The fatigue is visible. It’s been less than six hours since Sandeep Khapra got off an international flight, but he doesn’t mind sharing some insights from his Dubai trip. “T-shirts are getting longer there. I saw it in London last October, it is now the trend in Dubai,” he says with a smile.
If Khapra has his way, they will trend in India come November. “I think we are getting to something very interesting, which the youngsters here will love.” As general manager, design, of the men’s wear segment at Max Retail, Khapra’s mandate involves spotting new trends and adapting them for the Indian market. That explains the almost maniacal travel. Khapra travels at least four times a year to different parts of the world, just to see what is trending.
This time it’s the long T-shirt. While it has already been stretched from 68 cm to 72 cm in spring, by November, it will become 76 cm, and in some cases even go up to 80 cm. “Chris Brown (the R&B vocalist) is known for this and he has a fan base here,” says Khapra, whose next task is to convince his buying team that this is a winning proposition. If that happens, negotiations with the vendors will get underway and come November, Brown will see youngsters sporting his style.
In the company’s sprawling office in Bengaluru, Khapra’s counterpart, Kamakshi Kaul, who heads design for women’s wear, is hard at work. The team, whose average age is barely 25, is debating the latest trends on social media. A NIFT graduate, Kaul says a trend would last for close to six months in 2010. “It’s down to barely three months today and we have to anticipate changing fashions.”
The spring of 2017, she says, will be Bohemian to reflect an outdoor spirit. Last winter, while in London, Kaul says she saw girls in voluminous tops and men in tight-fitting pants. “We adapted that for India by having layered tops for women and skinny denims for men.”
Where it’s layers for Max, upmarket Lifestyle has gone with cold shoulder tops for the season, launching them through its Ginger brand in May. Adapting it to Indian summers, Ginger has gone for crisp cotton and stripes to give it a more corporate feel, a stark difference to the casual winter wear peg in the West. But that’s the team’s job — to keep in mind the Indian sensibilities without losing sight of the commercial angle.
It’s not an easy job by any stretch but one that the Dubai-headquartered $5-billion Landmark Group has done for over four decades, with a high level of success. Its India business, which commenced in 1999 with the launch of Lifestyle, has expanded to include Max, Home Centre and Easybuy. Today, it is a 5,720 crore entity called Lifestyle International, and has grown close to 150% over the last five years, with a profit of over 200 crore.
Be it department stores, value fashion or home improvement, it has made a serious mark by executing a robust India-specific strategy, a buying model based on international experience and a well-oiled supply chain, all of which have paid rich dividends. But beneath it all has been the brand’s ability to stay patient and persevere, traits that are considered synonymous with group founder, Micky Jagtiani. “Micky loves the word expansion. It is quite evident in the way he went about his growth strategy in the Middle East. India was on the radar for a while before he decided to enter,” says Kumar Sitaraman, who was managing director of Lifestyle International between 2002 and 2005 and earlier with the group in the Middle East. With those attributes and an investment of 800 crore so far, the story has clearly fallen in place.
There is little to doubt what the Landmark Group has achieved in retail. Starting in 1973, it has grown from a mere presence with Babyshop, a store in Bahrain selling infant products, to one spanning multiple segments across the Middle East, Asia and Africa. While its experience of creating several formats overseas has come in handy in India, it hasn’t merely been about transplanting the experience from the Middle East to the country.
About fifteen months of groundwork preceded the launch of the first Lifestyle store, which opened in Chennai. Why Chennai? Ramanathan Hariharan, the first CEO of the company in India and now director, Landmark Group, smiles. “We tried hard to get properties in Mumbai and Delhi but it was just too expensive. In hindsight, Chennai was the right decision since it offered the right mix of tradition and modernity,” he says, adding that it was more difficult to get the format right.
The Group had large stores in many formats — that’s how it played the game in the Middle East. But, Hariharan explains, “It was clear that India was not ready for stores in different formats and that is why we decided to have everything under one roof.” The store in Chennai, thus, was 25,000 square feet, the average size overseas for any of the formats, but the largest when it came to the South Indian city. That size alone drew in the crowds, especially those from the higher income bracket, and gave Lifestyle, which has 54 stores today, a premium positioning. It wasn’t planned but the folks in the company weren’t complaining.
In the early days, Hariharan says it was about debating what to sell. “At that point, there were not too many organised retailers, with traditional players like Nalli being dominant in Chennai. Other players in the segment were Shoppers Stop and Westside. Given our background, it was clear we had to do something in the large format. But we gave ourselves a high degree of flexibility.” So, where private labels dominated the story in the Middle East — being the only thing the group sold, it went with brands that fit in with its image of “fashionable, aspirational and youthful” in India. This meant within the Levi Strauss, Van Heusen and Louis Philippe universe, Lifestyle would stock skinny jeans and slim fit shirts and not just the regular fits.
And while it has extended its collection to over 250 brands, Lifestyle has steadily developed private labels as the margins are attractive. Kabir Lumba, managing director, Lifestyle International, makes it clear that the strategy has not been to compete with brands but to complete the offering. “While we do look at price points that brands don’t address, there are always product gaps that can be big opportunities as well,” he says. He cites the instance of Melange, a private label owned by Lifestyle, which offers traditional clothing for the modern women. Today, it is a 150 crore brand, with eight exclusive stores as well. Lumba’s 40-member in-house design team here takes care of basic sensibilities such as big arm holes and deep necks. “They do everything without the involvement of a third party consultant,” says Lumba.
Private labels bring in about 30% of the revenues for Lifestyle (estimated to be around 13.5% for Shoppers Stop and upwards of 60% for Westside). Sitaraman says that while the company has taken time to get the private label strategy right, it has been worth the wait. “The strategy has worked very well for Westside. Those like H&M and Zara have proven beyond doubt the success of the private label strategy,” he explains.
Lumba, though, says that the share of private labels is not really galloping. Stores like Lifestyle thus need big brands for footfalls and more importantly, cannot be viewed as pushing private labels at the expense of brands. Besides, retailers in India have rarely demonstrated the ability to become brand creators. “When it comes to dealing with private labels, the risk falls on the retailer and he isn’t always equipped to handle specialised areas like branding. That explains why private labels are a difficult story to build for most retailers, which calls for a different skill set,” points out BS Nagesh, an industry veteran and founder of Trrain, an organisation that imparts training to the retail industry staff.
Lean and unique
By the time Lifestyle unveiled its first store, Kishore Biyani had already opened Pantaloons and was two years away from launching Big Bazaar, a hypermarket. The first thing that struck him about the new kid on the block was the originality of the designs. “That was a differentiator in the early days and it gave them not just a headstart but a lot of equity as well,” says the founder and CEO of Future Group.
Saurav Gupta, director, Bella Casa Fashion & Retail, a vendor with the group since 2006, agrees. With Lifestyle, he says, the product is the “hero”, and is even more important than deadlines. Unlike other players, Lifestyle places orders closer to the season. For instance, it would place orders in September while competitors do it by July, for the spring summer season that starts February. Plus, it focuses on multiple options. “It is the result of being more fashion-conscious and the desire to offer more variety to the consumer,” says Gupta, fondly remembering the red kurta Deepika Padukone wore in Piku from the Melange range. “There was also one in Cocktail, though Piku gained more attention,” he says.
The other thing that has worked for Lifestyle is its organisational structure says Biyani. “It was very obvious that they were making it work with a small and effective team. It was very different from the multi-layered structures that we were used to,” adds Biyani. Hariharan though points out that going with just one brand in India meant the business proposition needed to be simple and focused. “All our attention was on Lifestyle, which would have been difficult had it been 3-4 brands,” he shares.
The team was indeed small, barely 6-7 people. “There was one store manager and four category heads. There was no retail manager or an area manager, with the project head sitting out of Dubai, who came to India only when there was a specific need,” adds Hariharan.
What worked for Lifestyle was not just getting the retail experience right but also cracking the buying formula. Biyani takes it one step forward and says, “Well- bought is half sold.” It’s a view that resonates with the top management of Lifestyle International. “Globally, they got into agreements with vendors for 30 years. They are good negotiators and believe in long-term relationships,” says Sitaraman.
But while Landmark bought in large quantities for its stores in the Middle East, there was very little that came out of India. At the time Lifestyle entered India, no more than 5% of the vendors here supplied products to the parent. Lumba says the decision to set up sourcing and designing from scratch was difficult but, in retrospect, correct. “It was important for us to understand that products relevant to India are very different,” he explains.
But where it has opted for local sourcing with Lifestyleand Max, for Home Centre, positioned as a home improvement store, over 70% is imported from China. “We import from the same vendors in China and though there are Indian sensibilities that come into play, we are still a part of a global supply chain,” says Lumba. In the case of furniture, it is evenly split between India and China. Changes could be subtle like pastels back home compared with brighter shades in the Middle East or some experimentation with style.
The furniture segment though remains the toughest business to grow and not without reason. While it opened its first home store in 2006, Home Centre has just 26 stores. It is a business which has other big companies fighting for space apart from neighbourhood stores. With a high import component, the lead time also often plays spoilsport. “It has taken an awfully long time to convince consumers to buy readymade sofas and dining tables. Winning the trust is a big factor here. It also doesn’t help that a large part of the market is unorganised,” opines Lumba.
If Home Centre has been cautious with expansion, Biyani’s approach was exactly the opposite. “We adopted a crazy approach, which included stores with an area of 1.5 lakh square feet, with multiple categories in home improvement like bathroom fittings and carpentry. It was the wrong way to do it and we have made big changes after that,” he says with half a smile. Today, the store area is 40,000 square feet, with more standard product offerings for the bedroom and kitchen.
In line with its unique approach for India, Home Centre has a smaller format here (30,000 square feet compared with 60,000 square feet in the Middle East). Additionally, Lumba says, “We have tried to house Home Centre and Lifestyle together wherever possible since there are huge backend synergies and common loyalty programs. About 80% of Home Centre outlets are housed with Lifestyle today.” In a more recent development, the company has launched 10,000 square feet stores, with only household items. Of the five new stores planned each year, two will be in this format, with focus on affluent tier 2 towns like Pune.
Trrain’s Nagesh though says the trouble with this format is that it’s not a one size fits all category. And the inability of brands to offer an assortment has made it a very challenging segment. “The successful ones will be those who get this right,” he adds.
Compared to Lifestyle, 15% of Max’s vendors work for both India and the global parent. Max opened its first store in Indore in 2006, two years after Landmark had launched the format in Sharjah, an hour’s drive from Dubai and home to a large working class population. “As far back as 1999, value-fashion was not a segment that was established even globally,” says Hariharan. According to him, manufacturing units in India were focused on exports and the local quality was not very attractive. “There is a vast improvement today with respect to quality of merchandise and vendors.”
Vasanth Kumar, Max’s first employee in India and its executive director, says the strategy here is to price the offering 30% below departmental stores and 20% above hypermarkets. “Pantaloons, Westside and Globus were in this segment but gradually moved up. That left the slot completely open,” he explains. Working in the 200-800 price band, however, means it is vital to tick the cost and quality boxes. The stores, thus, measure 10,000 square feet in India compared to 20,000 square feet in other countries. Moreover, Max doesn’t hike prices more than 2% each year.
According to Kumar, it is critical to be transparent on the end price. “We work backwards to arrive at a meaningful cost. The normal practice is to agree on a full year volume, which makes the vendor comfortable and assures him of business as well,” he says. At least 60% of its vendors have been with the company since inception. Today, Max works with 120 vendors, while Lifestyle has around 60, with around 20 working for both.
While he gives Lifestyle a lot of credit for getting the buying story right, Biyani says there is something to be picked up from Max as well. “In a business like Max, buying was the key — that helped them carve out a clear position as a serious player in value-fashion.”
With a similar positioning as in the Middle East, Max is now clocking a turnover of 1,890 crore, with at least a 30% growth rate for the last five years. At a gross level, Max has margins of 45% compared to 65% for formats with larger brands. “The only way to get it right here is by selling more,” quips Kumar. In sales jargon, this is referred to as turns or rotations or just the number of times the full merchandise is changed. For Max, it has moved from 3.5x turns five years ago to 6.5x today, with a target of 8x turns over the next three years. In other words, the stock is changed almost every two months today. For brands in a higher price band, given the margins they make, the corresponding number of turns drops; it is typically 3.5x for stores with brands and at least five for an efficient private label business.
Surprisingly, for Max, it was the sale season that increased the number of turns. With heightened competition on account of more malls and stores, the sale season now runs up to ten weeks from 2-3 weeks earlier, both for the summer and winter season. Max though has stuck to 2-3 weeks after it realised that the sales surged only 30% compared to 3x for larger brands. Consumers apparently were ready to pay the sticker price for Max. The stock is thus deliberately curtailed, and fresh stock sold even during the sale. Kumar says that in the absence of this strategy, the number of turns would have increased to 5x — extended sale season by other brands gave it a push to 6.5x.
Soul Clothing’s CEO Vipin Jajoo, a Max vendor since 2011 says that the important thing about Max is that they do four seasons while other brands do only two seasons. “Others come from a men’s wear background, where there are only two seasons. They have found it difficult to get into the mindset of women’s wear,” he says, adding that’s not the case with Max.
With four seasons and a high stock churn, the role of supply chain can hardly be exaggerated. About 50 of Max’s 150 stores are replenished everyday, while for the rest it is every alternate day. This comes from eight warehouses situated across India. “Even at a 1,000 crore turnover, we had that kind of infrastructure. There is no let up when it comes to managing costs,” says Anil Chinnabhandar, Max’s senior vice president (supply chain). That, he explains, is borne out by the fact that the thumb rule for supply chain cost in the industry is 2.5% of the average selling price, while it is less than 2% for Max. “Our secret sauce is velocity and a large number of warehouses helps in achieving that,” he adds.
Max started with two warehouses in 2006. But as it expanded geographically to cover more towns and more parts of India, connectivity became a key issue. Here, growth was what swung the decision. A consistent growth of 35% each year meant there was an obvious need to be closer to the market. Between 2008 and 2009, six more warehouses — each at 50,000 square feet — were constructed.
Today, 80% of Max’s products are manufactured domestically, while the rest, especially in ladies and children’s footwear, come from China. “It could also be some specialised embroidery or lace work, which is not easily available in India,” says Kumar. With 300 stores in the Middle East and half of that in India, it makes for a formidable sourcing proposition, Kumar thinks. “Yes, fits and styles are different meaning two different production lines are required. However, the combined power of two markets to drive home a good bargain cannot be ignored,” admits Kumar.
Value fashion is an opportunity that Trent, a Tata group company, tried in vain. Its format, Fashion Yatra was launched in 2008, and, in 2012, quietly converted into Westside stores. The buzz now is that it is looking to make a fresh foray with a new brand name. Other players here are Reliance Trends and Future Group’s FBB. Nagesh explains that volumes need to keep coming in as they are the only thing that can protect margins. “That is what makes it a difficult place to be in. The value-price equation is where most people get it wrong,” he says.
Biyani thinks success for Max in value fashion comes from being close to the customer. “I’d like to call it a huge market and the moment India’s per capita income hits $2,000, growth in this segment will be disproportionate,” he says. His offering, FBB was launched with precisely that in mind and it uses the Big Bazaar chain of 250 stores to sell the products. “Using a hypermarket to sell fashion is not easy but it has worked for us,” he says. Today, FBB is a 3,000 crore business. Biyani talks of taking it to 10,000 crore in five years.
Landmark, itself, post its success with Max has turned its attention to the market one step below. Of the 3 lakh crore market for Indian apparels, footwear and accessories, the segment at the bottom alone is worth 1.8 lakh crore or 60%. Max tried its luck here by opening stores in tier 3 centres like Nanded, Durgapur and Jalgaon. It bombed. As Vasanth says, they got it right with the product but not the format.
In a change of tack, Max has now launched Easybuy, a franchisee model, again a first for the group, where pricing is 25% cheaper than Max. Here, the interested party has to come up with the space, which is at least 5,000 square feet, taking care of the rentals and wages for a margin at the end of the month. Max, on the other hand, handled the merchandising, marketing and training. With lower price point of 100-600, Easybuy does 6x turns but plans to take this up to 8, like Max.
With Easybuy, which had a turnover of 80 crore last year, the strategy is to reach out to a larger chunk of the population.
Lifestyle International opened its first Easybuy store in late 2014 in Karimnagar in Telangana before moving to similar centres in the South. While it has largely piggybacked on the chain of stores run by Spar (a Landmark group company), having a shop-in-shop approach in 12 of them, it also opened 13 standalone stores. The target is to open a new Easybuy store every 20 days, a Max store every 10 days and about 8-10 Lifestyle stores each year.
The road ahead though is not devoid of challenges. The online story that unfolded with such ferocity a couple of years ago is a case in point. However, that was tackled earlier this year, with the group launching landmarkshops.in, an online store that houses all brands. “The heavy discounting was never going to be sustainable,” Hariharan says of online players’ strategy. However, it helped advance the omni-channel approach, which he feels is the right way to go about things. Kumar agrees, adding that when it comes to its online stores “there is no difference in the price that you will pay at the store versus what you get online.”
Today, while online brings in just 1% of the business, it is expected to grow to 4-5% over the next five years. In a market like Saudi Arabia, over 40% of the shopping is done online. “Our target is customers who are used to digital consumption and ones who don’t come to stores, especially the youngsters. But it’s not a discounting medium,” he adds. Landmark has also gone the e-commerce route, retailing Max outfits on Flipkart and the Lifestyle collection on Jabong. But Kumar is clear about the way ahead. “While online is important, our strategy is to continue to drive traffic at the stores,” he says.
All said and done, Landmark’s growth has been impressive so far. “India is among our top three markets today and one that has delivered on its potential. It will continue to remain the fastest growing market,” says Hariharan, who isn’t averse to bringing in more brands if the opportunity arises. Building brands though is an art the group has already mastered. The question now is if it can sustain its growth in an intensely competitive market and continue being the retail landmark.