While global brands are setting sights on lucrative Indian retail, textile major Alok Industries is looking at exiting its retail ventures. 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.
The reason: The company wants to focus on its core business and shift from non-core businesses such as retail which has increased its debt burden. The company had a debt burden of Rs 16,000 crore as on March 2012 and a debt equity of 4.6:1. The company 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 1030 crore.
Post government approval for FDI in multi-brand retail, the company believes that it can sell the H&A business to foreign investors, sources familiar with the developments said. It is also looking for buyers for Store Twenty One.
Once Alok exits the H&A business, the agreement with Australian cricketer Brett Lee’s ‘Active Wear’ and exclusive production and distribution agreement with UK’s renowned brand Savile Row will come to an end, said sources in the know.
Alok H&A planned to open exclusive counters in 25 of its large stores in metros and state capitals and take the total count to 50 in the near future for Savile Row brand.
“Those agreements remain as long as the business runs,” the sources said. Alok's top executives could not be contacted for comments despite repeated calls.
As far as H&A goes, Alok has already closed down 45 loss making stores of H&A out of 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.
“On a turnover of Rs 12,000 crore, there is no sanity of Rs 40 to Rs 50 crore revenues coming from retail segment. Retail is a non core segment for us,” sources said.
Another textile major Welspun India, has shut most of stores of Welhome chain and now sells its products to franchisee retailers on a ‘sold out’ basis.
“Welhome was one of its kind model and too early in 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 growing it’s another retail format Spaces Home & Beyond which is a shop-in-shop concept. The company currently has 200 such shop-in-shops and seeing a growth of 25 to 30 %, Goenka said. Each counter has a size of 150 to 200 sq ft.
Currently, retail accounts for 5 to 8 % of the total turnover of Welspun India and plan on taking it to 10 to 15 %.
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.
Anlaysts said textile companies lacked 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.
Aggarwal said that since the core business is cashflow and makes profits, it is natural that it will take precedent on the non-core business such as retail.
