Bangalore: Blackstone Group Lp.-funded Gokaldas Exports Ltd is looking to expand its wholesale business to achieve an all-India footprint and reduce inventory.
The move by India’s largest garment exporter comes at a time when growth in overseas orders, particularly from Europe, is uncertain, prompting many textile firms to eye the growing domestic market.
“At any given point of time, we have about Rs60 crore of inventory and this (cash and carry) format will be an effective means to dispose of it,” managing director Rajendra Hinduja said.
Gokaldas’s apparel business has a requirement of around 4 million metres of fabric a month, some of which is piled up as inventory if there aren’t adequate export orders.
The Bangalore-based firm, which employs 41,000 people, sees huge potential among small retailers and wholesalers, and plans to open large stores in Chennai and New Delhi after its 30,000 sq. ft wholesale store in Bangalore started doing well since it opened in late 2009.
In the past few months, the Bangalore shop has been earning about Rs1 crore in revenue every month. This is set to double, said Hinduja.
The firm plans to open a 12,000 sq. ft store in Chennai’s Nelson Manickam Road this year, followed by a 20,000 sq. ft shop in New Delhi.
“This format is new and pricing will be one of the key determining factors to decide whether it would work,” said a Bangalore-based retail consultant, who declined to be named. “Exporters such as Gokaldas should keep the prices attractive to attract small retailers and shouldn’t get lured by high margins.”
Though cash and carry is uncommon among garment exporters, large firms such as Gokaldas and Mumbai-based Alok Industries Ltd have begun to use this route to better penetrate the local market.
Integrated textile firm Alok Industries launched its retail apparel brand H&A three years ago, but converted it into a wholesale format in December last year. “We have about 220 stores through a franchise model and will expand the network to 400,” chief finance officer Sunil Khandelwal said.
“With the growth in India’s organized retailing, exporters will increase their domestic business to 30% from the current average of 10%,” said Prashant Agarwal, vice-president, Technopak Advisors Pvt. Ltd, a management consultancy.
Gokaldas expects that around 10% of its net sales of Rs1,100 crore would come from its cash and carry business in a couple of years.
According to Technopak, India’s textile exports are valued at above $20 billion (Rs93,400 crore), while domestic textile and apparel business is $40 billion.
Like many of its counterparts, Gokaldas Exports reported a loss in the March quarter. It posted a net loss of Rs14.41 crore in the three months compared with a net profit of Rs4.72 crore in the year-ago period.
Since many textile exporters are incurring losses and their margins are under pressure, they are likely to venture into new businesses in the fiscal year to March 2011.
Gokaldas, for example, has also started a high-margin industrial textile business this year and has secured its first order of 100,000 uniforms from the US.