After the success of American Tourister, India's second-largest luggage maker Samsonite is introducing a new brand to address the needs of the lower end of the socio-economic pyramid and fight competition from the Rs 8,000-crore unorganised market.
EP Suresh Menon, CEO, Samsonite South Asia, said: “We are certainly looking at that product to come in at a price even lower than American Tourister, which will address the lower-end and the unorganised market.”
The new brand could be launched either in 2014 or 2015 and would start at price point of Rs 2,750.
Currently, Samsonite has two luggage brands. Its eponymous brand targets the prestige-end of the market, with the price range starting at Rs 10,000, while American Tourister is a mid-range brand, priced between Rs 3,500 and Rs 10,000.
The biggest contributor to Samsonite’s revenues is American Tourister, which is also the biggest brand in value terms in the Indian luggage market.
The Indian luggage market is mainly divided between VIP industries and Samsonite. VIP leads the market with a market share (value terms) of Rs 680 crore, followed by Samsonite at Rs 650 crore.
The company is also expanding its presence across channels and formats.
Samsonite currently has 420 retail outlets and 1,200 point-of-sales, including distributors (excluding defence point of sales). In 2014, the company will open 60 more stores, which will include 40 franchise stores and 20 company-owned stores with an investment of Rs 15-20 crore.
“Expansion will mostly happen through hypermarkets in C and D markets. The challenge is to provide manpower, but we will work through that. Department stores are not expanding and traditional retail is shrinking,” Menon said.
The company is also heavily reliant on defence sales.
Canteen Stores Departments (CSD) is a Government of India enterprise under the Indian Ministry of Defence that has depots and sub-depots in all military bases. Most goods are procured by CSD in bulk and sold at concessional rates to defence personnel.
In 2012-13, CSD sales for luggage makers were affected due to the Indian government cutting its budget for the CSD department and slowing down procurement.
But Samsonite says the CSD is one of the biggest retailers of luggage in the country and contributes 40% to Samsonite’s revenues. With the inclusion of this channel, Samsonite's point of sales shoots up to 4,000.
Menon said: “It is a stable channel for us and a big revenue driver. In FY13, this channel grew 20% and in FY14 we hope to maintain that.”
Samsonite is wary of e-commerce as a channel for growth, despite its contribution growing. In FY13, online sales contributed 3% to overall revenues and in FY14, the company expects it to grow to 6.5%.
“There are challenges connected to online. There is a huge amount of discounting and offers online, which we are not comfortable with, especially for Samsonite. Because we feel the brand should sell on its own merit not just discounts. So we are careful with e-commerce,” Menon said.
The company is also expanding through the inorganic route. It launched sports company High Sierra Last year and Samsonite is expected to double the point of sales to 180 this year. High Sierra is expected to contribute Rs 60 crore in sales this year. Apart from that, the company is to bring luxury brand Hartmann to India this year. The company is looking to set up boutiques across metros.
Facing Challenges
India is Samsonite’s 4th largest market after USA, China and Korea. Two years ago, India was bigger than China but the lack of infrastructure, supply chain, manpower and economic slowdown in India has slowed down India's ability to grow faster than China. India contributes 6% to the parent company’s annual turnover of USD 2 billion.
Moreover, China, from where 90% of the company's soft luggage is imported, is quickly falling out of favour. China is the global manufacturing hub for soft luggage. But capacities are constrained in China, inflation is high, labour is no longer cheap and China's focus is shifting to premium luggage.
This has resulted in Samsonite beginning indigenous production of soft luggage. The company inaugurated its soft luggage factory at Nashik a few days ago. The factory has an initial capacity of 60,000 units, which will be upgraded with time. “The idea is to augment production and allow for our own product designing and sampling to suit local tastes,” said Menon. Soft luggage accounts for 80% of Samsonite's sales.
Menon adds that going ahead Africa could be a potential new destination for luggage manufacturing.
Another key challenge is to prevent the cannibalisation of the brand Samsonite by American Tourister. Menon said: “If we are not careful and try to pitch American Tourister as a poor man’s Samsonite, then American Tourister will cannabalise on the sales of Samsonite. We are not going to allow that. We have prepared distinct strategies to differentiate the brands in terms of brand positioning and perception.”
The company has also not had much luck with footwear. Menon said: "We did go into footwear at Samsonite which we have slowed down. The footwear market is different in India. Its a market of manufacturers not marketers, which we find difficult.” The company is looking to stop the production of footwear for Samsonite.
However, it will continue to be in the footwear space through the pre-selling model. Samsonite will design and manufacture shoes for High Sierra -- which will be launched soon -- and for other footwear chains. There will be not stocking of products.
Samsonite South Asia is a JV between Samsonite Hong Kong, a subsidiary of Samsonite International and India-based Tainwala family.
In FY13, Samsonite SA reported revenues of Rs 650 crore, growing its EBIDTA by 41%. The company also claims to have reduced its debt levels from 1:3 to 1:2.
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