Caution and the desire to fill every void in men's apparel and accessories have shaped Zodiac's market strategy, including its latest foray.
There is an unstated dress code executives follow at the Zodiac office in Worli, Mumbai. They wear one brand of the company on each day of the week. So while Wednesday is for Zodiac linens, Thursday is reserved for Z3, the youthful shirts launched by the company less than a year ago. If all goes well, Thursday could well be Zodiac Managing Director Anees Noorani’s favourite day of the week. “My prediction is that Z3 will be a bigger brand than Zodiac in three years as the universe it caters to is larger,” he says.
Z3 has been positioned in the market place as casual wear which requires very low maintenance — the shirts needn’t go under the iron at all. Noorani sees it as a perfect fit for the man who doesn’t wear a tie to work. It competes with Color Plus of Raymonds for business, though Noorani has global comparisons in mind: “We want Z3 to be a mix of Polo Ralph Lauren and Abercombie & Fitch.”
Noorani describes it as a blockbuster with tans and blues selling like hot cakes, though analysts are silent on the performance of the brand,
Zodiac’s entry into menswear was accidental. Some 50 years ago, Noorani’s father, Mohamed Yusuf Noorani, was once stuck with a consignment of neck-tie fabric. He liked the stuff. So he dumped his business of indenting and took to selling ties under the Zodiac brand. Shirts and trousers followed.
Over the years, Zodiac has become a strong premium masculine brand that appeals to people above 35. The message is very clear for Noorani if he wants to grow the business: Diversification into apparel for women and kids will always be tough for Zodiac. “Zodiac is associated with men’s clothing. With competitors already well-entrenched, it’ll be difficult for the company to enter these markets. Not to mention all the additional costs that will accompany it,” says Girish Solanki, a research analyst with Angel Broking.
This market is not small. Industry estimates suggest that the branded women’s apparel market is projected to grow at a whopping 25 per cent and cross Rs 18,000 crore by 2010. And the kid’s wear market is worth Rs 17,300 crore a year and is growing at 16 per cent annually. But Noorani is happy in the menswear market, estimated to be worth Rs 40,000 crore and growing at 12 per cent per annum. (Zodiac grew 14.5 per cent in 2008 to Rs 248 crore in 2008.)
Over the years, Zodiac has indeed tried to spread its wings in this market. Without diluting the brand equity of its flagship brand, Zodiac, it has launched new labels. In 2003, it came out with a club-wear brand called Zod and now Z3. “We constantly look for voids and niches and feel that there are a lot of products we can offer in this segment,” says Noorani. Recently, there was talk that Noorani was offered a well-known brand for Rs 60 crore but he declined to buy it. “We felt if we build our own brand, it would cost a lot less and would be an extension of Zodiac,” says he.
Z3, of course, is targeted at the youth. “The demographics have changed radically over the last four or five years because of the number of young people coming into the work-force, some of who are paid really big money. Many of these people have one-third of their income left over for discretionary spending,” says Noorani. Census numbers suggest that almost one-half of India’s population is below 35.
Analysts agree that it won’t be a cakewalk for Noorani. To begin with, the market is crowded with players like Raymonds and Madura Garments that owns popular brands such as Van Heusen, Louis Philippe, Peter England and Allen Solly.
“Moving into newer territory would require a lot of effort and Zodiac will need to do something noticeable, especially since there are so many new brands and Zodiac is primarily seen as a men’s shirting company,” says retail consultancy Technopak Advisors Associate Vice-president Purnendu Kumar. Some others point out that Noorani has remained a one-brand wonder — his other brands have failed to meet the same success as Zodiac.
That may be true. Still, Noorani has tried to ring-fence his customers with a whole range of products: Ties, shirts, suits, trousers, cotton polo knits, cuff links, belts, socks and handkerchiefs. He is now in the process of test-marketing shoes — the Rs 10,000-crore market is growing at a healthy pace of 10 -11 per cent per annum. “There are bigger opportunities in doing a complete range for men,” he says. He reckons that middle-class India, which he believes will be 250-million strong by 2015, could be a good bet.
Zodiac may not be the biggest brand in the market, but Noorani’s business is steady. “We are probably the most de-risked company in this industry,” says Noorani. The apparel maker has three different business segments: Menswear, the design-driven international business and the company’s own retail business. This means the company has a handful of products, more than one brand (Zodiac, Zod and Z3) targeted at different segments and finally several channels — its brands can be found in 1,200 multi-branded outlets, 75 national retail chains and 75 Zodiac stores.
Noorani says his company produces stuff only against a firm order. “We produce only against demand, whether it is for our international market or the Indian market. More than 85 per cent of what the company produces is pre-sold. Very few companies in the world have managed to achieve this,” adds he.
This helps Noorani tackle two issues: One, design obsolescence is minimal and two, the retail chain is saddled with as little inventory as possible. Several top brands recently had to offer massive discounts of up to 80 per cent only because they were stuck with huge unsold stock. By not offering a discount, Zodiac has been able to preserve its premium position.
Noorani went for smaller and fewer stores as compared to its rivals. Caution has its rewards — it made a profit of Rs 20.16 crore in 2008, when most of the other readymade garment companies are known to be struggling. “Zodiac is one of the few companies whose cash flow is positive, which makes it pretty well-placed,” adds Solanki. Indeed, Zodiac’s short term debt has been rated A1+ by ICRA — the respected credit rating firm. Despite the cautious approach, Zodiac managed to open 18 of its own stores in a matter of a year.