Less is more for apparel retailer Arvind Fashions, which is keeping its focus on six core brands to drive its business. The pivot comes as the company chooses to build fewer, but stronger brands, Kulin Lalbhai, vice-chairman and non-executive director, Arvind Fashions, said in a conversation with FE. These brands are US Polo Association (USPA), Arrow, Flying Machine, Tommy Hilfiger, Calvin Klein and Sephora, Lalbhai said.
Once known for as many as 27 apparel brands in its portfolio, the company has, in a strategic shift, discontinued unprofitable businesses such as GAP, Nautica, Elle, Izod, Hanes, New Port and The Children’s Place over the last two years. The firm also sold its loss-making value retail business ‘Unlimited’, including 74 retail stores and warehouses in the west and south of India to V-Mart Retail in 2021 to strengthen its balance sheet.
The change in strategy has seen the company add as much as Rs 1,365 crore to its topline in FY23, closing the year with a revenue of 4,421 crore and net profit of Rs 37 crore versus a loss of Rs 267 crore in the previous year (FY22 topline was Rs 3,056 crore).
Arvind Fashions is now eyeing a 12-15% compounded annual growth rate (CAGR) in terms of turnover over the next three years, it said in a recent earnings call, using a mix of online and offline distribution channels. The firm proposes to open 200 stores in FY24 across its core brands, which is higher than the 175 stores it opened in FY23. It will also push its presence aggressively online, having set aside Rs 100 crore in terms of capital expenditure for these initiatives this year.
Most of the offline stores will be franchisee-owned and operated versus being company-owned and operated, the firm said, as it seeks to cap rentals, a key expense for retailers.
In FY23, the firm saw earnings before interest tax depreciation and amortisation (Ebitda) margins improve by 330 basis points versus the previous year to 11.4%, with the June quarter of FY24 showing a 190-basis-point year-on-year improvement in Ebitda margin to 12.1%. Analysts say that the company may turn in an Ebitda margin of around 12-12.5% in FY24, as it looks to manage its costs prudently.
Of the core brands, Lalbhai said that the big focus would remain on USPA, where the turnover is around Rs 1,800 crore at the moment. At a 15% annual growth rate, USPA may touch the Rs 2,000-crore mark in terms of turnover by this fiscal-end, led by a marketing, retail and e-commerce push.
“US Polo is the largest casual wear brand in the country. It is the right time to give it an even deeper and richer experience as it eyes its next phase of growth,” Lalbhai said.
India is the third-largest market for US Polo in the world after the US and Turkey. The all-round marketing, retail and online push being given to USPA may take India to the second spot in the next three to five years, retail analysts said.
On the other hand, brands such as Arrow, Flying Machine, Tommy Hilfiger and Calvin Klein are in the Rs 500-crore revenue club, aiming for the Rs 1,000-crore topline mark in the next two to three years, Lalbhai said. The company is also looking to launch an online beauty store for Sephora, whose annual turnover is around Rs 300-400 crore, for which it has applied for an online licence.