The Gulf Special

Creating new landmarks

Landmark Group is now looking at new verticals to spur growth, even as its 'Lifestyle' and 'Max' gain traction

Childhood buddies from four years of age, Shankar and Augustus Caesar will finally go their separate ways a few months from now, after fifteen straight years of playing and studying together. Caesar, who is all set to graduate in computer science from the Ramakrishna Mission Polytechnic College in Chennai, will soon start his first job with a pay of ₹17,000 per month, whereas Shankar, who has studied mechanical engineering from the same college, has landed a job in Rajasthan that will fetch him ₹15,000 each month.

While the teenagers are excited about life on their own in the outside world, their graduation is a bittersweet moment for 60-year-old Poonam Lalwani, who has seen the duo grow up in front of her very eyes. To celebrate the transformation of the youths into responsible adults, Lalwani plans to take them to Mumbai on a well-deserved break. This might have sounded like the life of the average Indian teenager, except for a key difference — Shankar and Caesar are among the 24 orphans Lalwani’s Mumbai-based Life Trust is taking care of. 

“We spend close to a lakh each year on each of the kids and are happy to see our efforts finally paying off. We have tried very hard to nurture them through education and to inculcate good values and ideals in them,” says Lalwani, whom the 18 girls and six boys at the centre affectionately call Amma. Today, the trust — which Lalwani has been a part of since 2004 — not only runs orphanages across Mumbai and south India but also works closely with municipal schools, institutes for the specially challenged, remand homes and integrated child development programmes.

Since inception, the 85 employee-strong trust has impacted the lives of nearly 50,000 children from Mumbai, Chennai and Bengaluru each year. While Lalwani continues to be the face of the trust, the man responsible for the organisation’s existence is 62-year-old Mukesh (Micky) Jagtiani, who today runs a $5-billion retail business spanning 18 countries across west Asia, central Asia and Africa.

Jagtiani had floated the trust as far back as 2000, which is when he met Lalwani, a cousin of his wife Renuka, and came to know of her philanthropic pursuits. Jagtiani decided to dovetail the two initiatives together to create the trust, to which he contributes over $2 million annually. Thanks to Jagtiani’s generosity and a diverse resource pool, Lalwani has managed to ensure that today the trust is self-sustainable. Though it has been a couple of years since Jagtiani’s last India visit, he monitors the local development scene very closely.

“He visited Dharavi, Asia’s biggest slum, on his last trip and loved the place. He thought that the people there were very industrious, despite the overarching poverty around them,” explains Lalwani, who considers Jagtiani a close friend and mentor. She adds that Jagtiani, who likes to keep things simple, spent his 50th birthday at the trust’s Chennai orphanage, mingling with the children there. Perhaps the reason Jagtiani has a soft corner for this extended orphan family of his is because he knows what it means to lose one’s entire family.  

Destiny’s child

In the 1950s, at the onset of the oil boom in the Gulf, Jagtiani’s parents decided to leave Indian shores and migrate to Kuwait in search of better prospects. Born in Kuwait in 1952, Jagtiani didn’t exactly have an easy life. When he was just three, his parents sent him and his elder brother (Mahesh) to India to stay with their aunt (father’s sister) and complete their schooling.

After spending some years in India, Jagtiani was next sent to a boarding school in Beirut at the age of 12 and then to London in 1969 to pursue accountancy. But Jagtiani never really got around to liking the subject and after several failed attempts dropped out of the course. After giving up on academics, he decided to sustain himself in the city — then in the midst of a recession — by cleaning hotel rooms and driving a minicab without a valid licence to make ends meet. 

“I asked a friend what I could do to survive in London and he suggested washing dead bodies. Driving his mini cab at night was the next best option, so I took it,” Jagtiani said in an interview with a UAE-based publication. But given his addiction to smoking, drinking and gambling, Jagtiani was left with nothing by the end of each month. By 1972, staring at a bleak future and with no money left in his pockets, Jagtiani decided to return to the Gulf, where fate had something else in store for him.

“I think that it is all up to circumstances. Maybe there is some guiding force — or fate — that takes you in a particular direction. When I was young, it often seemed like just about anything I took up would go wrong,” said Jagtiani, who has two daughters and a son, in the interview. Despite several attempts, Outlook Business’ request for a meeting with Jagtiani was declined.

Though his father’s trading business was grounded after disputes with partners, Jagtiani’s brother Mahesh had managed to take a store on lease in Bahrain, with plans to turn it into a franchisee outlet for British baby products retailer Mothercare. But tragedy struck the family soon after, as Mahesh was diagnosed with leukemia and they had to shift base to Bahrain to take care of him.

Within months, he passed away. Nine months later, Jagtiani’s father died of a heart attack and, a year later, he lost his mother to terminal cancer. By age 26, Jagtiani was left orphaned. Remembering his father’s worries about how his son (Micky) would make ends meet, he contemplated quitting the Gulf for good and moving back to India. That’s when he decided to make one last gamble — investing $3,000 worth of family savings to begin what his brother had left unfinished. 

Though he lacked the business acumen required to run a retail set-up, Jagtiani decided to take over the 5,000-sq ft store and named it Babyshop, stocking it with infant clothing and products. Since he couldn’t afford to hire more than one employee, Jagtiani became a hands-on owner, getting involved with every aspect of the business — picking up consignments from a nearby port, stacking inventory, managing display and even mopping floors. After opening his second outlet in 1980, Jagtiani tied the knot with Mumbai girl Renuka, who has since been both his life anchor and business partner. The big inflection point came at the beginning of the Gulf War in 1992, when Jagtiani, who was by then running six stores with over 400 employees, decided to shift base to Dubai.

It was also around this time that the then ruler of Dubai, Sheikh Maktoum bin Rashid Al Maktoum, was transforming the emirate into a tax-free shopping and tourist destination. Having built his business around serving immigrants to Kuwait, Jagtiani decided to continue the same strategy in this market, focusing on UAE’s burgeoning migrant Indian population, which went from 4 lakh in 1992 to 10 lakh a decade later. Fortune did favour the brave, Jagtiani, who is today one of west Asia’s biggest retailers. What began as a chain of Babyshops turned into a diversified modern retail conglomerate covering diverse businesses. 

With a staff count of over 50,000 and over 1,900 outlets in 18 countries across west Asia, Africa and India, Jagtiani’s Landmark group today covers a total retail space of 24 million sq ft and generates revenue of $5 billion annually. What differentiates Landmark from other retailers is that it has created a strong business around its own 25 in-house brands, besides stocking 40 other franchisee brands.

Prominent among its homegrown brands are Shoe Mart, which is a discount chain; Home Centre, which is modelled on Ikea but offers preassembled furniture at cheap rates; Splash, an affordable fashion line conceived by his wife Renuka; and Max, a value fashion brand. Under the umbrella of Landmark International, Renuka steers the international initiatives of the group and franchises international brands such as New Look, Aftershock, Reiss and Koton in west Asia and Bossini in India. The privately held group, which owns a 6% stake in British department store chain Debenhams and in Saks Fifth Avenue, also has interests in malls, hotels, healthcare, fitness centres and food and beverages. The latest offering from the group is Home Box, a one-stop affordable shop for contemporary furniture and home furnishings suited for everyday living. 

Keeping that value proposition in mind, Landmark has created its own product development line, handling its own fabrics, sizes and design work. “So, we have a 40% edge over our competition in terms of pricing because everything we do is in-house,” Jagtiani was quoted as saying in the aforementioned interview. A Deloitte report on Gulf retailers — which names Landmark one of the fastest growing chains in the regions — acknowledges that the homegrown brands concept is highly profitable for retailers, as it helps them cut off intermediaries in the value chain and raise profit margins. Though west Asia accounts for 80% of the group’s turnover, which is growing at a CAGR of 23%, Jagtiani — a big admirer of Sam Walton of Wal-Mart — has also built his business interests in India quite rapidly over the past 16 years.

Local tastes

Though Jagtiani is no longer involved in the day-to-day operations of the group he has left the business in the hands of an able team of professionals, including Ramanathan Hariharan, the head of strategy and development of the group’s India operations who also oversees the group’s investments in the country. In India, Landmark has gone through a distinct learning curve and this is evident when you consider the fact that it chose to enter the country in 1999 with a departmental chain format instead of a single-brand outlet.

“In west Asia, we have always specialised in large-format stores and focused on a format called category-killers. In India, we had to strike a balance because the market was evolving. We went with the department store format in the country because we believed that we needed to bring all the different categories together,” explains Hariharan when we meet him at his rather functional office in the Jebel Ali Free Zone. Today, over 250 national and international brands from the apparel, footwear, children’s wear and toys, household and furniture and health and beauty categories are housed under Lifestyle’s roof.

Kabir Lumba joined the group’s Indian business from Proline in 2004. “Jagtiani decided to make an India entry because he realised that it is an important market. Since it was an evolving landscape, his approach was to stay nimble,” says Lumba. Though the group went easy on its operations in the initial years to understand the market, over the decades, its businesses have grown manifold. From ₹200 crore in 2004, revenue has surged to ₹4,800 crore, growing around 20%-25% each year.

Over the past 16 years, the average size of Lifestyle’s departmental stores — 44 till date — has grown from about 30,000 sq ft to over 50,000 sq ft. While it has managed strong private label offerings (contributing 30% to the top line) in apparels and footwear, the group has also relied on licensed brands such as Bossini and Tommy Hilfiger to drive growth. “Lifestyle’s success is unique to India because the departmental store concept is not part of the Landmark universe in west Asia. So, in a way, Jagtiani backs teams, not markets,” says Lumba, who expects the brand’s turnover to touch $1 billion (over ₹6,200 crore) in FY16.

That Jagtiani backs great concepts is evident in the fact that Hariharan, who introduced Max as a value fashion brand in west Asia in 2004, got the go-ahead to introduce the brand in India within two years of its Gulf launch. “When we launched Max [in India] in 2006, we knew the concept was going to be successful because it offered good-quality products at affordable rates and catered to the mid-market segment,” says Hariharan, who roped in Vasanth Kumar from Madura Garments in 2005 to head the brand. Today, from its first outlet in Indore to over 120 outlets across the country, Max has emerged as a strong contender in the mid-market fashion segment.

Unlike Lifestyle, Max is a private label-driven business, which means that its margin for error is minimal. Kumar remembers his meeting with Jagtiani, who told him that value fashion was a high-mortality business. “Internationally, only 10% of brands survive, while 90% die. Max has to be in the 10%,” Jagtiani told Kumar, assuring him of his support nonetheless. The initial years were indeed challenging, as being a private label brand meant that unsold inventory had to be gulped down and fresh collections had to be churned out. 

Besides, as Kumar puts it, being a value fashion brand, Max cannot price its offerings too low or too high, which meant that Max had to get both its location and sourcing right. While product design is done with an in-house team of 25 designers, around 150 local vendors make up the brand’s supply chain. What still works in Max’s favour is that since its Dubai business is five times the size of that in India, the company can club its outsourcing requirement with that of Dubai. “Right now, we source 80% of the products locally, while 20% — especially footwear and some apparels — comes with Dubai’s orders from China,” explains Kumar, adding that seven warehouses across the country help the retail brand introduce fresh stocks very quickly in the market.

Since its customers are mostly from the middle and upper middle class, Max operates largely in tier 2 cities and has ensured that its operating costs are never more than 30% of its top line. “We can’t operate the brand like, say, Big Bazaar, which is a pure value play. This is why Max won’t work in tier 3 markets,” says Kumar. Not surprising, then, that Max cuts it losses within a short span of time and has so far shut three stores — in Nanded, Jalgaon and Durgapur. All these efforts ensured that though Max was in the red for five years, the losses kept reducing and the business turned profitable in its sixth year. Today, the ₹1,400-crore brand appears to be the fastest growing business (38% CAGR) for Landmark in India, with revenue growing from ₹400 per sq ft to ₹1,000 per sq ft per month and profits margins of around 5-6%. The immediate target for Max is to open 30 stores every year for the next two years.

Playing it safe

Though the Max business has gained ground, Hariharan sees as much scope for all of Landmark’s brands. “There is no such thing as a big bet for us in India. We see potential for each of our formats. If Lifestyle has to penetrate into smaller markets, it has to find ways and means to do so,” he says. In the case of Home Centre, which deals in furniture, fixtures and furnishings and made its India debut in 2008, the parent is willing to be patient. “We have tried to maintain a balance between aspirations and value. We are expanding into smaller cities such as Coimbatore and Bengaluru.” Currently, there are 18 Home Centres spread across 11 cities in the country. “These businesses take time to grow. You must have a clear vision of what you want to do,” adds Hariharan.

In the same year that Max was introduced in India, Landmark entered the hypermarket space here, but not without its share of hiccups. After its plan to bring Carrefour to India didn’t work out, it tied up with Dutch retailer Spar International and opened 13 Spar hypermarkets. But, in 2012, it snapped ties with Spar after differences cropped up over its expansion strategy and tied up with French chain Groupe Auchan. In 2014, however, it again parted ways with Groupe Auchan and rekindled its alliance with Spar. Though Hariharan sidesteps questions about the splits, he says the group is trying to understand the market so that customers find it better than competitors. “We have expanded well in the south. However, in the north, it might still take us two-three years to make an impact,” he says. Currently, the group runs 18 hypermarket stores across the country. 

Just like its hypermarket business, Landmark struggled with its F&B foray in India, too. It entered the café market in 2008 under the Citymax Hospitality division, which owned the franchisee rights of Australia’s Gloria Jeans Coffee in India. But the group could not manage to grow the business beyond 27 outlets and it finally exited the franchise arrangement last year, rebranding the existing outlets as Krispy Kreme Doughnuts stores.

Landmark had, in 2012, entered into a franchise agreement with the latter, with plans to open 80 stores across south and west India over the next five years. Currently, it boasts of 15 outlets spread across Mumbai, Bengaluru and Chennai. “Our target is 50 stores over the next three years,” says Lumba. The other two businesses that Citymax runs in India are Polynation, a mid-scale restaurant in Bengaluru and Fun City, an arcade game zone in 16 malls across India. “The plan is to keep adding four to five units of one city every year,” explains Lumba. 

But, for now, the group’s big play in India is in the retail space. Ask Hariharan what Landmark thinks about the growing clout of e-commerce websites and he brushes the topic away. “In e-commerce, your business may grow in leaps and bounds but you have to ensure that your supply chain is right.” The group, however, doesn’t want to miss out on the action and will be launching its own e-commerce portal, Landmarkshops, as a separate venture. Lumba says the group’s e-commerce presence will be an extension of its physical stores and will be focused on consumer convenience, not discounts. 

So far, Jagtiani has invested over ₹600 crore in the group’s India operations and will continue to invest around ₹200 crore in it each year over the next three years. Though the management is mum on the profitability and the kind of return that the business is generating, Hariharan says, “India has potential and promises volumes but profitability will always be lower here when compared with west Asia.” On his part, Jagtiani does not appear to be a man in hurry. “Micky and Renuka understand the nuances of the Indian market and are in it for the long haul,” says Lumba. A big believer in Buddhism, Jagtiani believes one can emerge successful only after going through a lot of hardships and sorrow. “So when you get it [hardships], welcome it, because it is going to teach you more about life than anything else,” he says. Coming from someone who lost it all and got it back again, twice over, that’s some sage advice.