The Hindu Business Line : A readymade advantage

SMALLER garment players are finally feeling the heat. This year has seen smaller brands coming into the fold of a bigger player in the business. Textile biggies like Raymond and Bombay Dyeing have been busy picking up stake in smaller garment companies like ColorPlus and Proline, signalling the consolidation of textile brands. While each of these big players have different reasons for spending money on buying out smaller brands, there are obvious advantages for the both the parties involved.

Take the example of Raymond which already has established brands like Park Avenue, Manzoni and Parx in its kitty. Adding on a premium brand like ColorPlus only completes its portfolio, making it stronger in the readymade business.

Explains Nabankar Gupta, Group President, Raymond Ltd, "Our story gets completed with ColorPlus in the smart casual segment. Considering Parx is in the mid-priced segment, ColorPlus is a more premium brand in the same segment." Plugging the gaps in both price and product gives Raymond the dominating stance it needs to rule in that segment. Besides, there were certain brand synergies which have made the alignment even easier. Claims Gupta, " ColorPlus has the same connotations like pride of ownership and desire to win, being a top-end brand like Raymond."

Gautam Singhania, Chairman and Managing Director of Raymond, says, "The acquisition of ColorPlus will complement our existing portfolio of brands and is a step towards further consolidation of our position as a leading apparel player. We expect substantial synergies between the existing marketing and distribution network of Raymond and the product portfolio of ColorPlus."

According to a spokesperson of Madura Garments, which now belongs to the Aditya Birla group and owns a clutch of brands, a brand portfolio helps in understanding and meeting the needs of multiple customer segments as well as meeting emerging needs of new customers. It also helps in retail synergies.

Elucidates Rajan Chhibba, Executive Director, KSA Technopak, "While the market will continue to remain fragmented for a while, the option is based on what is the best way to grow. More than financial resources, building distribution takes time and the smaller player is driven by wanting a strategic fit more than competitive attrition."

Also, bagging shelf space at retailing chains becomes easier with more brands being offered by one single company, not to mention the added advantage of getting the `right' margins from the respective retailers.

States an industry observer, "The retailers are getting more powerful. Besides, they also have the onus of pushing their own private labels. Having more brands will give more bargaining power to the textile manufacturers, who, by commanding better margins will not allow themselves to get bullied by the retailers."

Explaining the perspective of the retailer, G. S. Shrikhande, Director, Buying & Merchandising, Shoppers' Stop Ltd, says, "Normally consolidation increases the power of the brand and does not necessarily benefit the retailer. It also depends on the kind of relationship the retailer has with the company."

The preferred brands by the consumer will always have the benefit of lesser margins while retailers are in a position to command higher margins where the brands don't move. Adds Shrikhande, "It also depends on the brands the company has in its portfolio. With preferred brands like a Van Heusen or a Louis Philippe, there may be lesser margins than an Oxemberg or a Vivaldi where higher margins are charged since the consumer does not demand these brands."

Such takeovers and acquisitions might affect retailers to a certain extent but not the consumer who is more interested in the brand than the company to which it belongs. Besides, a smaller brand will never have the support systems provided by a bigger company.

Adds Raymond's Gupta, "Today the consumer is not looking at the price alone but a package of deliverables which range from the product and promotions to the total shopping experience the brand offers." Belonging to a bigger company will always result in better exposure and reach for the smaller brand.

ColorPlus was launched in 1993 and has been struggling in a stagnant market for readymades. However, the brand claimed to grow faster than the others in the business and had a value turnover of Rs 58 crore. A similar figure has been quoted as the value of the brand. While the promoters of ColorPlus get to exit without losses, the brand's visibility will be suitably enhanced through Raymond's 258 exclusive shops spread across 120 cities. Raymond's acquisition of 75.1 per cent stake in the company this September (it will be subsequently buying out the rest) came close on the heels of textile major Bombay Dyeing picking up a 51 per cent stake in Proline India a few months earlier.

In Bombay Dyeing's case, the funds pumped into Proline were more to rejuvenate the languishing shirts brand of Vivaldi through Proline, which in turn would get access to the bigger company's extensive retail network.

"Apart from the increased financial strength of the entity, it is access to its stores which the merger will bring in," says Kabir Lumba, CEO, Proline Ltd.

So while Proline gains on making quick distribution inroads with its brands, Bombay Dyeing would go back to focussing on its textile business, its core competence.

Meanwhile, smaller but big spenders like Acme Clothing Company (the makers of the Provogue brand) are feeling the pinch from the lack of financial muscle to go forward in the business.

The high-profile four-year- old apparel brand, which has roped in Fardeen Khan as its brand ambassador, is planning to offload a minority stake to a strategic partner for expanding its operations.

The privately-held company, owned by the Chaturvedi brothers, is looking at offloading a maximum of 20 per cent stake to a strategic investor but does not have intentions to sell its brand.

States Nikhil Chaturvedi, Provogue's Managing Director, "We have been aggressively expanding operations and a strategic investor can strengthen our prospects."

Registering a turnover of Rs 30 crore, the company has been spending lavishly on promotions and celebrities and is rapidly expanding its own stores (Provogue Studio) to push its brand.

While there is industry speculation that a big textile player is likely to pick up stake in Acme Clothing, the fact remains that small and new brands are sooner or later going to take shelter under the protection of a bigger player in the business. Stresses Chaturvedi, "Today this is the truth in the market. Either you acquire or get acquired in order to get marketing and distribution strengths."

Adds Gupta, "Sooner or later smaller players are likely to join hands or sell out to a strategic partner."

Besides, factors such as high excise duties and lopsided textile policies have also taken their toll on the small players.

Claims Vikram Rao, Group President, Fabrics & Apparels, Indian Rayon, "Today industry growth has got muted due to pressure on margins. The cost of reach and promotions has gone up and small players have given up their rights to bigger players who want to consolidate." A spokesman for Madura Garments says, "In any consumer goods industry, there will be a set of large players and niche players. As long as the niche players keep innovating, they will continue to do well as independent entities. The apparel industry is no different."

For Madura Garments which came under the fold of the Aditya Birla group two years ago to mark the latter's entry into the readymade industry, the reach and growth of its the acquired company's readymade brands have undergone a major change. As Rao says, "Today we have made all the brands from Madura Garments mega brands. We will look into acquiring more brands only if we feel the absence in a category or that it offers us more value in a particular segment."

So while the big players get their topline numbers and address niches they were not present in through the new brands, strategic fits through mergers and acquisitions will continue in the textile and fashion industry.

According to Madura Garments, growth in the men's apparel industry is pegged at 8-10 per cent. Casuals and trousers are growing faster, at 10-12 per cent.

As Chhibba observes, "The days of double digit growth are over and once the smaller brands develop some critical mass, the consolidation trend will continue."

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