“The main problem with retail is cost”

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: In this day when fast-track job-hopping is the norm, Vikram Rao can be regarded as an Aditya Birla Group (ABG) veteran. He joined the group in 1999 from Arvind Mills where he was president of the shirting division and bed and bath projects. But Rao, currently business director, textiles and branded apparels, Aditya Birla Group, has been associated with the textiles industry right from the beginning of his career. Starting out as a management trainee at Madura Coats in 1975, he climbed the ladder fast to become the president of the textile division (the Aditya Birla group acquired Madura Garments in 1999). He has also served as chairman of the Confederation of Indian Industries (CII) task force on textiles for Karnataka. Here, he talks to Alokananda Chakraborty of The Financial Express about some of the key trends in the industry.

The apparels business is competitive to say the least, where a dozen variables—relating to brand management, production, merchandising, quality and productivity besides distribution —have to fall in place. Is there one factor that can make or break a brand?

There are many factors, both tangible and intangible, which go into building the competitiveness of a brand. In its element, a brand name promises a host of things to a consumer. A good brand has a whole range of hygiene factors associated with it like product, quality, availability, retail adjacency, which a customer takes for granted. If the brand has to succeed, it has to deliver much beyond this. A sure shot way to kill a brand is to falter on any of the basic hygiene factors.

The Aditya Birla Group has a host of brands. How have you categorised them and which are the so-called ‘power’ brands? What’s the turnover from the business?

Our brands have been categorised into two broad categories, namely, lifestyle and popular. Brands such as Louis Philippe, Van Heusen, Allen Solly and Esprit are part of the lifestyle offering, while Peter England is part of the popular category.

Madura Garments’ power brands are Louis Philippe, Van Heusen and Allen Solly. For the financial year, 2006-07, Madura Garments posted a turnover of Rs 800 crore.

The Indian garment industry, experts say, is poised for a sea change. What are the catalysts for this change?

Globalisation and consum-erism are some of the root causes of the sea change in the Indian garment industry. More and more young people are travelling abroad and they see the fashion and trends in developed countries and aspire to own them. Added to this is the presence of the international media, which is a big promoter of fashion and trends.

The purchasing power of people has also shot up and they don’t mind pampering themselves with clothes and accessories. The regulatory environment has also encouraged the influx of well-known international brands that have raised the bar in fashion.

An ASSOCHAM study puts the retail market at Rs 1,60,000 crore by 2008 and garment retail is said to be the biggest contributor. How do you rate the prospects for this industry?

The prospects of garment retail are good. Organised garment retailing has just taken off over the last couple of years and has a long way to go. With the growth of the economy and the resultant increase in the income levels of people together with a growing young population ready to spend more on garments, the future looks bright.

There is a growing demand for brands at lower prices. What impact could this have on ABG’s brands that mostly target an upscale buyer?

Our brands are present across different customer segments, ranging from super-premium, premium and mid-priced segments. Each of these is growing fast and all our brands are benefiting from this growth. The customer segment at the lower price range may have grown faster but we have not seen a slowdown of demand from upscale customers. Given the rise in affluence levels, we expect multifold increase in the demand for our brands.

Apparel companies are pushing specialised retailing concepts these days. Are there any pitfalls in pursuing an ambitious retail plan as far as a manufacturer is concerned?

The main problem with retail at present is the cost. Rentals have risen exponentially within a short period, which will, willy nilly, impact the bottomline. Having said that, the only way to grow a brand is through a focused retail push.

Another raging issue in the business is the use of promotions—be it outright discounting or freebies. Everyone admits that it undermines a brand’s value and may be dangerous for the industry as a whole. What is the way forward?

Given the unique nature of the apparel industry, players are always left with merchandise that needs to be cleared using promotions. The policies on promotions are a function of the business model. We use promotions at periodic intervals to liquidate stock for the season. This is done using the existing channels. We also use value channels to liquidate old and slow-moving merchandise all through the year. This practice is commonly followed even by well- known international brands and does not impact the image of the brands in a big way.

How do you see Indian brands coping when biggies like Wal-Mart and Sears make inroads into India?

A player like Wal-Mart operates in the mass-market segment and is a value player. As I mentioned earlier, we have different brands for different customer segments. Hence, we are not unduly worried about the entry of players like Wal-Mart. They will impact only the category of customers and brands operating in that space. Well-entrenched Indian brands in the premium and super-premium segment needn’t worry at all.

What kind of management (brand and marketing) do you profess for Indian textile companies to survive global competition?

Indian textile companies need to identify and define their target customers and evolve strategies to satisfy their specific segments. One of the biggest strengths of international brands is the power and equity of their brands—they have strong recall value. Hence, Indian companies need to focus on brand building in a big way. They need to dissect the different customer segments and clearly identify areas where they would like to operate and evolve strategies to cater to the requirements of that particular customer segment.

Ultimately, the customer needs to see value in the product—the price at which he is buying it and the ambience in which he is buying the product.

With the industry landscape changing, many have predicted another round of consolidation. Your comments.

India does not have many well-known apparel brands. A host of brands have cropped up over the last few years but they are yet to establish themselves strongly.

Currently, there are a host of small brands and a few large established brands. Given the growth potential, the larger players will definitely not want to sell out, and even if they do, the valuations will be too steep. Given that the industry is growing very fast, even smaller brands would see a big growth opportunity for themselves.

The areas wherethere can be a possible churn are the value- and mid-price segments as that is where the entry of big retailers like Wal-Mart, Reliance, Future Group etc will have an impact. These brands may eventually be taken over by value retailers to operate as their private labels.

And what about the smaller players—who form clusters in Tirupur, Ludhiana or, for that matter in Kolkata—that are not only surviving, but appear to be thriving?

The smaller players who form clusters in Tirupur, Ludhiana etc are mainly suppliers to international brands and retailers. They do not have much of a presence in the domestic market. Dollar’s depreciation against the rupee has had a negative impact on them. They have to either find other overseas markets for themselves or look at the domestic market, which a handful are doing.

Small units have managed to be competitive in the past. Does this not defeat the argument that we need scale to compete with the inflow of cheaper (say Chinese) products?

Smaller units can be competitive if they are highly productive. This can offset, to some extent, the loss on savings—a direct fallout of not having scale in purchasing raw materials.