What is the real trigger for selling Unlimited?
The trigger is our strategy of focusing on six high conviction brands. We believe that, for our profitable growth strategy, these six brands are the priority areas. In this context, other things become less important. We realized that Unlimited had to be in a place where it is a priority for that place. So in the last couple of years there was a new team and they did a fantastic job of bringing it close to balance to be interesting for a future owner. Then we found someone who we believe is the perfect partner for Unlimited’s future. The strategy is therefore to focus all our efforts, whether capital, talent or resources, behind these six brands.
The future of Unlimited would be brighter with someone like V-Mart who is an expert in the value segment. We think we’ve got a very fair deal where we get the full book value of the assets of Unlimited, and we move the 74 physical stores, mostly in South India, a little bit in the West as well. We want to deploy this capital in our six brands.
With the pandemic hitting incomes, doesn’t the value segment offer better opportunities?
We thought really hard and figured out that our core competence was a very enviable portfolio of six brands. Most of our brands have a laid back, laid back vibe so they are perfect for post-covid casual wear, work from home scenarios. In July and August our brands recover very strongly because our portfolio is ideal for working from home.
Could you detail the recovery? How badly have they been affected?
The second wave of Covid was very strong and very bad. Any store lockdowns induced by covid and in many ways even online is bad for business because retail is impacted. But one thing that helped was that we had a playbook. We had been doing things last year, so we had kind of muscle memory built on how to handle costs and cash flow. We received some money for the rights issue in May which also helped.
Covid was bad, but we delivered 50% of net sales value (NSV) in the first quarter of this year, compared to the first quarter of 2019-2020 or the pre-covid period. So our recovery was 50%.
But compared to last year, our activity became four times higher in the first quarter. Much of this growth has come from our powerful brands, as well as digital. Thus, compared to the first quarter of the previous year, this quarter (turnover) increased by ??250 crores. And out of it ??250 crore increase in income, ??150 crore came from digital.
July was much better, when more malls started up our recovery at the enterprise level was close to 80%, and in the strong brands it was 90%. And August is another increase in our recovery, many brands have now exceeded pre-covid August ’19 numbers.
I would have liked the Maharashtra malls to be open, because in some of our brands it is a very important part. The rules of vaccination are very difficult. Our staff are very young and the government has said staff who have received two vaccines will be allowed to return to work in shopping malls. They are all young, in their early twenties most of them only have one stroke. But apart from Maharashtra, the overall recovery has been fantastic everywhere.
Arrow is your brand of formal wear. Are you going to extend this to athleisure?
The precariousness in India had started a decade ago and not just during the COVID era. In covid, precariousness has only accelerated.
A decade ago, we started looking at a casual line in Arrow. So there is a line called Arrow Sport, which is a semi-formal and casual line, and it has now become almost half of Arrow’s business.
One thing I always say is that even though we all live in big metros, India lives in its 200 cities. And a typical customer, in a city like Indore, might just wear a casual plaid shirt and chinos to work everyday, or maybe jeans. This is the reality of India. And all brands are always adapting to changing consumer habits. We evolved Arrow and it now has three lines – one is the original formal Arrow line, Arrow Sport and now we also have a line for young professionals in Arrow New York.
When you were talking about the digital boom, how many via your NNNOW.com site and how much via marketplaces?
There are two parts to digital commerce, and it is developing very well. At T1FY22, we did almost ??200 crore of income. We are at a pace where we are close to ??Execution rate of 1,000 crores. Arvind Fashion is by far the market leader in our digital industry.
Of that Rs200 crore, 30% of that activity comes from what is known as our direct-to-consumer sales, which includes NNNow activity (website directly made by us). And then there are the market places. So in the marketplaces we also control the entire consumer experience, we manage the assortment, the prices, the catalog, everything and it is sold through portals like Myntra, Ajio, Amazon and Flipkart etc.
If the focus is on the web, are you reducing the expansion of physical stores?
If you ask me how we’re going to develop these six high conviction brands, your question will be answered.
We have a few themes and strategies. But first, it’s the digitization I talked about: the partnership with portals, omni connect with our consumers.
During the last quarter, we added 100 more stores to our omni network and our contribution of digital-only links in our physical store during the first quarter, reached the number of teenagers.
Then we have backend capabilities built on warehouses, on an assortment of products, proprietary online products.
The second strategy for us was to develop adjacent categories in these brands. Take our biggest and most powerful US Polo brand. Over the past few years we have been building children’s clothing, footwear, loungewear… in US Polo.
Likewise, at Arrow, the suit and the blazer are at the center of our concerns… maybe we make small leather goods like a belt and wallets at Arrow.
The third is the offline channel now. I think that will answer your question. The special thing about India is that you cannot ignore energy and business in small towns – levels 2 and 3.
And even in the online tracking if you see, the contribution of level two, three is increasing very, very quickly. We are now opening physical stores in these small towns in India at an accelerated rate. And these won’t be the typical offline stores of the past, they will all be omni-activated digital footprints for our brands.
Can you name some of these towns and the percentage of businesses that are from small towns?
Traditionally, AFL brands have an urban bias, it’s a big city affair. We have Calvin Klein in the Bridge to Luxury segment, US Polo, Arrow which is our premium category. We only have Flying Machine as a brand of value.
I can tell you that a large (business) contribution came from the top 30 cities.
But now we have seen the traction of our brands in small towns online. We now have the data to feel comfortable starting to expand stores.
Clothing retailers like Aditya Birla Fashion and Reliance Brands have bought Indian designer brands. Does Arvind have similar plans?
I respect the competition, so I’m sure they would have thought about their strategy and their game plan. So good luck to them.
When it comes to AFL, we absolutely want to focus on the six high conviction brands in the short term. In the long term, we’ll see how the industry evolves and the AFL evolves, but in the short term, we have no intention of doing anything other than re-energizing the growth of these six high conviction brands.
Flipkart has invested in Flying Machine. Will there be more associations like this with any other market for any other brand?
Currently I’m not aware of the plan but, you know, if there’s anything, we’ll let you know.
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