Bangalore: It took a harsh economic downturn to teach apparel exporter R. Sivaram what works and what doesn’t in Indian retail.
When his Royal Classic Mills Pvt. Ltd, a company based in the Tamil Nadu textile town of Tirupur, rolled out its first store in 2005, the domestic retail sector was growing and many exporters were eyeing a share of the market. Four years later, the Rs265-crore owner of brands such as Classic Polo and Smash is rethinking its domestic business model.
In June 2008, Royal Classic shut its flagship store on Brigade Road, a Bangalore high street, where it was paying a monthly rental of Rs1 lakh. Since then, Royal Classic has shut nearly 10 stores in other cities, relocating from shopping malls and premium locations to cheaper areas.
Since April, it has adopted a new business model to reduce its inventory and trim costs. Instead of directly manufacturing and supplying to its dealers, the firm now creates designs that it markets to dealers. Manufacturing starts only after the orders are placed.
“Exporters entered (domestic) retail in a hurry, expecting volumes, better margins. But retail is a difficult and different ball game,” said Sivaram, executive director at Royal Classic. “Exporters who have already got into retail don’t have a choice, but no one would get into the business now.” Around 60% of Royal Classic’s domestic business caters to multibrand outlets and the rest to its own stores. In 2008-09, its revenue was Rs65 crore.
Royal Classic’s is the story of many textile exporters who entered the domestic market over the past four-five years to ride the retail boom. But after the sector took a beating from the economic downturn that took hold last year, analysts say, these exporters are reformatting stores, changing strategy and curtailing growth to stay afloat, much as mainstream retail chains have done.
Consulting firm KPMG said in a March report that the organized retail market in India was worth $25 billion (Rs1.21 trillion). While the sector grew at around 50% between fiscal 2006 and 2008, it slowed to 15% in fiscal 2009, it said.
Gurgaon-based Orient Craft Ltd, an apparel exporter that supplies to GAP Inc. and Tommy Hilfiger, entered the domestic retail sector in 2005. The firm, which has an exclusive licensing agreement with s.Oliver, a European clothing brand, has now rolled back plans to bring in two more international brands.
“One of the mistakes which exporters committed was to think that domestic retail is only an extension of the export business. But retail is a stand-alone business and has its characteristics,” said Sudhir Dhingra, chairman and managing director of Orient Craft, whose exports earned over Rs800 crore for the year ended 31 March. “Organized retail in India hasn’t progressed as much as we expected.”
Textile exporters never got into brand-building but launched stores without conducting surveys, said Ashish Dhir, associate vice-president, Technopak Advisors Pvt. Ltd, a retail advisory. While exports is a volumes game, with big order sizes and fixed payment by deadline, retailing, particularly branded retailing, needs a different business mindset. “Unlike exports, in domestic retail, which is still growing, order size is smaller and payment takes time. In branded retail, it sometimes takes five-seven years just to build a brand. Exporters haven’t put in that kind of time, so there is not much visibility,” added Dhir.
Many exporter-retailers have been stunned by the impact of the economic crisis. While much has been made of the shrivelling of Indian exports, particularly to the US, little is known of how apprehensive exporters are about their domestic retail business outlook. Future export revenue looks assured, they say.
Alok Industries Ltd, which operates in domestic retail under the brand H&A, expects its export turnover in fiscal 2010 to go up 30% from Rs1,036 crore in fiscal 2009. For its domestic retail business, it has a slow, long-term approach. “We don’t want to spend on brand-building and will focus on deeper market penetration in tier II and III cities and smaller, 1,000 sq. ft stores,” said Sunil Khandelwal, chief financial officer. The firm has set up nearly 90 stores since its domestic launch in 2007.
It’s proved to be a lesson on domestic retail strategy and brand-building for exporters.
Indian Terrain, the apparel brand of Chennai-based export firm Celebrity Fashions Ltd, is focusing on expanding its menswear portfolio over women’s after a surge in demand for the former. The brand, which has 35 stores and an annual turnover of Rs75 crore from retail, is now looking at a franchise model and has shut six stores in high streets and non-performing outlets in shopping malls.
“In retail, we are reducing spending and are not in a hurry to scale up,” said Surya Narayanan, executive director, Celebrity Fashions.
In 2008-09, Welspun Retail Ltd, which has 200 outlets, opened 25 new stores and closed 30. The focus is on lower lease rentals and higher footfalls, said Vinita Goenka, chief executive. The firm’s retail and export revenue for 2008-09 was Rs112 crore. Welspun earlier announced that 30% of its additional stores would focus on villages, in line with the firm’s strategy to target the evolving rural market.
Exporters have also realized the limitations of domestic retail in the niche, luxury segment.
Bangalore-based Himatsingka Seide Ltd, with a turnover of around Rs1,000 crore last year, set up its first luxury home furnishing store under the Atmosphere brand in 2003. After opening its 12th store in India in 2007, the firm stopped local launches and extended its retail operations to Singapore and Dubai. “The luxury home segment in India can only absorb so much. Ours is a niche brand and people who want to buy high-end home products don’t always have to buy it here,” said Bharat Ram, chief of retail at Himatsingka Seide. “So, we are opening stores in more international markets across Asia and the Middle-East instead.”