Changing with the times

Pantaloons' new owners are keen to move up the value chain and set up more stores. Will the aggressive bet pay off?

Photographs by Soumik Kar

On days when he’s looking for some inspiration, Shital Mehta steps out of his narrow office space on the seventh floor of a tower in downtown Mumbai and out onto the shop floor. On the balmy Friday afternoon when we met the forty-two-year-old CEO of retail apparel firm Pantaloons to discuss the company’s growth strategies, Mehta decided to make the trek uptown to its High Street Phoenix mall outlet, which was hosting a weekly event for the brand.

With Bollywood music booming over the speakers, excited shoppers posing with mannequins and nearly 50,000 sq ft of branded merchandise such as apparel, perfume and sunglasses, the outlet was making the most of its location at the rejuvenated mill district of the city. Clearly, Pantaloons — which counts Lifestyle and Shoppers Stop as neighbours in the ₹499 to ₹6,000 category at this mall — is slowly trying to erase its creator’s stamp to make a definite statement in the market: “We are here to make a difference, to carve out a distinct identity by positioning our brands somewhere between the premium and mass categories,” says Mehta, an engineering graduate and a native of Gujarat, who entered the retail fashion industry in 2000 when he joined Madura Lifestyle. 

As it happens, some of these transformations are visible in Pantaloons’ new stores across India. There are, for instance, several exclusive brands in its kitty, Louis Philippe, Van Heusen, Allen Solly, Peter England to the fairly recent The Collective. The chain has changed its tagline from ‘Fresh Fashion’ to ‘In Love with Fashion’, rolling out a new campaign across the digital and print media and outdoor advertising to upgrade the brand’s imagery. And the results are quite evident — according to Mehta, the High Street Phoenix store alone has seen a 15% sales growth for Q1FY15 and a ₹10-crore increase in sales since the rollout of the brand’s new identity last December.

Though there is enough scope for growth — apparel accounts for just 8% ($40 billion) of the Indian retail market — competition is rife with Shoppers Stop, Lifestyle and Westside and others vying for supremacy. All these retail majors face some key challenges — the heterogeneity of the market, evolving customer needs, and rising real estate rentals. With this diverse retail landscape abuzz with players in high fashion space, can the new owners help Pantaloons succeed in creating a niche for itself?

Stitching it together

Rewind to 2012, when Birla first noticed the declining state of the retail behemoth and the high debt burden borne by Biyani. The group decided to acquire Pantaloons Retail through a two-stage deal involving an ₹800-crore cash payment, assumption of a similar amount of debt and an open offer of a minimum 26% to shareholders of the de-merged Pantaloons format-owning company. What prompted the deal? According to Mehta, the answer is the synergy benefits between Pantaloons and Birla’s Madura Fashion & Lifestyle, as the combined business will cater to the entire value chain of consumers — from the value-conscious middle class to top-end customers. Aditya Birla Nuvo, the parent, now has a presence across retail lifestyle chain.

While Madura Fashion retails and distributes top-of-the-mind-recall brands, which include names such as Louis Phillipe, Van Heusen, Allen Solly and Peter England; Jayshree Textiles is into high-end linen and wool; and now Pantaloons has given the group a presence in retail apparel chain. One of the first steps taken by the Birlas after the deal was to synergise the operations of Madura Fashion & Lifestyle and Pantaloons — they brought in a number of Madura employees, which includes CEO Mehta. In a career spanning two decades, Mehta has worked with several big names, including Madura, Godrej Foods and ITW Signode. 

A pattern of its own

Owned and licensed brands are a big revenue driver

“Birla is one of the biggest apparel players. Since Pantaloons operates in a completely complimentary space — at a group level — we felt it was a good fit. It has everything that Madura lacks,” said Mehta. While Pantaloons gets Madura’s menswear exclusive brands, Birla has also brought in a new sales channel. Also, Pantaloons’ experienced management team is helping provide Aditya Birla the requisite skills and execution capabilities to achieve its growth aspirations, according to Mehta.

He still remembers the freezing Bengaluru afternoon when, just as he was about to leave for the even colder east Canada region for an eighteen-month official trip, he received a circular from chairman Kumar Mangalam Birla. The circular featured details of the management changes at Pantaloons, including Mehta’s promotion as the CEO of Pantaloons Fashion Retail, then a ₹1,600-crore listed enterprise.

The next call was from Mehta’s boss — Ashish Dikshit, then CEO of Madura Fashion & Lifestyle. The excitement was palpable, as this gave Mehta the opportunity to focus on building the organisation, improve scale and revenue and make it more profitable. 

So, how is the Birla group transforming Pantaloons? After taking over the company in 2012-13, the new management has focused on some key areas — rebuilding the organisation, expanding customer reach, enhancing productivity of the existing stores, strengthening the brand portfolio and optimising finance costs. To strengthen manpower, the company rebuilt the organisation by hiring executives at key critical positions across the design, merchandise, finance and human resource departments. In the last one year alone, the company has hired 230 employees, of which 40 are designers from India’s top 10 companies. It also changed nearly half of the 200 vendors Pantaloons had earlier engaged with and has retained the ones that offer scalability and specialisation.

The Birlas roped in retail veteran Nagesh C as the new head of design and visual merchandising at Pantaloons. Thirty-nine-year-old Nagesh was given the mandate to focus on three things: building a design studio and create a space for design thinking and aesthetics, develop a brand handwriting to help bring back focus on the core ingredients of the brand and to conduct brand architecture. Though he went about setting up a design studio and assigned two to three designers to each brand, there were several key drawbacks Nagesh felt he had to contend with — a lack of understanding of fashion and trends, outdated brands and a laidback approach to design.

Very few fashion-conscious new customers could be seen coming into the stores, he explains. Apart from places such as Kolkata, where people have an emotional connect with the brand, the chain seemed to be losing its charm in bigger cities, says Nagesh. Hence, his first task was to identify contemporary trends in women’s, men’s and kids wear and bring back the brand’s competitive spirit. 

A new design philosophy soon took shape — being trendy, relevant to the market, global in thinking but local in execution and being aware of trends, yet catering to local sensibilities. In short, the company was trying to be more adaptable and to acclimatise itself to a changed India that is not only dynamic and consumerist but also demands the best. Key brands today include Annabelle (formal and evening wear for women), Honey (casual wear), sports lifestyle brand Ajile and ethnic kurtas from Rangmanch and Akkriti. Moreover, Nagesh’s team also designs all Pantaloons stores to extend the same design inspiration and lend them the same identity. 

Changing mix

Since the acquisition, the company has been expanding its store presence to penetrate newer markets and reach out to more customers. It launched 14 new Pantaloons stores and one factory outlet in 2013, taking the total count to 81 Pantaloons stores and 26 factory outlets. The average size of a Pantaloons store is around 23,000 sq ft; the store size could vary between 11,000 and 80,000 sq ft depending on the city, location and target market size. Pantaloons span a retail space of about two million sq ft, among the largest in India in the organised fashion retail segment. With an aim of improving customer footfalls and enhancing profitable sales growth in existing stores, 22 outlets were refurbished during 2013 through infrastructure and assortment upgrades. 

Mehta claims that the group’s endeavor is to transform Pantaloons from a private label-driven chain to a chain featuring exclusive products. “We will no longer be mediocre. We provide modern shopping experiences in the price range of ₹199 to ₹5,000,” says Mehta. Or, to put it more bluntly, Mehta explains, the company now positions its products as elegant and classy, rather than just featuring cheap, retailer-manufactured products tucked away in the corners of the stores. While the split between its exclusive and partner brands is around 55:45, the exclusive brands share is set to spike to 60% by next year, says Nagesh.

Moreover, says Mehta, there is an attempt to make trendy clothes while still retaining affordability, with an inflationary price increase of 5-6%. “Our strategy is not to shift pricing. We want affordability to be a constant factor in our business,” he adds. For instance, the company’s denim jeans, which are on offer for ₹1,999 for two pairs, were earlier selling for ₹1,899 for two. 

Over the last one year, the company has exited categories such as toys, home décor and electronics to make stores clutter-free. It has also minimised the share of diamond jewellery in the store. To emerge as an exclusive brands destination, Pantaloons has also strengthened the high-margin private labels portfolio, with three new brand launches — Byford for men’s sportswear, Alto Moda in the plus-size category and Chirpie Pie for infants.

The company built these new brands and popularised them through both mass media and in-store promotions. Its strategy was aimed at enriching the product portfolio, thereby, improving gross margins. To widen its menswear segment, the company started retailing Madura’s leading brands Louis Philippe, Van Heusen, Allen Solly and Peter England. 

According the company’s latest annual report, Pantaloons sells approximately 400 brands across segments, a mix of private labels, licensed brands and other brands. Some brands are also retailed under the shop-in-shop format, where Pantaloons charges fixed rentals or fixed margins. Private labels and licensed brands contribute to close to 50% of the company’s sales. These comprise own brands such as Akkriti, Rangmanch, Ajile, Annabelle, Trisha, Honey and Chalk, as well as brands licensed on a perpetual basis from Future Group. The balance sales are contributed by other apparel and non-apparel brands.

“While our intention is to push all our brands, going forward, our women’s business is likely to get stronger. From what used to be 38%, women’s wear now accounts for around 42% of the business. By next year, the share should increase to 45%,” says Mehta. Pantaloons just signed a licensing deal with American women’s clothing brand Candie’s, which is targeted towards 16-24 year old young girls and is ranked among the bestsellers at departmental store chain Kohl’s in the US. Over the last one year, Mehta says the company has also done away with around 15-16 non-performing brands.

It helps that just 55% of Pantaloons’ business comes from exclusive brands, says Nagesh. “Unlike our peers, we try to give a distinct brand identity to each of our brands and position them sharply, whereas our rival brands often commoditise their merchandise. In terms of shelf space, we try to give visibility to exclusive and ethnic-wear brands,” says Nagesh. Pantaloons’ real estate strategy is also different from its competition. Mehta says the company wants to set up stores either in emerging tier 1 cities, such as Kammanahalli in Bengaluru, or be the first mover in tier 2 towns such as Muzaffarnagar in UP, Jamshedpur and Shillong in the east or Guntur in the south. Typically, 10-12% of retailer costs go towards rentals. 

 Expansion binge

The retail chain claims to be reaping the rewards of its efforts. According to Mehta, bill value has improved by around 30% in Q1FY15 as people are buying more and buying better. In the men’s apparel segment, year-on-year sales growth has increased by 10%. In the first quarter alone, the company has seen a 20% increase in sales among their top-tier loyalty customers. Net sales also rose 13.47% to ₹381.30 crore in Q1FY15 over Q1FY13. Pantaloons is also seeing strong growth from the eastern region, which contributes to around one-third of its total revenue, followed by north, west and then south. In fact, in the last four months, 90% of its stock was sold out, says Mehta. During the same period, year-on-year growth increased by 8%, while bill value increased by 10%. 


A striking contrast

In terms of reach and distribution, Madura scores over Pantaloons

Going ahead, Pantaloons plans to overhaul all of its stores by summer 2015. From 83 stores across 40 cities, the company plans to double its store count in tier 2 and 3 cities across the country over the next two years. Given that each such company-owned store will cost Rs 18-20 crore, the per-year investment for expansion is in the Rs 150-crore range, says Mehta. “We have the advantage of financial muscle and the experience of building brands. What we want is to build on the inherent qualities of Pantaloons, which are costing, affordability and the ability to offer affordable fashionable items in a modern store format,” says Mehta. 

Abneesh Roy, associate director, Edelweiss Capital says, “Pantaloons will have to change its product mix to offer more accessories to its new, young customers in order to move up the value chain, increase footfalls and compete with rivals.” Though increasing footfalls is a key area of concern, Mehta does not want to enter accessories. “It is a low-margin business. We want to remain focused on one category and be the best in it, which is why we are pushing the focus on apparel,” he adds. 

Nabankur Gupta, founder and CEO of Nobby Brand Architects & Strategic Marketing Consultants, feels the transition from value to premium might be a tough journey for the group. “The premium space is already crowded with players such as Shoppers Stop and Lifestyle. Moreover, they offer a wider variety of products to customers. Pantaloons would really have to give retail a special treatment to get bang for the buck,” he adds. “Pantaloons under the Biyanis was never really a player in the value segment. It always offered high-quality private label brands at reasonable prices. And the stores would always look plush and high-end,” argues a Pantaloons ex-employee on condition of anonymity. 

But Mehta is taking no chances. To make the shopping experience more interesting, Pantaloons plans to appoint 10 experience officers or fashion consultants across 10 cities to provide fashion tips to customers. “Our customers aspire to live better and wear better clothes but do not have the exposure needed. So we came up with this plan to help them. For now, this is a pilot project, to be rolled out over the next two months,” says Mehta. 

To provide a better brand experience to its customers, Pantaloons is also joining the online bandwagon with Trendin.com, an online platform launched by the Aditya Birla group a year-and-a-half ago to retail its Madura brands. “We plan to make an online foray over the next two months. This is nothing but an extension of our physical retail stores. Like other online players, we will provide free home delivery to our customers and follow up with discounts at our retail stores. The investment for this space is only in terms of marketing,” Mehta says. He refused to divulge details on the investment required for the project. 

To ensure a high brand recall, the company is currently working with Vyas Giannetti Creative, a Mumbai-based design and creative communication firm. It is still early days though. On sales of ₹1,661 crore in FY14, the retail apparel chain is still in the red with a loss of ₹188 crore, which increased from ₹69 crore in the previous fiscal owing to more hiring and renovation costs. 

As of now, Mehta seems content with his strategies and their results. In 1999, Birla had entered fashion retail with the acquisition of Madura for ₹236 crore. Today, Madura Lifestyle enjoys the highest return on capital employed (RoCE) in the industry. IT is growing from 20% in FY12 to 65% in FY14. Pantaloons’ RoCE of 9% just goes to show that there is a long way for the Birlas to go. But Mehta, who was instrumental in turning around Madura, is not too perturbed. “From my days at Madura, and much before that, I would always set myself a target of around five years to achieve my goals. That way, you are consistently working towards the target and achieving it doesn’t seem to be a big challenge,” he sums up.