Gautam Singhania, CMD, Raymond: All dressed up

Raymond doesn't get the premium it deserves on Dalal Street because it hasn't been very aggressive on acquisitions

We're consolidating this industry. The big has to get bigger,'' chuckles an upbeat Gautam Hari Singhania, the 37-year-old Chairman & Managing Director of Raymond Limited, just hours after inking a deal to acquire 75.1 per cent of ColorPlus for Rs 58 crore. ''And ColorPlus,'' he adds, ''is just the beginning.''

Make no mistake. It isn't so much industry consolidation as Raymond's own portfolio fortification that's happening. Here's why: Even with ColorPlus in its bag, Raymond will control just about 3 per cent of the Rs 9,000-crore branded apparel market. But as a ready-to-wear brand, Raymond will straddle a wider market spectrum (See Power Dressing).

The deal, which Raymond assiduously pursued for nearly 16-months, also marks a paradigm shift for the company. It's a move away from Raymond's historical manufacturing mindset of developing and launching its own brands, to a more market-led strategy that seeks to take advantage of its huge retail network: 270 exclusive Raymond stores across 120 cities. ''The primary objective (behind ColorPlus' acquisition) seems to be a need to contemporarise the Raymond retail brand, which has not been able to transcend the product brand,''says Vivek Mathur of Bangalore-based Integrated Retail Management Consulting (IRMC).

That's partly right. Three years ago, Raymond launched a casualwear brand, Parx, targeted at a younger consumer. Although Parx fetched more than Rs 75 crore in revenue last year, it has not been able to provide the company an image breakthrough in the premium casualwear market. Part of the reason, some analysts feel, is that Parx was more of a reaction to the Allen Sollys and Freelooks of the apparel world and, therefore, did not have a clear proposition. Admits Nabankur Gupta, Group President, Raymond: ''Parx is a value-for-money brand that lacks the oomph of Raymond or Park Avenue's premium image.''

It didn't help that Raymond's two-year-old label of super-premium shirts, Manzoni, is so niche that its marketing strategy is limited to product or quality-led innovation. That is a challenge even for a vertically-integrated (read: from fabric to retail) company like Raymond. ''The Parx experience then,'' says Harminder P. Sahni, Associate Director of KSA Technopak, ''could have driven the company to look for an acquisition, rather than fight with an existing brand to own a segment.''

A Complete Wardrobe

No one is doubting the focus that Gautam Singhania has brought to the company ever since he took over the mantle of CMD, in September 2000, from his illustrious father, Vijaypat Singhania. Divestments in unrelated and often unprofitable businesses like synthetics, cement, and steel, not only refocussed the company's mainstay in fabrics and garment, but also made Raymond hugely cash-rich-part of this cash is being used to fund acquisitions like ColorPlus. The only remaining non-core business is the Rs 37-crore plus JK Files & Tools division. "Since we're number one in the world here, there is no buyer,'' says Singhania. ''Still, it is a good investment, giving us good profits.''

However, Raymond's biggest challenge, and Singhania admits this, lies in the integration of its new acquisition with its existing businesses. Despite the obvious synergies that exist between ColorPlus and Raymond's brand lines, there are a number of things that can come unstuck. Some believe that the brand Raymond is all about button-down formal dressing and ColorPlus stands strongly for smart casuals. Therefore, there may be some kind of an image clash if both the brands were to retail through the same stores. ''With over Rs 120-crore business now in casuals (between Parx and ColorPlus), we're obviously very strong and will explore synergies in distribution,'' defends Gupta.

In that sense, Raymond seems to be following the Madura Garments' strategy of playing the market with multiple brands. But identical or similar strategies are unlikely to be a problem in the apparel market. That's because no one brand dominates more than 1 to 2 per cent of the market. ''Ultimately, market success hinges on the strength of your brand and how you innovate,'' points out Prakash Nedungadi, President, Madura Garments. Perhaps Raymond also realises this fact, which is why it has deferred by 42 months the acquisition of the remainder 24.9 per cent of ColorPlus. Says Sahni of KSA-Technopak: ''The company seems to have tied in a tight contract, since it is so much a product-led brand.'' For the record, of the Rs 58-crore deal, Raymond has coughed up Rs 24 crore for the ColorPlus brand alone.

"We are not cut out for the price-led commodity business. We don't play that game even in fabrics'' Nabankur Gupta, Group President, Raymond

Questions abound not so much about the ColorPlus acquisition as Raymond's overall ability to service its renewed focus on branded readymade apparel and retail. Consider: Inspite of good profitability, Raymond does not get the premium it deserves on Dalal Street, primarily because the company still seems to be assessing its focus and hasn't been very aggressive on acquisitions. Singhania's defence is that acquisitions are a slow process and that for every company acquired, there's another 10 Raymond has looked at.

A renewed focus on denim (Raymond recently upped its capacity from 10 million metres per annum to 15 mm, and eventually that may go up to 20 mm in the next one year), may make the company look at acquisition of a brand here, though both Park Avenue and Parx do sell branded jeans. ''Raymond sees high potential in targeting the younger consumer segments,'' says Rahul Dhawan, Head of Research at SKP Securities. ''And it seems it is getting its act together in retailing-an act in consonance with its quest for higher margins business,'' he adds. The composition of the denim market is unique. Even though market trends are clearly driven by international brands such as Levi's, Lee, or Wrangler, affordability issues leave a big part of the market open to home-grown brands, some of whom rake in more than the international brands. Kewal Kiran's Killer and Maxwell Industries' Live In are two such brands.

So even as Raymond follows Madura Garments' strategy of multi-branding, don't expect it to target the mass-market in apparel, a la Madura's Peter England. ''We're not cut out for the price-led commodity business. Why, we don't play that game even in fabrics,'' points out Gupta.

Part of the reason for not playing the mass volumes game could be Raymond's historical strength in exclusive retail outlets, which fetch more than 70 per cent of its apparel sale. That has insulated the company from the larger ''distributor to small retailer''-driven game that has become the mainstay of the late-1990s brands, both from big players in Madura and Arvind, and the crop of newcomers such as Acme Clothing (Provogue) and Polki Garments (Freelook). ''Even a not-so-well marketed or positioned Parx has ridden successfully on the back of Raymond's exclusive retail," says Jigar Shah, Head of Research at brokerage house KR Choksey & Company.

But the insularity may soon go. That's because while Raymond's retail size is indeed huge, its retail identity (in terms of signage, merchandising, staff training, and systems and processes) leaves much to be desired. Loading the premium ColorPlus on such a network may not be the best of things to do. In fact, some of Raymond's old stores-they make up half of the total network-may not be good enough to attract the ColorPlus buyer. ''We have a plan for ColorPlus that we have worked out along with the existing management,'' is all that Gupta would say.

"Ultimately, market success hinges on the strength of your brand and how you innovate'' Prakash Nedungadi, President, Madura Garments

Extending The Brand

The company's year-old ambitious pret label (backed by more than 10 Indian designers including Rohit Bal and Ritu Beri) Be: could be the springboard for a bigger marketshare of womenswear market. ''It is (womenswear) a different business and our thought is to get into it with the learning from Be:,'' says Singhania.

The Rs 3,500-crore womenswear market is showing the first signs of organisation. Madura Garments last year extended its Allen Solly brand into this segment, and ColorPlus did so earlier. Even smaller players like TCNS Clothing are angling for a slice of the pie. Last fortnight the company launched a new brand, W, taking on unorganised players who rule the market. For the company that gets its style-price equation right, womenswear could well be a goldmine. And Raymond is as well placed as any other company.

Meanwhile, Singhania must contend with another issue: until recently, Raymond's fabric brand had been caught in sort of an image-trap, where it was increasingly perceived as a brand for the 35-plus. The company has recently revamped the brand with help from RK Swamy BBDO. But whether that deepens the customer base remains to be seen. Gupta of Raymond, however, has no doubt that all's well with the brand. Says he: ''Even while the market for worsted fabrics haven't grown in the past year, we have clocked nearly 25 percent value-growth.''

In fact, the fabric business gives Raymond a tremendous edge over Madura Garments and Arvind Mills, since 4,000-odd multi-brand retailers vend it. Organised retailers, in their bid to increase the footfall, are widening their range of stocks. For instance, Shoppers' Stop has started stocking sarees, leading some industry analysts to believe that it is just a matter of time before it-and others-starts stocking even premium fabric. And Raymond, given its impressive portfolio, will have an edge there. Finally, the company should be beginning to feel like the consumer it clothes: complete.