Samsonite eyes US for mfg to tailor cost, maintain margins

Samsonite's Indian business is carrying a bag of worries weighed down by the double impact of costly imports and falling sales. But the world's largest luggage company refuses to be burdened for long and is taking immediate steps to recharge one of its fastest-growing markets in Asia, reports Farah Bookwala of CNBC-TV18.

Luggage maker Samonite India, has been struggling with its own baggage, on one hand, the sharp rupee depreciation has badly stung its wallet as 70% of its products sold in India, including its entire soft luggage collection, is imported.  On the other, a drop in discretionary spending has dented sales with sales growth in the first half of 2012 plunging to 30% from the 53% recorded in the same period last year.
But now, the company's global management has decided to take drastic steps to stop further growth decline in the Indian market.
Ramesh Tainwala, President, Asia Pacific & Middle East Samsonite, says that right now we are heavily focussing on further automation, cutting down on costs, cutting down wastage, improving manufacturing efficiencies so that we do not have to resort to any price increases and yet maintain gross margins.
This includes shifting the company's manufacturing bases out of China, which is seeing high wage inflation and while this could have been an opportunity for India, Samsonite says this isn't feasible.
"Soft luggage, it’s an entire industry. So you need all the components, all the raw materials. So, China is able to have that kind of competitive advantage because they are more backwardly integrated. When we really simulate our own cost of outsourcing in India, we find that inspite of where the dollar is, it’s not viable," says Tainwala.
So instead, Samsonite has set its sight on Europe and the US where skilled labour and infrastructure has become cheaper post the financial crisis. The company is also planning to aggressively up its store count in india to increase penetration and drive sales.
Tainwala, says that we have 3,500 points of sale and we roughly add about 300-400 new point-of-sales every year. We cover 110 towns in India and cover all tier-1, tier-II cities and 50% of tier- III cities currently. We will cover 100% of tier III cities in three-five years and expand into few tier-4 cities by then. And recently acquired American brands, High Sierra and Hartmann, will also be brought to India this year.
Packing-in all these measures, Samsonite hopes to revive its India market soon with the ultimate aim of seeing a near four-fold rise in its India turnover to Rs 2,500 crore over the next three-five years.