Alok Industries mulls exit from retail business

Textile major Alok Industries is looking at exiting its retail ventures as it wants to focus on its ‘core businesses’ and shift from non-core businesses such as retail which have increased its debt burden.

“On a turnover of Rs 12,000 crore, there is no sanity of Rs 40 to 50 crore revenues coming from the retail segment. Retail is a non-core segment for us,” sources close to the development told Business Standard.

The company had a debt burden of Rs 16,000 crore as of March 2012 and a debt equity of 4.6:1.

Alok, it is learnt, is looking at hiving off or exiting its five-year old apparel retail business, ‘H&A’ and 200-store strong ‘Store Twenty One’, a UK-based retail chain owned by the company.

“Post the government approval for foreign direct investment in multi-brand retail, the company believes that it can sell the H&A business to foreign investors,” said the sources. Alok is also looking for buyers for Store Twenty One.

Once Alok exits H&A, the agreement with Australian cricketer Brett Lee’s ‘Active Wear’ and the exclusive production and distribution agreement with the UK’s renowned brand ‘Savile Row’ will come to an end.

“Those agreements remain as long as the business runs,” the sources said.

Alok has already closed 45 loss-making stores of H&A out of the 190 exclusive stores it had. “Store Twenty One has not made any profits so far,” said the sources.

Alok acquired the Store Twenty One chain in 2007. Store Twenty One chain saw its earnings before interest, tax, depreciation and amortisation fall to £4 million (Rs 34.7 crore) for the quarter ended June 2012.

Alok is also selling its real estate assets to reduce debt. It has sold several floors at the Peninsula Business Park in Lower Parel for Rs 1,030 crore.

Business Standard made repeated calls to Alok’s top executives for comments. But they could not be reached.

Another textile major Welspun India has shut most stores of its ‘Welhome’ chain and is now selling products to franchisee retailers on a ‘sold out’ basis.

“Welhome was a one-of-its-kind model and too early for its time. While sales were good, increase in real estate costs, labour and service tax all posed problems,” said Dipali Goenka, managing director, Welspun Global Brands Ltd, which manages the chain.

However, Welspun is developing another retail format, ‘Spaces Home & Beyond’ which is a shop-in-shop concept. “The company currently has 200 such shop-in-shops and they are seeing a growth of 25 to 30 per cent,” Goenka said. Each counter has a size of 150 to 200 sq ft.

Currently, retail accounts for five to eight per cent of the total turnover of Welspun India and the company is planning on taking it to 10-15 per cent.

Welspun expects the retail business to be around Rs 100 crore this year. “Retail is going to be a growth engine and we are formulating retail strategy,” Goenka said.

Analysts said textile companies lacked a separate growth strategy for retail.

“Textile companies should have understood that their competitiveness in manufacturing would not translate into that of retail. They are two separate areas and need full time management focus,” said Prashant Aggarwal, deputy managing director of Wazir Advisors, a retail consultancy.