

That psychology is Diesel’s biggest challenge in India, where the market for denim took shape in the 1980s with budget brands like Flying Machine, Avis, and Buffalo sold in a largely unorganised manner. In the early ’90s, the perception changed somewhat with the entry of multinationals Levi Strauss & Co., Lee, and Pepe, which sold their wares through exclusive outlets that focussed on experience. All the while, mass Indian labels with mass appeal, like Kewal Kiran’s Killer, continued to thrive. The Rs 400-crore-a-year company, which also owns Lawman jeans, sells over 2 million pairs a year, starting at Rs 1,600 a pair.

Diesel’s stores in Hyderabad and (right) Delhi: As prime real estate in metros is expensive, will Diesel’s large stores need trimming?
Diesel’s stores in Hyderabad and (right) Delhi: As prime real estate in metros is expensive, will Diesel’s large stores need trimming?

The biggest domestic player is Arvind, which was founded during the nationalistic wave of the 1930s and is now a Rs 8,450 crore integrated textiles and branded apparel company. Denim contributes Rs 1,850 crore to Arvind’s top line. A large part of that comes from sales of rolled denim to the likes of Levi’s, Tommy Hilfiger, Calvin Klein, Gap, and American Eagle. Diesel says it is also working with local vendors to make a range of apparel and accessories for both India and exports. That can be easily scaled, since India is the world’s largest producer of cotton, the raw material for denim.

Levi’s remains the leader on the retail side, albeit with a relatively small market share of 6%. In 2014, it turned in a small profit for the first time, but to get there it has had to sacrifice the kind of premium pricing it follows in the West. Vasanth Kumar, executive director of Max Retail owned by Landmark Group, indicates that’s the reality of growth in India. Each of Kumar’s 140 stores sells a minimum of 20 pairs of denim daily. His products are priced between Rs 700 and Rs 1,200, which he says is the sweet spot in denim pricing in India.

“I get a lot of requests [to bring down prices]. The truth is, we could be maybe four or five times bigger if we did,” Rosso says. “But the quality will suffer, and that’s not something I am okay with.” He is happy to give India time. His thinking is in line with what consultants like Devangshu Dutta of Third Eyesight, a firm that works with retail and consumer businesses, prescribe. “Any premium brand should expect to bleed for the first seven years, and really make money after 15 years,” Dutta says.

It sounds like a simple formula, but as other premium brands that have run into the bargain-hunting Indian customer, expensive real estate, and rickety infrastructure will vouch for, it is anything but. Unable to cope with steep capex, the franchise model for Gucci, with Indian partner Vijay Murjani’s Brand Marketing India, fell apart after just three years of its inception, in 2009. The Murjani Group had launched other premium brands like Jimmy Choo, Bottega Veneta, La Perla, Tommy Hilfiger, Calvin Klein, and French Connection, and had built Gloria Vanderbilt and Tommy Hilfiger globally. Licences for Jimmy Choo and Bottega Veneta were also disbanded.

Globally, denim faces existential problems as it’s no longer the predominant wardrobe choice. In the West, ‘athleisure’ brands like Under Armour and Lululemon have surged, with buyers moving to casual sportswear even when they aren’t exercising. Levi’s is a handy reference. Twenty years ago, it had revenues of some $7 billion. That has now shrunk to less than $5 billion. In India, too, the rising popularity of yoga pants and leggings “pose a threat to denim”, says Euromonitor. Diesel’s own bastion, the designer denim segment, is also seeing a scramble, with the entry of brands like True Religion, 7 For All Mankind, Ralph Lauren’s RRL, and countless others.

Underlying all this is denim’s identity shift. What was once a staple for blue-collar workers is now a fashion statement for athletes and celebs on the red carpet. While the migration from commodity to fashion is great for brand perception, it also contains a threat for Diesels’ tribe: constantly reinvent or become passé.

India, where denim is still something of a commodity dominated by entry-level brands, gives Diesel a bit of breathing space. But hardcore Diesel fans insist it can’t rest on its laurels. Rustom Desai, the fortysomething India head of a Fortune 500 company, says he has been buying Diesel for the past 12 years. “It really comes down to what they stand for: high quality, excellent fits, and not running with the pack,” he says. About five years ago, Desai says it became difficult for him to articulate why he should buy his next piece of Diesel clothing. “I put it down to the brand having lost its edge, what made it great in the first place.” That resonates with Rosso’s own assessment of what ailed the brand. In various interviews, he has admitted that Diesel became a “tired” brand. More recently, says Desai, improved in-store experience and edgier designs have made Diesel a favourite again.

Desai travels across the globe for at least four months in the year and says the big difference between Diesel elsewhere and in India is the quality of the staff. “In the U.S., the [sales] personnel tend to be more experienced. They understand and use the products much more than their Indian counterparts.” India also doesn’t have as wide a range as other markets, despite being a costlier place to buy Diesel products. To woo buyers, Desai recommends a stronger online push and greater integration of eastern designs. “Canali is an example I can think of,” he says. “It has an India-specific clothing line which the rich and famous line up to buy.”

Rosso, who has visited India three times in the past six years and meets with Mehta at least four times every year in Italy, is leaning on his partner to get it right in India. More than once during our chat, he refers to Mehta as the one who has the answers to some of my questions.

Rosso knew Mehta since his days at Arvind and even considered a JV with Arvind in 2007, only to pull out and tie up with Reliance Brands when Mehta went there. Personal bonhomie apart, it was a strategic alliance. Reliance Brands’ clout allows it to negotiate better rentals, which is vital since Diesel stores tend to be large: the UB City Mall store in Bengaluru is 4,000 sq. ft., the Juhu store in Mumbai is 5,500 sq. ft., and the store at Delhi’s Ambience Mall is 3,600 sq. ft. While big space is par for the course in luxury, it stresses the balance sheet. On average, rentals at top-end malls range between Rs 700 and Rs 900 per sq. ft., and to stay in the black, Diesel would have to rake in sales at least six or seven times its rentals. To hedge against that, the company has locked in rentals lower than current market rates, says Mehta.

Regardless, does Diesel really need such large stores? Bottega Veneta, now run by Sanjay Kapoor’s Genesis Colors, rejigged strategy when its 2,100 sq. ft. store at the DLF Emporio Mall in Delhi was struggling. In 2011, Kapoor downsized and moved into an 800 sq. ft. store at the same mall. But Mehta says that’s not how he sees this business. “You don’t go to a high-end restaurant because they offer a fast-food style service. You go for the experience and the ambience.”

Smartly utilising retail space is a priority for all large chains—think H&M, Zara, Forever 21, or Top Shop—who increasingly use their stores to serve up entire arrays of apparel, including a variety of denim. Take Zara. The Spanish retailer recently signed a lease for 50,000 sq. ft. in Mumbai’s Fort area for an unheard of annual rent of Rs 30 crore. Walk into Zara’s store at the Palladium Mall on any given day and it all makes sense. On the ground floor and first floor, entire families jostle to select trousers, shirts, and dresses in wide ranges of colours and patterns. Affordable prices, high turnover, and something for everybody—that’s the formula working for Zara.

The era of product-focussed brands is over, concurs Kumar of Max Retail. It’s not that denim is not doing well, but other categories like shirts, khakis, and office wear are doing much better, he explains. Mehta too understands that shoppers need variety, and that the way people shop has fundamentally changed. Earlier, they would buy a pair of jeans and a T-shirt and match a belt or a purse to it. Now, they buy the accessory first and then match their apparel to it, he says. So you could walk into a Diesel store and shop for shoes, belts, watches, hats, and even colognes. Then there’s a line for kids that Mehta says will be in stores soon. In the long term, Indian shoppers will also be able to buy products from the Diesel Living range, which includes home furnishings, kitchenware, and lighting. But for now, over half the stock in any Diesel store is denim.

Meanwhile, to reduce dependence on stores, Diesel is investing in other channels. One of its biggest India-centric innovations is home shopping. Fortune India’s September 2012 issue narrated how Diesel’s reps drive as much as 500 km from Mumbai with suitcases of jeans to entice buyers in smaller towns like Kolhapur and Nagpur, where sales per client average between Rs 70,000 and Rs 100,000 per home visit. Last year, it scaled up the routine in 260 towns across Gujarat, Rajasthan, Punjab, West Bengal, and Assam. Mehta says he will send his team to any pin code in the country, even if it has just one potential customer. “You may think this is a Mickey Mouse way of building a business,” he says, “but in the end it all adds up, especially when that one person talks to his community.” To keep the conversation going with regular customers, sales managers also send look books and share new arrival information over WhatsApp.

How Diesel brings new products to India isn’t too different from other fashion houses, except it’s much more intense. Four times a year, a handful of buyers from Diesel India fly to the headquarters in Breganze, Italy. There, for almost a week, at a 1 million sq. ft. copper-and-concrete office that is built like an ultra-modern airport, they test out new stuff on models. “The process is both right-brain and left-brain,” Mehta says, because buyers scout out trends and at the same time take calls if those would work in their home markets. Once a selection is made, the buyers freeze on an “open to buy” order for the season ahead. In a sense, the buying is happening backwards with products that have not been launched yet and with current market sensibilities in mind. That’s not always easy.

For instance if Jogg jeans, basically soft cotton pants that look like jeans and have a drawstring, is the flavour of the season, Mehta’s team has to decide if it is something that will work in India or repel buyers because it looks too much like pyjamas—the kind traditionally used as a night wear. “Of course I’m scared at times that we could go wrong,” Mehta says. But by now, he has a fair sense of what doesn’t work in India.

He rattles off a list: plain white tees with no visible branding, carrot chinos or cropped chinos with tight, narrow hems at the ankles, and full-sleeve polos. The Indian buyer is too prosaic and doesn’t like mixed materials, abstract prints, or anything to do with layered clothing—“sheer tops, heavy hoodies, or jumpers”—he adds. “Italian silhouettes”, or how a pair of jeans ought to naturally sit on the human form, just don’t flatter average body types in India. Despite growing awareness on fitness, genetically and by disposition of lifestyle, Indian males on average are not as athletic or lean as Europeans, and hence don’t carry most designs with ease. What works for them? “Skinny lines” or slim, straight fits, Mehta says.

Culturally, jeans hasn’t outgrown the ‘casual’ tag in India. It still isn’t accepted as corporate dressing, for instance. In the U.S., Mark Zuckerberg, Richard Branson, or Steve Jobs embraced blue jeans. For most Indian CEOs that’s a strict no-no. Rosso isn’t bothered by that. Instead, he tells me about the pair of white jeans studded with Swarovski crystals he presented to the Pope. That iconoclastic, laid-back vibe remains at the heart of Diesel. But Rosso admits that at 60, he “feels the pressure to remain cool”.

It doesn’t help that with time, Rosso has had to tone down Diesel’s raw, devil-may-care playbook. For much of its history, Diesel’s brand imagery was built on shock value. A billboard in 1994 featured a real-life gay couple kissing dressed as sailors. A print ad featured a model with cigarettes and the tag lines: “If you could smoke 145 cigarettes you may get cancer” and “Who needs two lungs anyway?” That was when tobacco ads were commonplace in magazines and papers. Another time, in 1998, Rosso had his team shoot models in the sea, with their legs weighed down with stones giving their denim a special “wash treatment”. What he didn’t know was that several years ago, a few desaparecidos (persons who have disappeared, presumed killed by the army or the police) had been executed the same way—thrown underwater with stones tied to their feet. Diesel dropped the campaign as soon as it found out, and today Rosso says, “It’s not easy to be provocative anymore. Anything can offend anyone and get multiplied at the speed of light on a social network.” These days Diesel sticks to simple global campaigns that are stripped of edginess. For example, in 2007, there was the Global Warming campaign; in 2008, the Live Fast campaign; in 2010, the Be Stupid campaign, and so on. “I don’t want to ever become arrogant as a brand. I want to stay cool, and friendly,” Rosso says explaining his vision for the brand.

Luckily for him, Diesel doesn’t have to try too hard to win friends. Six years ago, around Diesel’s India launch, Reliance Industries chairman Mukesh Ambani met Rosso at his office for the first time. “I was talking to my daughter who is in the U.S. and told her I’m meeting the founder of Diesel,” Ambani is said to have told Rosso. “That impressed her more than anything else I have ever told her about my business.”