Arvind: Less of denim, more of brands

The textile major wants to increase its revenues from apparel and fabric retailing to 40 per cent of total in FY 13, from a third at present.

The theme of textile and apparel major Arvind’s latest corporate presentation is “transformation”.

For the 80 year-old textile and apparel major, the “transformation” was changing its business model from a pure textile play (B2B) to a retail-led strategy (B2C) at a time when the retail industry is growing faster than the textile segment.

Consider this: While Arvind's textile business, mainly led by denim, grew by 20 per cent, retail and brands business grew by 47 per cent in FY 2011.

Arvind saw a third of its Rs 4,000 crore revenues coming from apparel and fabric retail in FY 2011 and the company expects this to go up to 41 per cent by FY 2013.

Its peer Raymond saw 26 per cent of its revenues coming from retailing in FY 2011 but had to close brands such as Manzoni, Be and Zapp and ended a joint venture with GAS in the past as they were not working out.

Wadia group-promoted Bombay Dyeing, which is making losses for the last couple of quarters, is also planning to change its image from a pure manufacturing company to a retail-focused company to boost its revenues. From the current 350 points of sale, it wants to add 365 new ones in the coming quarters.

The stock market has rewarded Arvind’s performance. While the Arvind stock has risen around 20 per cent since the beginning of the year, Bombay Dyeing and Alok Industries stocks have fallen over 25 per cent each. Raymond’s has risen in single digits.

“Going ahead, retail will be bigger as there is an opportunity for growth, but, textiles do have a certain volume growth. Apparel market is growing at 30 per cent and organised retail is growing at the expense of unorganised retail. Even if there is a slowdown there will be a fall of only five per cent,” says Sanjay S Lalbhai, chairman and managing director, Arvind Ltd.
 

BRAND PLAY

Own brands

* (Premium) Flying Machine, Ruggers, Excalibur

* (Value segment) Mega Mart, Newport University, Colt

Licensed brands

* (Premium) Arrow, US Polo, Izod

* (Bridge to luxury) GANT, Tommy Hilfiger

Analysts say Arvind’s biggest strength in retailing is that its brands straddle across all segments of the consumer market—value, premium and bridge to luxury and it is likely to contribute 20 per cent compounded annual growth rate (CAGR) from FY 2011 to FY 2013, says a recent report from SPA Securities.

“All our key brands such as Arrow and Flying Machine are above Rs 100 crore each and growing at 50 per cent,” says J Suresh, managing director, brands and retail, Arvind. “The reason for their success is that we have introduced new categories in these brands and rebranded Flying Machine, Arrow, Megamart to have more youth appeal,” Suresh adds.

Darshan Mehta, chief executive of Reliance Brands and former CEO of Arvind Brands, says:” Unlike other companies, Arvind did not see retail as forward integration but as an independent business unit. Though we were retailing a number of denim brands, we used to buy denim from Raymond and Mafatlal (Arvind's rivals in textile business) as it was more economical.”

Arvind also has a joint venture with Tommy Hilfiger which is doing a business of Rs 200 crore a year and growing at 50 per cent a year.

The company’s discount chain Megamart which is looking at revenues of Rs 1200 crore this financial year, has an edge over others, say analysts.

“The company’s strategy is different from other players in the segment such as ‘Brand Factory’ and ‘The Loot’ as it does not have to rely on others for its merchandise. This serves as a key advantage as the company uses older but popular designs from its own premium brands to attract customers at a discounted price,” says Manas Majumdar of SPA Securities in a recent report.

The company is following the ‘hub and spoke’ model for its Megamart stores- two or three stores in a state to drive brand image, setting up neighbourhood stores in tier one cities to provide high accessibility, small stores in tier two and three towns and franchise stores in tier four towns.  Arvind is eyeing Rs 250 crore of revenues from adding 300,000 square feet of space every year apart from like to like growth, meaning sales from the existing stores, says its corporate presentation.

Arvind also plans to increase exclusive store space for Arrow, US Polo and  Flying Machine from 0.3 million square feet to 0.6 million by 2013-14 apart from increasing its share on the shelves of department store such as Pantaloons, Shoppers Stop and Lifestyle.

The company’s latest move in retailing is to have The Arvind Store, which retails fabrics, its ready-made garments and ready-to-stitch products. The company plans to have 100 exclusive stores under this brand and currently has over 10 such stores across South India.

Though Arvind doubled net profit in its retail and brands segment in FY 2011, analysts say this could come down this year due to rising costs while top line from retail may maintain good growth.

“Even if it comes down, we will at least see 50 per cent growth in profits,” says Suresh.