Clipped from: https://economictimes.indiatimes.com/markets/expert-view/arvind-fashions-has-seen-a-structural-shift-in-demand-to-online-kulin-lalbhai/articleshow/80688932.cmsSECTIONSArvind Fashions has seen a structural shift in demand to online: Kulin LalbhaiLast Updated: Feb 04, 2021, 05:39 PM ISTSynopsis
Online is already showing growth over last year and in Q4, Arvind Fashions is expecting sales growth over last year.
Our online sales are at 230% of last year which means it has more than doubled and because we have had such a large increase in sales, the operating leverage has kicked in, says Kulin Lalbhai, Director, Arvind Fashion.
The loss on a year-on-year basis may have widened but sequentially, it has narrowed. What has helped contain these losses?
The recovery has been very strong and our revenue has almost doubled between quarter two and quarter three and that is one of the reasons why we have had a much better bottom line as well. Sales recovery has been across channels. The offline has come back at more than 70% of pre-Covid levels and we had a very rapid growth online. Our online sales are at 230% of last year which means it has more than doubled and because we have had such a large increase in sales, the operating leverage has kicked in. That is why the EBITDA is so much better than quarter two. In fact adjusted for the Ind-AS accounting, our bottom line is better than even last year’s quarter three. So it is a strong bottom line performance.
How much longer will it take for retailers like yourself to bounce back to normalcy now that stores, malls have reopened? What is the update on footfalls?
As I said, the recovery has been coming in very strong and there is a month-on-month improvement. In fact, the Diwali period saw a very high recovery and even as we come into quarter four, we are seeing the recovery continuing to improve. We are already at a high in terms of recovery offline. Online is already showing growth over last year and in Q4, we are expecting sales growth over last year.
You have managed to cut down your costs so far, but how will cost shape up? Rental reduction will moderate, cotton prices, yarn prices have gone up. Are you likely to see more pain in Q4?
Kulin Lalbhai: On the cost side, there are two parts of the cost. We got temporary rental reductions and there were other costs which we could bring down during COVID those costs will come back but we have done a lot of structural cost savings. The overall efficiencies have come in in terms of our headcount. So, there is a permanent cost reduction there. Our supply chain costs have been brought down significantly and those will continue even into next year.
Coming to your second question on the raw material costs, there is a sudden spike in some raw material costs. We are working on a host of strategies to ensure that that does not lead to any margin dilution and some price corrections that would come in because of the cost increases.
Given the increase in raw material cost, can you afford to pass on the price impact?
The materiality of the FOB increases is not so much. Right now, we believe that we will be able to pass on some price increases. There could be a little bit here or there, but in most cases, we believe we will be able to pass it on.
Is the momentum in online sales sustaining? What is the growth rate expected from digital by the end of this year and what is going to be its contribution to the overall sales?
On the offline also the sustainability seems promising. Even in January, there was a very healthy recovery and we are expecting that to continue, in fact, we are going to get a lot of fresh merchandise that will come into stores from February onwards and that should further help cement or strengthen the recovery.
As for online, a fundamental shift is happening there in the level of new consumers that are coming into the online channel and seeing and experiencing brands for the first time. It is a large structural shift of demand and we are seeing a disruptive change. Online sales have more than doubled. Soon, as a company, we will have Rs 1,000 crore of sales in the digital channel.
Arvind has invested a lot on the digital side. Not only do we sell on all the third party portals but our own dotcom, now.com has been massively scaling up. We also have been integrating our stores to online due to which our store sales are going up and the online sales are going up because much more merchandise is now available online.
We also have a joint venture with Flipkart where we are jointly building one of our brands Flying Machine. That brand has also seen incredible traction in the last quarter. There has been a lot of focussed efforts to scale online and with both the structural demand going up and all the efforts we have put in to build capabilities in this channel, we expect the growth momentum to continue moving forward.
Could the benefits of the Flipkart partnership be extended to more brands?
Well the idea of coming together was to bring the best of both the worlds — their reach and their analytics and our brand building capabilities and supply chain. We have done it. The first signs are very promising and we had amongst the highest growth in Flying Machine — an almost 70% jump in the territory sales in the festive season — this time. We have an exciting trajectory on how we will jointly build that and grow that business.
Most of our brands are gaining market share and doing extremely well on Flipkart, We hope the business will continue to strengthen. As far as the strategic nature is concerned, right now it is limited to the Flying Machine brand.
There has been a good growth in the brand CK, Tommy Hilfiger and others like USPA. Is it because of the casualisation brand or the casualisation trend which has come in because of work from home?
Casualisation is not just a response to Covid. The work wear in India has become semi-formal rather than formal and it was a trend which existed pre-Covid. The pandemic has just accelerated that trend. Casual brands are doing better and I believe will continue to do better.
The other trend we are seeing is that stronger brands are becoming stronger in tough market environments. The brands that were mentioned — Tommy, Calvin Klein, US Polo are extremely strong brands in the casual segment and that is why they are further consolidating their gains. Our footwear segment is also seeing rapid growth. Within our casual apparel, it is the T-shirts and the Polos that are leading the growth. Tthese are the categories where we expect strong growth in times to come.