Saturday, January 23, 2010

Small Brands, Big Canvas

Driving a revival in the country's apparel business after a tough year is a slew of regional brands mushrooming in smaller cities and towns across the country that are now attracting the attention of private equity players. Brands such as Liverpool Retail India's Barcelona, Vir Retail's John Hill and Nahar Group's Cotton County that sell outfits at less than one-third the price of national brands are opening stores faster than the cautious national brands.

These brands operate in the Rs.150-600 price band, working on low margins and fast stock turnover. Their marketing efforts are mostly localised and they woo new consumers into the organised sector through discounted offers like 'buy one, get three'.

"National brands retail at a mark up of around three times, which is channelised into branding. We pass this on to the customer while retaining net margins of 8-10%," says Kailash Gupta, MD of Ahmedabad-based Liverpool Retail India. While national players focus on per-store profitability and saturate metros before targeting tier II and tier III cities, these regional brands bet on scale and dress up smaller cities with Westernised brand names.

"Several regional brands are challenging the might of big players within the value segment where a significant proportion of Indian demand exists. Many of them will soon grow into national players and capture share from established brands," says Baqar Naqvi, associate VP retail & consumer goods at Technopak.

Bangalore-based Indus Mandhana group's venture Vir Retail launched 50 John Hill stores for menswear and womens' wear in three months across small cities from Belgaum and Gulbarga in Karnataka to Bharuch and Baroda in Gujarat. Driven largely by the franchisee model, it is also working out a leaner store size to address specific labour pockets in the country.

Liverpool Retail's Barcelona digs deeper into rural India across towns such as Palampur and Mehsona. "Franchisees are also keen on partnering the discount model as the scale enables us to take back unsold stock and deploy it in markets where it would sell," said Sachin Sahni, Vice President of the Rs.200-crore Cotton County brand which has 600 stores. Nahar Group's Cotton County opted for the 'buy one, get three' model to tap into the mass market through an entry-level brand.

Now, many of these brands are looking to sell equity stakes to private equity companies and through public offers to raise money for further expansion. "There is significant private equity interest in them as they are multiplying presence with more rapid topline growth than others today," says Mr Naqvi.

The Rs.180-crore Liverpool Retail intends to raise Rs.50 crore through the PE route and has IPO plans for 2010. Cotton County will fund its plans with the Rs.120 crore it received from Sequoia Capital India last year. The rapid growth of Koutons Retail India on the national radar with 1, 400 outlets are reflective of the zeal of emerging players today. ESS AAY Fashion India's Allen Cooper and Lee Solly brands too have grown from cities such as Hissar and Sundernagar to Amritsar, Jamshedpur and even New Delhi.