Himadri Buch | Krishna Karwa
Moneycontrol News
Arvind Lifestyle Brands, the apparel business of Arvind, is aiming to touch a revenue of Rs 7,500 crore by 2022 from Rs 4,800 crore currently, said J Suresh, Managing Director and Chief Executive Officer, Arvind Lifestyle Brands.
In a chat with Moneycontrol, Suresh said that the focus over the next five years will be on driving the profitability and return on the capital employed.
The textile company, Arvind, demerged its brand apparel business Arvind Fashions (AFL), and its engineering business, Anveshan Heavy Engineering (AHEL) on November 29.
Arvind Lifestyle Brands will be listed as Arvind Fashions after the demerger. According to Suresh, the listing may happen by end of January or in the first week of February.
An IIM Bangalore alumnus, Suresh said e-commerce is a good opportunity for the company. Currently, online business constitutes 13 percent of its sales.
With brands like Flying Machine under its portfolio, the company believes it has a strong position in the denim space and claims to be the number one player when it comes to denim jeans.
Arvind's branded apparels business comprises licensed international brands such as Tommy Hilfiger, Calvin Klein, and US Polo Association.
After the demerger, the textile business, which includes denim, fabric, and garments and advances material business will continue under Arvind, the brand the retail segment will be shifted to Arvind Fashions.
Arvind, which was incorporated as Arvind Mills, the textile manufacturing company by Kasturbhai Lalbhai, has its foothold in fashion retail, real estate, engineering, environment solutions, advance materials, and the telecom industry.
Post demerger, Arvind Fashions will handle the brand and retail segment, and account for domestic brands like US Polo Association, Tommy Hilfiger, Calvin Klein, Arrow, Flying Machine, Gap, Sephora, and other iconic brands.
Excerpts from the interview:
Q: What has been the key performance driver for the branded apparel segment which is now a part of Arvind Fashions?
A: When we built the portfolio we saw that India was beginning to move away from formal dressing to more casual dressing, that is where we built our strength. The entire portfolio if you take whether its US Polo, Flying Machine which we relaunched.
Flying Machine of today is quite different from the Flying Machine of olden days. Brand had come to more or less zero sales level. We relaunched it and pulled it out and today we are at number two, only Levis is ahead of us in the denim space.
We have also bought in some newer brands like GAP, Aeropostale, Ed Hardy, everything is in the casual space. That move really paid off. That’s the big difference with us vis-à-vis some of our peers.
That is the reason we have been able to deliver a 20 percent growth rate in the last 5-6 years. In the last 4-5 years, we have been delivering close to 20 percent that is by far the fastest growth rate for us. So we have built the portfolio ahead of the market trend. Now we have a strong position in denim space where we are very clearly number one in the premium side of our business.
Q: How did you fare during the festive season and approximately how much revenue did you garner during that quarter?
A: Diwali was pretty good. Dussehra and Diwali were very good. After Diwali there was a period of lull. Now in December, it has again picked up. We do not give revenue figures specifically for the festive season but what we are talking about is that one indicator of the good festive season is the sales growth. Compared to the last two festivals this has been higher.
Q: How does Arvind Fashions intend to tackle risks associated with steep discounting offered by e-commerce market players? Is it a threat to the company's offline business?
A: E-commerce is a good opportunity and not a threat. While buying, a customer does not think I am an online or offline consumer. Consumers are buying seamlessly. We need to be present in all segments.
We need to see how markets will evolve. If going ahead e-commerce becomes 80 percent, we should be prepared for that. The way we are looking at it is a very unified experience both online and offline.
Q: What is the break up in terms of sales from online and offline?
A: We are around 13 percent online and 87 percent offline.
Q: What is the store count across all brands? How many more are likely to be added?
A: We open about 150-200 every year. We are seeing some changes online coming up. So we need to we need to make a little bit of careful judgment how many stores we should open, as online also takes away certain sales. Going forward, we would be largely in Tier III and largely franchise route. We are pretty much filled up in Tier I and Tier II.
Q: What are the capex plans?
A: We spend nearly Rs 150 crore in a year.
Q: Most of the capex would be funded internally considering the fact that branded apparel business is a strong cash flow generator?
A: The reason we have done the demerger now is only because we are becoming self-sufficient. So, we don’t have to depend on cash flow from Arvind Ltd. FY20 onwards we will fund pretty much all the requirements.
Q: In how many channels do you operate?
A: We operate in four channels. One is our own stores, 1400 stores across all brands put together. We are present in close to 200 towns. We have covered around 110 towns in Tier I and Tier II, and in Tier III there are 320 towns, of which we are present in 70 towns. So there is a way to go there and that will be our focus.
Q: You spoke about exclusive outlets? What would be count be in multi-brand outlets and large format?
A: Large format we have around 1500 counters across--Central, Lifestyle, and Shoppers.
Q: In terms of geography, what is the break-up?
A: We are equally distributed. North is our main market. 40 percent of our sales come from North, 10 percent comes out of East, 25 percent comes each from West and South.
Q: What is the trade channel mix of 87 percent what would be across brands across MBOs (multi-brand outlets), EBOs (exclusive brand outlets), large format stores?
A: 35 percent is our own stores, 25 percent is department stores and 20 is multi brands and the rest is others.
Q: How much revenue are you targeting over the next five years?
A: What we are targeting is Rs 7,500 crore by 2022. More important is in this phase of expansion we had actually done well in terms of topline growth. Our focus will be more on driving the profitability and return on the capital employed.
The primary focus was to build the portfolio and scale up in the last five years. Next five years will be how do I use this scale which we have built up to improve profitability and return on capital employed.
Q: Are you on profitable track in terms of all brands?
A: In terms of financials we are in good shape. We have hospitality. On the verge of break even. This year all will be positive.
In terms of a percent we are 60 percent of men’s wear, 15 percent kids wear, 10 percent innerwear,12 percent in women wear and beauty contributes 6 percent.
Q: What is the budget for marketing and advertisement?
A: We have upped our marketing spend this year. Earlier we used to spend 4 percent, this year we are 5.50 percent of sales.
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