Home / Industry / Retail /  Pantaloons seeks to tap into fast fashion trend to scale up

Mumbai: The Aditya Birla Group is repositioning Pantaloons, which it acquired from Kishore Biyani, as a fast fashion chain, as it seeks to tap into one of the fastest growing retail segments in India that is currently driven by international fast fashion retailers such as H&M and Forever 21.

Fast fashion refers to designs moving from catwalks to high-street and even mass-market fashion retailers quickly.

For Pantaloons, the change means designing closer to season, essentially crunching the time it takes for a product to hit the store to two-to-three months; more collections per year, perhaps four from the current two; and smaller stores starting at 2000 sq. ft (compared with the current 22,000 sq. ft large format department stores).

“Our multi-season fashion store strategy will get implemented six months from now," said Shital Mehta, chief executive officer, Pantaloons, part of Aditya Birla Fashion and Retail Ltd (ABFRL). The other aspects of the strategy will be implemented over next 1-2 years, he added.

Separately, ABFRL on Tuesday said it will acquire global clothing brand ‘Forever 21’ in the Indian market for $26 million (around 175.52 crore).

“The company on Tuesday executed a business transfer agreement with Diana Retail and DLF Brands for acquisition of the business undertaking of Diana Retail... under the Forever 21 brand and also through e-commerce channel on a going concern basis, in the Indian market," ABFRL said in a filing.

Diana Retail is the franchisee of Forever 21 brand in India. Giving details of the transaction, the firm said: “The transaction involved the acquisition of the Forever 21 undertaking of Diana Retail with effect from 1 July through a business transfer agreement, not share transfer. The consideration for acquisition is $26 million".

In May, ABFRL announced it would acquire online and offline rights for Forever 21 in India.

Forever 21 is among the fastest growing fashion retailers with a network of more than 700 stores worldwide. Its India operations reported a turnover of 262 crore in 2015-16.

Fast fashion would appear to be the new mantra for India’s department stores.

Shoppers Stop Ltd, which runs India’s oldest department store chain, is looking at offering consumers something new every 6-8 weeks. “Earlier, we were talking of two seasons a year and the plan was to replenish. Now, we have moved to 4-6 seasons a year and will go to 6-8 seasons a year in 24 months," said Govind Shrikhande, managing director, Shoppers Stop. Half the firm’s sales comes from fashion products and this will increase to 80% over time, he added. Meanwhile, Future Group, the former owner of Pantaloons, launched its fast fashion brand Cover Story in June.

Through the 1990s and part of the 2000s, department store chains around the world did badly, says Abheek Singhi, senior partner and director at Boston Consulting Group. They were caught in the middle and not focused on either luxury (at the high-end) or fast fashion that were growing. That has changed over the past decade, with fast fashion retail chains such as H&M, Uniqlo and Zara becoming popular with consumers. Over the same time, Singhi said, department store chains such as the US-based Macy’s and UK-based John Lewis reinvented themselves by focusing on private brands, in-store experience through technology and better customer service.

ABFRL was created in May 2015 after the Aditya Birla group consolidated its branded apparel businesses (Madura Fashion) with Pantaloons Fashion and Retail Ltd (PFRL).

In 2015-16, ABFRL, now India’s largest apparel firm, reported a net loss of 104 crore on a revenue of 6,060 crore. Mehta said revenue growth was 11% over the year-ago period, led by Pantaloons which grew 17%. The firm’s loss was heightened by one-time expenses of 73 crore related to the merger.

Pantaloons’ profitability has been marred by high fixed costs. Ebit (earnings before interest and taxes) margin, a measure of operating profitability, fell from 1% in fiscal 2013 to -5% as on September 2015, according to a 5 February report by Ambit Capital Pvt. Ltd. “The departmental store format, Pantaloons, is yet to turn profitable as it grapples with high fixed costs (38% of FY15 revenue) and low share of (sales of) own brands (53% of FY15 revenue)," said the Ambit report.

Mehta says the business is in investment mode and that it is important to look at operating profit and gross margins, which have improved over the years.

In the past three years, Pantaloons launched close to a dozen private label brands, besides entering new categories such as footwear and accessories. “The private label share to overall revenue has increased from 45% in fiscal 2014 to 60% in fiscal 2016," said Mehta, adding private labels are more profitable.

As it looks to differentiate itself from peers, Pantaloons is also bringing in global brands. It has tied up with Candies, New York and Izabel, London.

The retailer has doubled its footprint from 65 stores at the time of acquisition to more than 135 stores now of which 37 stores were added in fiscal 2016, 25 in fiscal 2015 and 11 in fiscal 2014. “Our rate of expansion is accelerating," said Mehta, who did not want to share the target for 2016-17.

“Our mandate is to make money in year one for each store," said Mehta, who added the unit’s operating profit has expanded from 39 crore in fiscal 2014 to 105 crore in fiscal 2016.

To bring costs down and scale, Pantaloons is piloting specialist stores such as Pantaloons Kids and Pantaloons Women, and looking at the franchise and omni-channel model.

ABFRL’s stock trades at a premium to its peer Shoppers Stop, given the strength of Madura’s brands business, but trails Tata group’s Trent Ltd. Shares of ABFRL trade at 23 times fiscal 2016 operating profit versus 64 times of Trent (FY16 including Landmark losses) and 17 times of Shoppers Stop (FY16-standalone).

PTI contributed to this story.

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