Arvind: Licence to sell more

With half a dozen new brands under its belt, the apparel brand licensee wants to lead in more than one segment. But it has to pay a price for it

An entire wall in the 8th-floor office of Arvind Lifestyle Brands, in Bangalore, has been used to display the latest brand it has licensed. Arvind Lifestyle Brands (Arvind) is set to launch the American brand Ed Hardy, that is on display, in January, next year.

Arvind has signed agreements with half a dozen international brands in the last nine months (refer box), going neck to neck with Reliance Brands, a unit of Reliance Industries, which added five apparel brands to its portfolio in the last financial year.

Reliance Brands has a stated intent of building a portfolio of brands in apparels. What has made Arvind, which has built on the business model of licensing apparel brands since 1993, go on its recent spree? "We want to take a lead in menswear, kidswear and speciality retail" says Suresh J, managing director of Arvind Lifestyle Brands and Arvind Retail, by way of an explanation. Speciality retailers are single-category retail chains, different from multi-category hypermarket chains.

The new brands, along with Arrow, Nautica, US Polo, GANT and IZOD, will make for a strong portfolio in menswear, according to Suresh. "It (Arvind) did not make money in Arrow for the first ten years but the brand minted money in the last three-four year," points out Prashant Agarwal, joint managing director at the retail consultancy, Wazir Advisors.

Even though Arvind and Aditya Birla Nuvo's Madura Fashion & Lifestyle are close competitors in menswear, Agarwal says the former is more aggressive with its more international brand launches. Arvind's brands such as Arrow and Nautica compete with some of Madura's brands such as Van Heusen and Allen Solly.

Whereas Madura has mostly focused on makeovers of its existing brands such as Van Heusen, Allen Solly and Peter England with renewed marketing focus. For others such as Louis Philippe, it has introduced new extensions.

Even though Reliance Brands has higher-end brands in its kitty, Arvind has got it on its crosshairs. In one of its recent quarterly presentations for investors, it had said that its menswear brands could go on to compete with Brooks Brothers and Pink and Kenneth Cole of Reliance Brands.

Arvind will tweak its new licensed brands for the Indian market. It will reduce the price of Ed Hardy to make it a "super premium/premium brand rather than a luxury brand," says Suresh. The merchandise of the brand will include accessories and jeans, besides

T-shirts, allowing Arvind to compete with the likes of Levis and Calvin Klein with a pair of jeans priced at Rs 2,500-3,000.

With menswear sorted, Suresh says the company wants to be the number one player and straddle different price points in kidswear. Popular kidswear brands in India have been in rough waters of late. Brands such as Liliput and Catmoss got embroiled in tiffs with their investors and Giny & Jony had troubled relations with its lenders.

"The segment occupied by Liliput and Catmoss is mid-value, which has a lot of potential and where Arvind does not have any brands. It should look at it," Agarwal says. Arvind has lined up Cherokee Kids for the value segment. By way of premium brands, it will offer Elle Kids and US Polo Juniors, and in the super-premium segment, it will sell GANT Kids and Nautica Kids.

"Whatever brands we launch, we aim to make them Rs 100-crore in the next three to four years," Suresh says. It wants to take the contribution of its brands and retail segment to revenue from 27 per cent in 2012-13 to 36 per cent in 2015-16. Arvind gets 68 per cent from textiles and 3 per cent from other businesses.

Analysts sound a warning at Arvind's many launches. "Its return on capital (RoC) will be under pressure. It has to spend a lot of capex for growing the brands," says Jignesh Kamani, research analyst with Nirmal Bang Securities.

The RoC from brands and retail was 11.4 per cent in 2011-12, "which was lower than its cost of capital", Kamani adds. In 2012-13, the RoC was 10.4 per cent. Madura's RoC, by contrast, was 21 per cent in 2011-12. Kamani says it is better to focus on any one segment in apparels for better cashflows.

Suresh refutes by pointing out, "We are moving towards an RoC of 20 per cent in the next three years. We have invested so much in new brands in recent years that the RoC has been low."

While its own apparel brands such as Ruggers are in the mass segment, most of its licensed brands are either premium or super-premium, that are not affected much by shrinking discretionary income.

IN THE HOPE OF THE NEXT RS 100-CRORE BRAND
New brands due for launch through this year and next

* Debenhams (UK-based departmental chain)
* Next (UK-based speciality chain)
* Billabong (Australian surfwear)

* Ed Hardy (US-based fashionwear)
* Hanes (a brand of US-based HanesBrands)
* Wonderbra (a brand of US-based HanesBrands)

APPAREL BRANDS ALREADY THERE

* Arrow
* Flying Machine
* US Polo