Arvind Limited, the king of comebacks, is trying to reinvent itself yet again—as a national retail clothier, this time competing with giant Raymond. Will it work?
Can Arvind, a company that has weathered the slings and arrows of outrageous fortune in the textile industry, radically reinvent itself and share the national stage with the likes of arch competitor, Raymond?
That’s the big question that will soon be on everyone’s minds as they begin seeing Arvind stores pop up all over the country. Arvind is better known for being a denim exporter and purveyor of the famously successful ‘Ruf ‘n’ Tuf’ brand of denim fabric. It also has a gamut of well-known in-house brands like Flying Machine, Excalibur, Newport University, and Ruggers as well as licensed brands such as Geoffrey Beene, Cherokee, Elle, US Polo Association, Arrow, Izod, Energie, and Gant, apart from the master franchisee of Tommy Hilfiger through a joint venture (JV).
That’s small potatoes compared to its current ambitions which is to grow up and become a national domestic apparel retailer, much like the big daddy in the field, namely Raymond. Arvind’s first big step in pursuit of that goal was to launch its first exclusive ‘Arvind Store,’ a concept that put the company’s best fabrics, brands and bespoke styling and tailoring solutions under one roof. After the launch it rolled out 30 more such stores and has plans to add another 70.(Click here for graph)
Changing tack
How is the company doing so far under its re-orientation? In the last three quarters of FY’12, Arvind’s revenue has grown by 39 per cent to Rs 1,200 crore in Q1, by 23 per cent to Rs 1,256 crore in Q2, and 19 per cent to Rs 1190 crore in Q3—driven mainly by the branded apparel and retail business segment, and at a time when the textile industry is reeling under rising input costs and demand slowdown. This division has become the star performer for Arvind, posting quarterly growth of 44, 46 and 32 per cent this fiscal, and has seen earnings jump from Rs 250.5 crore in fiscal 2005-06 to Rs 816 crore in FY 2010-11.
More From This Section
This is impressive stuff, but can Arvind come even close to enjoying the success that Raymond has so far?
With a rich heritage of over 80 years, Raymond today enjoys an enviable brand recall value among retail consumers, something Arvind is yet to build upon. In fact, the Brand Trust Report, India Study, 2012 ranks Raymond number one in the apparel segment whereas Arvind, also 80-years old, ranks 48th. “Both the brands Arvind and Raymond have a legacy of being game-changers in their respective segments. However, Raymond ranks much higher than Arvind on most intangible parameters including the Brand Trust it evokes,” says N Chandramouli, CEO, Trust Research Advisory, publishers of The Brand Trust Report, India Study, 2012.
In other words, Raymond is a veritable leviathan when it comes to brand equity in India. “Even those who don’t buy Raymond clothes know Raymond as a brand through its wide network of exclusive retail outlets. On the other hand, Arvind is a trusted name in textile industry. What Arvind needs is a strong consumer connect," says PR Roy, current director of fibre2fashion.com, a textile portal who has also spent over 30 years with Arvind Ltd. as the group chief executive (textiles).
Brand Trust Report’s Chandramouli feels that the task confronting Arvind is not just that of powerfully communicating with consumers, but something that will involve a complete overhaul of the existing mindset of the company, thereby reinventing its entire approach to its business and to its stakeholders. “Consumers are unforgiving till the brand has repeatedly proven itself on the trust platform. Arvind must approach its new phase with a complete overhaul, and not just look at tweaking its existing brand or the brands approach. The biggest challenge for Arvind will be to determine what brand attributes of the earlier approach to stay with, and which to change,” reasons Chandramouli.”
After all, Arvind is treading a path that some big names found difficult to cope with. S Kumars and Koutons, for instance, set up large retail chains only to collapse soon after. Another Ahmedabad-based denim player Aarvee Denims & Exports Ltd (ADEL) dramatically down-sized its ‘De Extase’ retail chain from 75 stores across the country to a mere five stores within the city. “Fabric manufacturing and retailing cannot go together. We can make clothes for someone else to retail but can’t retail on our own. We had to shut down the stores because we couldn’t manage them and there was repeated loss of stocks,” says Ashish Shah, managing director of ADEL.
Another recent case includes debt-ridden Lilliput which borrowed heavily and added 600,000 sq ft of retail space in two years compared with 200,000 sq ft it added in eight years. However, its sales didn’t keep pace with its rapid expansion. Similarly, Avigo Capital Partners, the private equity (PE) investor of Spykar Lifestyle, a leading apparel player, has put up the company for sale. Avigo Capital Partners holds 60 per cent stake in Spykar.
No newcomer to reinvention
But Arvind is no ordinary company. This is a company that has faced extreme turbulence more than a few times in its past. Where most companies would have crashed and burned, Arvind managed to not only claw its way back, but through the process of reinvention, emerge fitter and more focused. In the 1980s, when Ahmedabad, the so-called ‘Manchester of the East’, witnessed a major textile-industry crisis with the advent of power looms churning out vast quantities of inexpensive fabric that bankrupted large composite mills, Arvind saw it as an opportunity to re-strategise. This led to the birth of its vaunted denim business, something that no other textile player in the country had thought of. By 1998, Arvind became the third-largest exporter of denim in the world.
Then calamity struck. Bolstered by its rising fortunes in denim, Arvind went on a denim-focused expansion spree on borrowed money despite the fact that cotton fabrics were slowly replacing demand for denim. In a short space of time, the company found itself on the ropes, battered by losses as well as a large debt burden. It was finally saved by a complicated debt-restructuring plan, architected in part by then- and current-CFO Jayesh Shah.
Despite the daunting prospects of creating a quality national retail brand, many believe the company is more than up for the challenge. “Arvind has the world’s largest shirting plant. It has been in the domestic market through value brands like MegaMart and licensed brands like Tommy Hilfiger and Arrow,” says Rahul Mehta, president of Clothing Manufacturers’ Association of India (CMAI). “It has already reduced the dependence on textile and OEM market and is getting further into the branded market. It’s not that they are taking any drastic step of re-engineering their whole strategies like they did when they forayed into denim. They already have an ongoing brands business,” adds Mehta.
Yet, Mehta says that Arvind will have to realise that dealing in the retail B2C business requires different skill sets than those required for dealing with textiles or exports. “India is such a vast market. Every 100 km sizes and consumer preferences change. Which is why managing inventory becomes a challenge. It is also a challenge to understand the size and location of the store,” opines Mehta. Moreover, Arvind will have to launch a suite of brands, say others, under its umbrella brand in equally varied formats such as exclusive branded outlets (EBOs), multi-branded outlets (MBOs) and shop-in-shops, among others.
Yet considering the tenacity of the firm, specifically the experience of both the MD and his CFO in weathering stormy seas, the appetite that the company has so far displayed for risk and reinvention and the timeliness of the company’s move—the branded apparel industry is growing at an unprecedented 11 per cent a year—chances are that the Arvind story is just beginning.