Compition in the textile business has forced Pantaloon to enter the lucrative retailing business.

The fast-changing business scenario has forced even the ultra-traditional textile business to change. The trend of restructuring established abroad is now catching up in India.

As the first logical step, companies are relocating their mills away from the metropolitan cities. In the short run, this helps them improve their cash flow. In the long run, this improves their overall competitiveness.

The Mumbai based Pantaloon has, however, decided to use a different strategy.

The Pantaloon story
Pantaloon started out in the traditional mould of the textile business -- it outsourced fabric and made cloth. Gradually however it moved on to establishing brands like John Miller shirts, Bare trousers and jeans, and Shristi salwar kameezes. These brands were distributed through franchisee outlets. They were also made available at other retail outlets throughout the country.

The management at Pantaloon had realised that the textile industry was becoming extremely competitive. Companies could no longer dump products into retail outlets, and expect consumers to purchase whatever they dished out. The growth of the media and television had sparked off rising consumer awareness. Increasing competition had resulted in more products and choices for the consumer.

The Pantaloon management reckoned that margins would only be squeezed further. Hence the best way to retain its margins as well as give a bigger thrust to its products was to go the retail way. To finance its entry into the retail business, it came out with a rights issue which took its equity capital from Rs.4.73 crore to Rs.7.09 crore.

This made sense, as going retail was not a diversification. In a way, it was a forward integration of the business. The tremendous success of retailing abroad, further justified this move.

The result
Today, Pantaloon is one of the big players in retailing. It already has a presence in cities like Mumbai, Thane, Nagpur, Hyderabad, Calcutta, and Secunderabad. In the coming year, the company has plans to move into cities like Delhi and Chennai and some other smaller cities where it has little representation. This will take the total retail space held by Pantaloon to 2,00,000 square feet -- larger than space possessed by any other retailer in India.

The management is also moving ahead to effect complete logistical and information systems. It has implemented the Baan Enterprise Resource Planning (ERP) software in its organisation.

Restructuring further
As a part of a restructuring exercise advised by consultants KPMG Peat Marwick, the flagship company Pantaloon Fashions is hiving off its garments, software and brands business into separate ventures.

The software company will offer its experience in developing software, to assist other retailers. The Biyani family has plans to bring in professional CEOs for each of these companies. Later, a strategic partner may be roped in for each of these ventures. This will make the flagship company a purely retail company.

These strategies, the company’s retail thrust, and its first mover advantage seem to have convinced fund managers of the company’s potential.

The scarcity of stocks in the retail segment has also added to the enthusiasm. Other success stories in the retail industry, like Shoppers Stop and Crossroads, are privately held companies. That leaves only Pantaloon and Trent to choose from in the apparel retailing sector.

The stock markets are excited about companies entering new businesses. This is indicated by the jump in Pantaloon’s share price from Rs 5 a year ago, to Rs 75 now.

For the financial year ended June 1999, the company notched up revenues worth Rs 100.17 crore and earned a net profit of Rs 2.27 crore. The opening of new retail outlets should enable the company to maintain a steady topline growth.