Companies
‘Most of our brands will be around ₹1,000 cr in 2 years’
Summary
- In an interview, Kulin Lalbhai, vice chairman and non-executive director, Arvind Fashions, spoke about the company’s plans to scale core brands, including US Polo Assn., Tommy Hilfiger, Flying Machine, Arrow, Calvin Klein, and Sephora
NEW DELHI : Over the last few years, Arvind Fashions Ltd has overhauled its business and parted ways with several brands to make its portfolio lean. In 2020, it ended its deal with American casual clothing brand Gap; and in 2021, it sold its Unlimited retail business to V-Mart Retail Ltd as it pursues a plan to build fewer but bigger brands.
In an interview, Kulin Lalbhai, vice chairman and non-executive director, Arvind Fashions, spoke about the company’s plans to scale core brands, including US Polo Assn., Tommy Hilfiger, Flying Machine, Arrow, Calvin Klein, and Sephora; it also runs stores for Aeropostale and Ed Hardy in India. In FY23, the company’s revenue from operations stood at ₹4,421 crore; it also reported a profit of ₹37 crore, after reporting a loss of ₹267 crore in the previous fiscal. Edited Excerpts:
How did the pandemic change the business environment for retailers?
The Covid-19 pandemic was an extremely trying time for our categories that depend on social interactions. During the pandemic, all our offline retail shut down; cumulatively, there were three-to-four months of total closures, which means zero revenue, while fixed costs were still there. For us, it was worse because going into the pandemic, we had parts of our portfolio that were not performing. One crisis occurred because of consumption collapsing, and the other because certain parts of our portfolio were weak. We took very clear, decisive calls, which I believe have been executed quite well over the last three-four years.
What pieces helped Arvind Fashions?
One of the strong realizations we have had over the last five-six years is that this is a business of scale. Today, we believe that we are in the business of creating ₹1,000 crore brands. Real operating leverage, real cash flows, and real return on capital employed only come with scale or brands being mega brands. Anything that wasn’t going to achieve that milestone—we just took a clinical call and got it out of the portfolio. So, what we have today are very high-conviction brands. Today, some of our brands, which are in the ₹500 crore range, are moving towards ₹1,000 crore; we’ve got a brand like US Polo, which is almost ₹2,000 crore. Over the next couple of years, most of our brands will be very close to, or surpass, the ₹1,000 crore milestone. We are pushing all the company’s resources to energize those brands so that we can speed them up towards ₹1,000 crore. We’ve upgraded retail execution, we’ve gone behind in upgrading and premiumizing products, and we’ve invested in advertising. You can see all of that playing out now in strong like-for-like growth, lower discounting, and higher cash flows; our return on capital employed almost touched 15%. We de-leveraged; we now have ₹400 crore of net debt.
What’s your strategy for the multi-brand beauty retail chain Sephora?
On this one, we are still working with our partners on figuring out the strategy, so I don’t have a very clear answer to give. Also, we mentioned in our last analyst call that once we have an update, we’ll come out with our views on where we are headed.
Will you put more money into Nnnow.com, your e-commerce venture?
We are putting money into ‘dotcoms’ overall. We will have a combination of a multi-brand and single-brand strategy. We believe that there are different use cases to straddle in digital, so we will be putting more money behind ‘dotcom’ as a strategy in general.
How do you view India-specific sizing for apparel and footwear that may soon be rolled out?
It is a bold and very powerful idea. I think adopting it and rolling it out is a huge thing. These projects should be looked at within a five-ten-year time-frame and not necessarily next year onwards.
What is Arvind Fashions’ plan to cut debt?
We are very clear that we are going to scale our existing brands. Year-on-year, our profitability is going up by 100-150 basis points; we have a very asset-light strategy. So, if you add these three things together, we are generating free cash flows, and those would be going towards reducing debt. Our debt is very healthy, and we’ll just play this out over two-three years, and debt would fall.
Any white spaces you may look at within retail?
The way we are extending our brands, the logic is based on white spaces. We have a deep conviction on footwear—we believe footwear can become a ₹1,000 crore opportunity for our company.
