Arvind mixes it up, pulls a brand leap

The company gains from a segmented approach towards the slew of brands in its armoury

Arvind Lifestyle Brands has adopted a three-pronged strategy to get the most out of its large family of licensed and owned brands. By separating the entire bank of labels in its portfolio under three separate categories that are being marketed and promoted differently, analysts say that the company has been able to increase margins earned on each brand cluster while crafting a focused plan for future growth. Arvind Lifestyle has grown about 27 per cent in FY 2017 and analysts note that this has been possible because the company has clearly identified its brands under the heads: power brands, value or emerging brands and specialty retail.

Power brands are top performers; they command a premium over other labels in the segment and are largely consumed in metros and Tier II towns. The company’s power brands include Arrow, US Polo and Flying Machine. These brands, the company says, have contributed significantly to topline growth, so much so that a third of its planned expansion in the coming years will be under power brands. In a recent report, IDBI Capital said there is a possibility of company adding three more brands to the list of power brands. The power list includes Rs 250-crore-plus brands with double digit margins and over 20 per cent return on capital employed (ROCE).

Arvind’s specialty retail brands portfolio includes global women's brand Sephora, US apparel brand Gap and The Children's Place.This segment has given it margins upwards of 50 per cent in FY 2017.

Finally, it has the value format brand, Unlimited, and that is helping the company grow its same store sales growth. Arvind owns has 30 brands, comprising 17 own brands and 13 global brands.

The strategy of creating baskets for brands based on categories and consumers is paying rich dividends, the company said. “The combination of our power brands and emerging brands are driving growth,” said Suresh J, managing director of Arvind Lifestyle Brands. Arvind Brands has grown about 27 per cent in FY 2017 mainly aided by its power brands and emerging brands.

Analysts believe that the money spinners are the power brands such as Arrow, US Polo and Flying Machine; they contribute to 58 per cent of the revenues and are contributing majorly to the segment's growth according to a report from brokerage firm, Sharekhan. Such is the growing influence of this category that the company has plans to open another 200 stores in the coming months and of these 120 to 130 will be those for power brands. The power brands portfolio is growing at 21-22 per cent.

Sharekhan says that the emerging brands such as CK, Nautica. Hanes, Ed Hardy are seeing strong traction with revenue growing at a CAGR of 64 per cent over FY 2012 to FY 2016. Sharekhan says Arvind's alliances with US-based apparel label Gap, the children's brand The Children's Place (TCP) and women's brand Sephora have helped boost margins significantly. Gap, TCP and Sephora have gross margins of 54-58 per cent (improved by 400-1000 basis points on like-to-like basis), which is largely in line with Arvind’s consolidated gross margins, Sharekhan says. Sephora, which is a women’s beauty and lifestyle brand, has gross margins of 40 per cent.

“Each store format is focusing on improving profitability and is expected to contribute to Arvind’s consolidated P&L in the next two to three years after attaining certain scale,” Sharekhan said. However, Suresh declined to talk about margins of individual brands. He said the domestic manufacturing of Gap and TCP merchandise in 2018 will help the company to improve margins.

He said the change in branding from discount-focused Megamart to value-format Unlimited has helped the company. Two things helped here: one, the company decided to change the mix of global and homegrown labels and secondly, it altered its stocking strategy to ensure that the store had something for the entire family. “The shift from outside brands to own brands helped us improve margins by 400 to 500 per cent,” he said. He said the ratio of men's wear, women's wear and kids’ wear has changed from 70:20:10 to 40:40:20 now and helped convert Unlimited into a family store. The format is expected to break even by FY 2018.

Suresh said the company would open about 30 new Unlimited stores this year, almost three times more than last year as the company was aiming to make stores profitable first and then expand.

Arvind has other plans in store to grow its portfolio. It is looking to make True Blue, a brand co-created with Sachin Tendulkar into a Rs 500 crore property but Suresh is unwilling to reveal anything more on that. He said footwear would be a big category for the company. Presently, it is retailing footwear across US Polo and looking to launch footwear under Cole Haan and Johnson Murphy. Arvind is also launching a ready-to-wear label that will retail in the eponymous The Arvind Store which has 180 outlets across the country.