Why Madura Garments is competing with large-format retail chains. Kumar Mangalam Birla is candid. "It's a move from being a wholesale garment manufacturer to a retail-led company," says the chairman of the $28 billion Aditya Birla business empire, about the launch of Peter England People, the 15,000-square feet apparel and accessories store.
Birla's comments at a suburban Mumbai mall last week deserve a second look. The company that is pushing this retail initiative is not Aditya Birla Retail, the group's recently established retail flagship.
Instead, Madura Garments, the branded apparel business division of Aditya Birla Nuvo, is straying from its core. From manufacturing and marketing its four famous labels "" Louis Phillippe, Van Heusen, Allen Solly and Peter England "" the company is now upping its ante as a front-end retail player. "That's doing a completely new business," accepts a company executive. "The disintermediation is happening in order to interface directly with the consumer," explains Birla.
Peter England People (PEP) is just one of the several initiatives that Madura is taking to get closer to consumers. Already, close to 40 per cent of the sales happen through the company's direct retail (company-owned or company-operated) network. Over the next three years, the company's retail operations will deliver 70-80 per cent of all branded apparel sold by the company, says Birla.
That's a significant goal. Three years ago, only 10 per cent of Madura's brands were sold through the direct retail channel, while the rest came from channel partners (multi-branded outlets, department stores, franchisees and others). Already, the company directly retails apparel through 4.5 lakh square feet while partners account for only 3 lakh square feet.
Controlling the retail space is just one part. Even the product mix is changing. From primarily offering formal wear, Madura is providing end-to-end wardrobe solutions, including accessories to complement and strengthen its core apparel offering.
It will also enhance its presence in women's wear where it already has extended the Allen Solly and Van Heusen brands, and look at the youth segment more aggressively. It is entering the children's segment, too, with Allen Solly dabbling with a kids-wear range.
Come October, the company will begin retailing luxury brands complete with salons, made-to-measure apparel and so on, aspiring to be the Indian answer to high-end retail chains such as Harvey Nichols, Barneys and Lane Crawford.
The gameplan is certainly bigger than "getting closer to the consumer". Globally, apparel retailing majors such as GAP have brands for each customer segment. While the GAP brand caters to the middle segment customers, the company's other brands Old Navy and Banana Republic offer fashion at affordable prices and accessible luxury respectively.
For Madura, the big bucks to be made from this business in India, is a big attraction. Company estimates show that the market for organised apparel retail in India is Rs 49,000 crore at present and is expected to grow to an astounding Rs 130,000 crore in the next five years. That's a pie that any business will find hard to ignore.
"Being present in the retail space is the only way to grow," says Vikram Rao, business director, textiles and apparel, Aditya Birla Group. In the last financial year, the branded apparel division grew by a healthy 24 per cent to deliver a turnover Rs 1,025 crore.
Five years down the line, Madura Garments targets Rs 6,000 crore by FY 2013, of which Peter England People, the new all-family store format, is expected to bring in revenues of Rs 1,300 crore.
But why defocus on the traditional apparel retailing channels and create one of its own? Company executives are the first to deny that they are defocusing on existing channels. Retailers, however, agree that there are solid reasons why companies are starting out on their own. The first reason is the humongous margins that organised retail chains expect from manufacturers. "Margins in some cases can be as high as 50 per cent," says a retailer.
Large volume brands especially could find this demand too steep, as they play the low-margin high-volume game. That probably explains why brands like Peter England do not find shelf space in organised retail formats such as Westside, Shoppers Stop or Lifestyle. "That's because these outlets have their private labels," defends Aloke Malik, president, Peter England Fashions and Retail.
Turn the margin story the other way, and it unravels a huge business opportunity. If retailers are demanding huge margins and mostly getting away with it, there is a huge incentive for companies to get into retailing themselves. After all, as a company executive agrees, direct retail helps companies in getting an additional 20 percentage points in margins compared with retailing through partners.
Direct retail also helps companies in overcoming the inherent disadvantages of organised retail chains. A brand such as Allen Solly or Van Heusen, for instance, would get probably 200-500 square feet of display space in an organised format retail store like Lifestyle or Shoppers Stop.
In comparison, an Allen Solly exclusive outlet could be around 2,500 square feet and stock the entire range "" up to 1,000 stock keeping units (SKUs). The PEP store, for instance, stocks 10,000 SKUs. Another sore point is the discontinuity in the brand experience.
For instance, an Allen Solly women's wear could be in a different level than men's wear in a large retail chain. "Good retailing is like good story telling," says Zeena Freeman, CEO, Peter England People, and adds, "when you control the entire chain, the destiny is in your control."
Malik agrees: "Company stores deliver a superior experience that translates into value." Formats such as PEP also help brands display a sense of cohesiveness. For instance, the women and kids wear have similar designs "" integrated fashion is an international trend.
The final argument in favour of direct retailing relates to customer feedback. Ashish Dikshit, president, lifestyle retail, Madura Garments, says, "In a retail outlet, the consumer votes with cash. Feedback is also more direct compared to the feedback coming from partners that could be filtered."
He adds that the everyday feedback that comes from outlets helps in a deeper understanding of consumer behaviour that results in better product planning and faster turnaround of inventory. Has the company made significant changes based on the feedback received from outlets? "It's early days yet," says Rao. But one fact has already set in. It's retail that's wagging the company.
