How is the luxury retail industry faring in India?

In India, modern retail has more or less followed the same evolutionary trends which the developed countries followed a few decades back, except for the fact that the hurdles we face here are slightly higher. There is a trade off between real estate and the growth of the retail space in any industry in a developing economy and to that extent the Indian retail industry has suffered. The growth has although slowly, picked up now. It has taken us lesser time in India to reach this level in organized retail as compared to some of the other developed countries and it should not take us more than a decade more to reach the same levels as the developed countries.

India has seen the development of some good malls and quality retail space, but one parameter where the industry is lacking is the quality of infrastructure to support the industry and it might take a decade or two to reach the desired levels. The front end of our retail is as developed as any other developed country.

What are the major challenges that the industry in general faces today? What are the key traits you look for when you are hiring senior management talent?

The first challenge is real estate. The real estate cost is a major input cost for retail and thus it becomes a big hurdle. The prices have to fall if the industry has to grow further. Lack of quality infrastructure in terms of logistics, quality road network, power etc are bottlenecks which we need to overcome. There is also a dearth of talent in retail. The required investment in developing and training the people is not happening. While hiring senior professionals we look for people with an eye for detail because, “retailing is detailing”. We look for analytical skills too because organized retail requires a lot of number crunching. Since people are the key to success in retail, therefore having effective people management skills is also imperative. We usually prefer people with a retail background because it is difficult to inculcate the basic nuances or the culture of this business into someone who did not start early in this business.
But having said that, we do look at people from FMCG, consumer durables for functions like marketing etc. For retail operations, hospitality background works well too.

How are the luxury spending trends evolving in India? When do you see a true luxury brand emerging out of India?

The trends are quite encouraging in India at the moment. In the last few years the way the luxury consumption has grown in India and the way our spending has evolved have been phenomenal. Although we have a long way to go and we are nowhere close to the consumption patterns in China, we seem to be getting there. Luxury is a wide segment which includes jewellery, apparel, watches etc. I don’t see a luxury apparel brand emerging out of India any time soon, but there is certainly a possibility of a luxury brand in the jewellery space or similar segments or even in the home and living segment. I personally don’t think fashion and garments are something we Indians are good at and we should probably leave these to the Europeans and the Americans.

You have been a part of the retail industry for a while now. How do you see the industry evolving over the years? What have been the major changes that you have observed in the past 3-5 years?

In India, it is just the beginning and the best is yet to come when we talk about retail. Retail is a basic industry and an essential economic activity and it exists in all kinds of economies, be it large or the smaller ones. One has to have a belief that despite the good and the bad times, retail is bound to exist because the basic trade cycle of commodities and services cannot be completed without it. I would recommend people to improve their efficiencies and processes and make the industry as efficient as it is in the developed countries.

Talking about changes, the emergence of “Fast Fashion” has been a high point over the last few years. “Fast fashion” is not only about fashion changing fast, but also consumer preferences changing fast along with it. The phenomenon of consumer preferences changing overnight and their adoption of foreign brands is something that has been observed in the past few years. We have seen new brands entering India, gaining a lot of market share and then losing out because the consumer moved on to a different brand.

You have grown from a senior finance professional to a CEO ? How has your journey been?

My journey has been extremely good and I am pleased with the way I have progressed at DLF brands. I was a part of the founding team for this business and inspite of all the challenges, we proved ourselves right. I got into DLF brands during the recession period in 2008 and despite the hurdles but we hung on. Last six years have been extremely positive and we have been able to create a fairly large company.

What are your investment plans for 2014? Are you planning to launch any new international brands in the country? Which segments you are looking at?

We have already expanded to a significant size and currently have 150 stores with 11 brands and concepts. We are adding almost 50-60 stores every year and will continue to expand at the same rate. Strategically, the focus of the company would now move towards profitability given that the size and scale are coming through. We will stick to the fashion and lifestyle segment. We have primarily focused on apparel but this year onwards we have also got into the beauty segment. We have already acquired our first property in this segment with Sephora; a part of the LVMH group and a leader in its segment. We are getting into another relationship which we will talk about very soon. Last year, we also launched “Forever 21”, a fast fashion brand and we plan to aggressively grow in the fast fashion, home and kids , beauty and apparel segments.

What are your views on the increasing popularity of E-Tailing? Do we foresee fashion brands setting up their e-tailing network in India anytime soon?

I think e-tailing is the future of retail. We have also launched our e-commerce division and will be soon launching our first website soon. It is something that is bound to happen and will also determine the consumption patterns in the future. With people getting more hard pressed for time every day, the shopping patterns are bound to change significantly in the next 5-10 years. The consumption pattern of apparel is also changing fast unlike what it was a decade back where people shopped only for a few times in a year; people now shop almost every weekend. They don’t wear the same clothes over and over again and they are open to trying new ways of shopping. The younger generation does not shy away from trying something new and now with people becoming more fashion and brand conscious, they understand what size of a particular brand fits them well. They therefore have no hassles of going online and shopping for their favorite pair of jeans if it saves them the time and effort. While online shall definitely not replace the brick and mortar stores, it will definitely take some amount of market share from it.

What will be your growth strategy in the coming 3 years? Keeping in mind the market volatility, would you focus on consolidating your presence across metros only or do you have aggressive expansion plans for Tier 2 cities as well?

In retail, consolidation is a dream and although everyone talks about consolidation, it never happens. We have to continue growing and expanding and consolidation shall happen with growth. We plan to continue to expand and our patterns of expansion shall largely be determined by the pattern of real estate growth. If there is a good mall coming up in a tier-2 town, we look at that as an opportunity. Our expansion shall therefore be a mix of metros, tier 2 towns and small towns.

What are your thoughts on FDI in single brand retail?

Whatever has happened in this space till now is a good start. We started with 51% and now we have gone up to 100%, which is clearly a positive sign for the industry. It is a good move and has facilitated several new entrants in the market which has helped in the overall evolution of the space. I would say that further liberalization is required and FDI in multi brand retail is also required without any restriction. The government will have to depoliticize the whole FDI issue and implement it. We have seen the best times of growth where we grew at 9 percent and are now at 5%. The next thrust of growth can only come from new industries like organized retail otherwise we will have to be content with this below average growth rate for the next decade.

Why is the attrition level so high in the Indian Retail industry and how well is the industry equipped to absorb the demand that may arise in the future?

In an industry like ours, both success and failures lead to attrition. Retail is a highly specialized business where mediocre talent, cannot survive.
Another problem that we face is that when new players enter in the market, our people get poached. Retail is an unpredictable business and therefore many professionals are not able to adjust to the dynamic nature of this industry.

Finally on an informal note, what does your average day look like?

I normally spend the first half of the day meeting and talking to my team. The later part of the day, I keep for introspection or to read reviews and focus on how to grow the business. I think it is essential for someone who is leading a growing business to take some time out to think.
Retailers hardly have weekends and on most Saturdays and Sundays I prefer visiting stores and understanding how things are working at the ground level and therefore am mostly in malls. I have a 13 year old daughter and a 5 year old son and I ensure that I spend enough time with them.

Mr. Dipak AgarwalDipak Agarwal text.
EA research