Shanthi Venkataraman

These are exciting times for the readymade garment business. Arvind Brands, which owns brands such as Arrow, Lee, Wrangler and Newport, is certainly in the thick of all the action. Mr Darshan Mehta, President of Arvind Brands, with experience that ranges from stock broking to advertising, can speak emphatically on matters that are just as diverse — from retailing and private labels to price points and women's apparel. In an interview with Business Line, Mr Mehta strongly advocates the need to cater to the mass markets rather than the premium segment.

Excerpts from the interview:

Apparel players appear to be strengthening their export and domestic presence, as the prospects on both fronts look bright. What factors are at play while operating in the domestic market for apparel as against the export market?

Garment exporting is more of a manufacturing-driven business, whereas promoting your own label in the domestic and international market is more of marketing and branding play. Your focus and energy is far more on supply chains, distribution, retailing, and communication of the brand and, to a much lesser extent, on manufacturing.

So if I were a manufacturer making shirts either in India or internationally under someone else's label, 90 per cent of my focus would be on how efficiently I can manufacture the product, meeting quality requirements.

Whereas in the domestic (branded apparel) market, manufacturing would be only one of eight other components — such as supply chain management, advertising, forecast of fashions and so on. One of the key challenges of this business (on the domestic front) has actually been distribution.

In recent months, apparel players have announced expansions of retail outlets, even as multiple retail formats have emerged to cater to their distribution needs. Are these players positioning themselves to ride on the retail boom?

If they do so, they must be conscious that it is a different business. The skills that are required in the retailing business are dramatically different from what is required in building an apparel brand. Arvind will go much more for a partnership with retail stores.

If I have Arrow stores now, it is more to showcase and represent the brand, rather than distribute the product. There were times when we had sub-1, 000 sq ft Arrow stores. Over the last two years we have closed down a whole lot of those stores. The new stores that we have set up are now a minimum 1,500 square feet, because we want to showcase the brand. This is how it is the world over. If you consider Ralph Lauren, there would be a Ralph Lauren in Nordstrom, there would be one in a departmental store and yet on the high street, there would be a stand-alone store, which would showcase the brand in all its glory. If you were a die-hard Ralph Lauren fan, you would not see the entire range in a departmental store. But if you go to Ralph Lauren store, you do.

If you look at ITC's strategy... They built stores first (Wills Lifestyle). They approached it from a different angle. I think ITC has a stronger retailing side than manufacturing. So it is a different ball game. That is why you find that when retailers start their own private labels, they do not do a very good job. They know retailing very well, but does that necessarily qualify them to put together a great collection, or to forecast fashions?

Private labels do very well in a recession, when brands suffer...

Brands need to constantly nurture and understand their customers. They must understand that needs are not static. Secondly, I am quite clear that a brand cannot be everything to everyone.

The man, who wears the flashy shirt in a pub, represents a growing market for flashy shirts. But I cannot have Arrow come out with a flashy shirt.

Additionally, you have to create a distributional channel that caters to you. Today, nearly 40 per cent of our business comes from our own stores, 30 per cent comes from multi-brand outlets and specialty stores. This mix may change. There are always new methods of selling. I do think online retailing would become a major channel. JC Penney's has a billion dollar worth of sales from online stores.

One impact of the removal of quotas is that every country would be forced to bring down their import duty structures. Today, Sri Lanka has 50 per cent import duty on shirts and jeans.

What if 50 per cent gets reduced to 20? Sri Lanka becomes one more market to me. So these are things that I as a branded apparel player can do during recession times-build new channels, new markets.

This whole debate about private labels is a futile debate. They have been co-existing and will do so for the next 50 years.

Most of the leading brands in India today are positioned towards the premium segment. Across various sectors an increasing number of new products are now being introduced at lower price points. Do you see this as a trend that is likely to emerge in the readymade garment business as well?

Everyone is focussing on the top of the pyramid. Everyone is after the same guy who takes the jet air flight three times a month goes and pubs in a particular place and leads a certain lifestyle.

But the size of the market in the middle and lower end is large. Arvind is beginning to do that (introduce products at lower price points). We have Newport at Rs 399, we have re-launched Ruf `n Tuf at Rs 299. Ruf `n Tuf can beat the Walmart price of $9 hands down.

Private labels have managed to grab a certain amount of market share in the mid-priced segment by pricing their products lower than brands. Can brands compete with private labels at these price points?

Brands can be priced much lower. The private label is not really cheaper, but their margins are better. Austin Reed of Shoppers' Stop is positioned across Arrow.

If I have x margin on Arrow, they would have x + 20 per cent margin on Austin. But even Shoppers', Lifestyle, Pyramid, are all focusing on the upper middle class of the market. They do not even want to retail a Rs 399 Newport or a Rs 299 Ruf `n Tuf. That is why I would like Wal-Mart and Carrefour to enter the market. They would generate the volumes (at these price points). This is where money is to be made.

But your margins would come under pressure...

The only thing that was holding us back from entering these price points earlier was excise — not because it was additional levy, but because it created a non-level playing field. Now that is no longer the case. As a result, we, as a company, are going to have a major focus on Ruf `n Tuf, Newport and Excalibur.

Why is the women's apparel segment, despite its potential, still untapped by apparel makers? Is customisation the main issue?

Currently we are at some sort of inflection point in this segment. It is a market category that is going to grow. Fit for a woman is more important. The challenge here is not in design but the stock-keeping units (SKUs) that are involved.

If I have 500 SKUs and I just launch all of that in one more cut, the 500 become 1,000. With increasing SKUs the cost of obsolescence, what does not sell, has a tremendous impact on our business. Pricing is another major issue. With most women, chances are they will buy an unbranded outfit if it fits well. Women expect a cheaper brand.

As you introduce more brands to cater to different tastes and at different price points, do you run the risk of building too big a brand portfolio?

Not if you can create sub silos within the organisation. VF Corporation has a number of brands. They have nine jeans brands (Lee, Wrangler, Maverick, to name a few) all at different price points, positioned at different markets.

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