Mumbai: The world may be enamoured with e-commerce and digital, but Gautam Hari Singhania, the 50-year-old chairman and managing director of the 91-year-old Raymond Ltd isn’t.
Indeed, he has a point of view on discounts, the driver of most e-commerce sales in India, and valuations, often used to assess the success of new economy businesses.
“Eventually, you can’t run a business on valuations. You have to have a company that is profitable, has assets, that has real things on the ground.”
“The minute you start discounting a solid brand, you are asking for trouble. End of the season, clearance sales are okay. But please charge the right price and let the customer understand that he gets value.”
Not that Singhania, who is passionate about cars and racing, doesn’t get new media. He has more than 1.5 million followers on Twitter, which he uses to share his opinions on cars, make announcements about his company, or just share stuff.
Raymond itself has a presence on the web through which it sells some of its products. And the company is a seller on online marketplaces.
“Online sales is a growth driver, though it’s very small,” says Singhania.
Raymond has a retail network spanning 1,051 stores and most of its business (44.6% of its Rs.5,595 crore revenue) comes from fabric, where e-tail is not as relevant. The company also owns the brands Park Avenue and ColorPlus, but ready-to-wear apparel accounts for only a fifth of the revenue.
Singhania’s approach is different from that of the Aditya Birla Group, which also has a presence in apparel, and whose chairman Kumar Mangalam Birla has made a private investment in All About Fashion, or Abof, an online apparel retailer.
That difference perhaps comes from the fact that Raymond is India’s largest maker of worsted, which the dictionary defines as “a fine smooth yarn spun from combed long-staple wool”. Worsted is largely used in suits, and few people in India buy suits online. It’s the personal interface that matters (for selling fabric), says Singhania.
Still, he admits that e-commerce has helped expand the market by making things accessible to “a guy from Jabalpur”. But it isn’t everything and it isn’t the only thing.
Singhania is not alone in this belief.
Both Kishore Biyani, chief executive officer, Future Group and Kumar Managalam Birla have slammed e-tailers for their discount-led models even as they pursue their own e-commerce ventures and alliances with e-tailers.
No one can afford to ignore e-tail. By 2020, e-tail will be almost as large as organized brick-and-mortar retail, said Anurag Mathur, partner, consumer and retail, PwC India.
Both will still trail unorganized retail, typically small mom-and-pop stores that dot the Indian retail landscape and which will account for around 70% of the overall retail market in 2020.
Yet, for most retailers, online is about experimenting and a flanking strategy.
“Our strategy will keep on evolving. We have been experimenting,” Biyani said earlier this month when the company announced a partnership with payment services firm Paytm (run by One97 Communications Pvt. Ltd).
Biyani has been experimenting with e-commerce since 2007. Others like the Tata group, Aditya Birla Group and Arvind Group have launched their own fashion and lifestyle e-commerce ventures over the past year.
These mostly allow consumers to order online and collect at the stores or visit the store and get the goods delivered home offering an integrated online-offline experience.
If Singhania’s point of view is not unique, it is because experts think the Indian market will evolve differently from many Western ones.
“E-commerce in India will not take off the way it has in some of the other countries because here people will still buy in neighbourhood stores,” says Rajat Wahi, partner and head (consumer markets) at KPMG.
And e-tailers still have to work at getting their supply chain and delivery right, adds Wahi. Still, “for brand owners, e-commerce is a great conduit to expand their business”.
Even as he buys that logic, Singhania is focused on the two things he says matter: quality and value for money.
“If you look at the textile worsted market, there is no one else left. Because we have consistent quality at the right price. That has saved this company and will save any company for that matter. There is no other magic formula,” he says.
In the past three years, while Raymond’s net profit (compound annual growth rate of 47.42%) has outpaced that of its peers Arvind Ltd and Aditya Birla Fashion and Retail Ltd, its revenue growth, at 11.20%, has lagged theirs.
Raymond may be missing a trick by not focusing on young people and women, and by not forging partnerships with global brands like some of its rivals have.
“Raymond’s strategy to focus deeply on the textiles segment has lifted its value. However, there is a lot more potential for the company if it aligns itself to the country’s changing demographics,” said Shashank Tripathi, who leads the India practice of Strategy&, the strategy consulting team at PwC.
Both Welspun India Ltd and Arvind Ltd have tapped that potential.
Welspun, which started operations as a yarn spinning company in 1986, has become the world’s largest home textiles company supplying to Wal-Mart Stores, Inc. and Target Brands Inc. Arvind, known for its denim manufacturing and with only one retail brand (Arrow) in the 1990s, is now diversifying into worsted textiles and has a portfolio of its own retail brands and international ones including Gap Inc. and The Children’s Place.
Meanwhile, Raymond which was strategically placed with its own retail brands, Park Avenue and Parx, along with a retail network 20 years ago has not been able to take advantage of India’s growing apparel market. Even the acquisition of ColorPlus, a brand that enjoyed a great degree of success under former owner Ambattur Clothing Co., hasn’t done much for the company.
In 2015-16, Raymond’s stock traded at a discount to the Sensex at -7.98% while its peers Arvind Ltd and Welspun India Ltd were trading at a premium of 5.12% and 189.25%.
To be sure, the company did launch a joint venture with a Belgian denim brand and ventured into kidswear and home textiles. However none of these worked out.
In 2010 it exited kidswear (Zapp!) and home textiles (Be:Home). In 2011 it shut down its Manzoni unit. Manzoni was a luxury menswear brand the company launched in 2004. The company also withdrew from a joint venture with Grotto SpA, which is known for its Gas brand, in 2009 after a three-year partnership.