UK-based QS set for first profit in a decade

UK-based QS set for first profit in a decade
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First Published: Mon, Jan 18 2010. 08 52 PM IST

 Image change: A QS outlet after being rebranded as Store Twenty One. The repositioning helped the stores improve their sales by 20-50%.
Image change: A QS outlet after being rebranded as Store Twenty One. The repositioning helped the stores improve their sales by 20-50%.
Updated: Mon, Jan 18 2010. 08 52 PM IST
New Delhi: Just three months into buying a 10% stake in UK-based QS Group for $10 million (around Rs46 crore today) in 2006, Alok Industries Ltd’s Dilip Jiwrajka found the retail chain was bankrupt.
Image change: A QS outlet after being rebranded as Store Twenty One. The repositioning helped the stores improve their sales by 20-50%.
QS now expects to turn in its first profit in a decade in the year ending March, after two years of cost-cutting and brand-building, besides an additional infusion of around $140 million.
“When I acquired the company, I did not know the hole was so deep,” said Jiwrajka, managing director of Alok Industries, a Rs3,000 crore textile maker. “The other investors did not want to invest further, but I was determined.”
Alok Industries had acquired QS to gain a retail toehold in the UK, a market to which the Mumbai-based firm had been exporting garments, home furnishings and other textiles for decades.
It was not alone in looking overseas. Between 2005 and 2007, several Indian firms acquired global brands and distributors to reach consumers, besides being able to deal directly with major retailers.
Soda ash-to-textile maker GHCL Ltd acquired UK retail chain Rosebys and US supplier Dan Rivers Inc., Welspun India Ltd took over the UK’s largest towel brand Christy, and Himatsingka Seide Ltd purchased sourcing firms in the US and Italy.
New Delhi-based GHCL lost money on its acquisitions as the UK firm filed for bankruptcy, although it has opened several Rosebys stores in India.
The acquisition spree continues. In June last year, S Kumars Nationwide Ltd took over Hartmarx Corp., famed as Barack Obama’s suit makers, for $120 million, and billionaire Lakshmi Mittal’s family acquired troubled luxury firm Escada AG in December.
Alok Industries, which is planning to list the rejuvenated QS, wants to sell 40% out of the firm’s total 91% stake through an initial public offering on the Alternative Investment Market, a London-based exchange for smaller companies, and recover the $150 million it has invested in the company so far.
When Alok Industries took control in 2008, QS had sales of £110 million (around Rs820 crore today), but expenses outstripped this to the extent that that the firm could not pay for the merchandise it bought.
Jiwrajka hand-picked London-based chartered accountant Anupam Jhunjhunwala for the turnaround. Jhunjhunwala cracked down on expenditure, slashing it by £10 million a year. Merchandise that would earlier sit in warehouses for a week before reaching the stores was put on shop racks overnight.
“Products that were delivered (to the warehouse) on Monday, we were selling those products on Tuesday,” said Jhunjhunwala, chief executive of QS.
Sales staff were distributed evenly across stores, overall numbers were reduced to 2,200-3,600, and almost 80% of employees were laid off at the head office. Salary savings amounted to around £3 million.
The company shifted the bulk of its purchases to India, Bangladesh and China from its traditional sourcing countries in Europe, accounting for savings of 15-25%.
The UK retailer also had a huge image problem, having previously dealt mainly in products that wouldn’t have met quality benchmarks of stores such as Marks and Spencer Plc.
“QS stood for quality seconds and nobody wanted to enter a quality seconds store,” said Jiwrajka.
Alok Industries repositioned the stores with a new name—Store Twenty One—and stocked them with upmarket, fresh supplies. It hired London-based Dalziel and Pow Design Consultants Ltd, which designed outlets for Gap Inc., Nokia and Sainsbury’s, among other retailers, for a facelift.
“The brand image and the impression of the customer improved significantly overnight,” said Jhunjhunwala. “And, on a average, we get an uplift (in sales) of anything between 20% and 50% every time we are refitting the store.”
The firm has rebranded 50 of the 211 QS stores as Store Twenty One and plans to convert another 40 by the end of the year. On an average, 30% more sales were generated from the same stores after the repositioning.
Categories such as home decor and footwear were added by freeing up the space that used to be occupied by stock.
“That allowed us to get the stores more departments and to introduce home-ware and footwear,” said Jhunjhunwala. “Then, automatically, the turnover of that particular store went up.”
Sunil Khandelwal, chief financial officer of Grabal Alok Impex Ltd, a unit of Alok Industries that co-owns a stake in QS, said Indian know-how came in handy when it came to cutting costs. From having to pay someone to get rid of paper cartons, the company started making money on them by sending them to India.
“That way, rather than paying money to someone, we ended up making money on the cartons,” said Khandelwal.
Meanwhile, the original intent of using QS to sell Alok Industries’ products in the UK didn’t bear fruit as the Indian company’s products constitute just around 5% of what Store Twenty One sells. The firm is now planning to bring the Store Twenty One brand to India in the next few years.
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First Published: Mon, Jan 18 2010. 08 52 PM IST