‘E-commerce, brick-and-mortar stores will have to co-exist’

Textiles and garments maker and retailer Arvind Ltd has forged several joint ventures and announced expansion plans. Bloomberg TV India spoke to Sanjay S Lalbhai, CMD of Arvind Ltd, on how the company expects to handle severe competition, not only from other players in the field but also e-commerce firms.

We are seeing a lot of excitement in the brand and retail business. In what stages are the various tie-ups that your company has made?

We have 16-17 brands in retail formats. We are into all segments — value, premium and bridge-to-luxury. We are also in various categories and across genders.

One of the questions being asked is, why is your EBITDA not on par with some of the competition?

We have brands that are at different stages of evolution. There are established brands that are giving us world-class EBITDA, and throwing up a lot of free cash. These don’t need any further cash to grow because the retail formats are franchised.

Going forward this world will become an omni-channel. E-commerce and brick-and-mortar will have to co-exist.

The consumer will pick seamlessly, online and offline. The stores will get digitised. You will just key in the size and design that you want, and an app will help you get exactly what you want. Brick-and-mortar stores will become more like showrooms where you experience a brand, but you then buy it online. We are establishing an omni-channel capability across brands and formats. All formats will get digitised.

Some brands are best in class — reaching ₹800-1000 crore, delivering extremely good EBITDA. Some growth brands are already EBITDA positive — but that’s single-digit EBITDA — growing at 30-40 per cent. Those will mature into power brands. Then there are new brands that will take a while to get EBITDA positive and deliver the results. If you add everything, it may look modest, but there is a quarter-on-quarter improvement. We are very buoyant about it.

The market is watching the power brands closely. Five years from now, what part of the portfolio and joint ventures will be in that category?

Most of them will be. Tommy is now a power brand, as are Arrow, Flying Machine and US Polo. CK, Gant & Nautica are growth brands that are becoming power brands. GAP has been a phenomenal success from day 1, beyond our expectations. Then you have Hanes, where we are investing money. That’s more an FMCG offering which will take some time. MegaMart is going through a complete change. It was started as a discount factory outlet; we have completely migrated that to a value retail format for the family.

On capex from an operations point of view…what’s the outlook on that?

Capital investment is mostly on the retail formats. When you open a GAP store you have to put that outlet up and you own the store. But when it is brands, it’s all franchised and doesn’t require any capex at all. So the power brands and growth brands don’t require capital. What will require capital for will be the five-six retail stores that we have to open — Unlimited, GAP, Aeropostale, Arvind Stores, Children’s Space. So if we have to roll out 40, and each store costs ₹4 crore, that will be the capex.

We have a plan, but in retail location comes first, second and last. So unless you find the right location you don’t open the store. You may have a business plan but you need the right location in a mall, or on the high street. It may get deferred here and there, but we have a plan and we will put money behind it.

We will grow it as logically and rapidly as we can. All stores have to become profitable. They have to give us a profitability of 16-18 per cent at an operational level to make logical sense on the P&L.