The Hindu Business Line : ‘Retail needs industry status’

Davinder Kohli, who created the value apparel brand Koutons, on the brand’s philosophy, value propositions and why the retail sector needs to be recognised as an industry..

Davinder Pal Singh Kohli, founder, Koutons Retail

Bindu D Menon

When Davinder Pal Singh Kohli says that value retailers are on a better footing than premium retailers, you have to take his word. In fact, it is this keen insight into consumer behaviour that has helped Kohli bloom from a small time manufacturer and distributor to create the Koutons brand that differentiates itself from other brands in the retail parade.

Kohli, who ventured into the textile business with a seed capital of Rs 11 lakh, has successfully nurtured the Koutons brand, which registered a turnover Rs 1,046.68 crore for the financial year 2008-09 – a growth of 31.91 per cent from Rs 793.46 crore the previous year. The net profit stood at Rs 79.53 crore, up 15.01 per cent from Rs 69.15 crore.

A native of Sambalpur, Orissa, Kohli shifted to Delhi in 1980 after completing his education. He worked with a few export houses before venturing into the business world all by himself.

The BSE-listed firm Koutons Retail owns clothing brands such as Koutons and Charlie Outlaw for men, Les Femme for women and Koutons Junior for children. It has a sizeable retail network of 1,407 stores across the country.

A Les Femme outlet

In an interview to BrandLine, Kohli outlines the brand’s roadmap to date.

So, how has the journey been so far for the brand?

We started out in 1991 as a manufacturer of jeans. Our brand Charlie was among the first few branded denims in the mid-price segment. The brand became so popular in apparel outlets that we decided to leverage on it. We then decided that we will not be selling it to any Tom, Dick and Harry but to a specific customer base. In 1999, we launched our first Koutons outlet. It was the only menswear brand in the value category at that point of time and it was a real hit among value-seekers.

You took some interesting decisions like freezing the Charlie brand and stopping supply to other retailers. Can you explain the rationale behind such decisions?

In 2002, even after launching Koutons, we were supplying to other distributors and retailers. It was also a time when the credit crunch was hitting all businesses. Capital is like blood and despite a credit period of 45 days, our distributors were extending it to 100 days. This created a liquidity crunch. Whereas in our own stores, which had grown to eight by 2004, we were able to generate the money by evening.

This led us to think that we were on a better footing with our own set-up. We completely stopped supplying to other retailers and concentrated on our exclusive brand outlets as our manufacturing was supplementing our retail expansion.

We also took the decision to freeze the Charlie brand despite popular demand. This was, however, re-launched in 2006 as Charlie Outlaw – a brand which catered to the 14-22 year age group.

While Koutons is essentially an urban brand, Charlie Outlaw caters to the tier-2 and 3 cities. Is this a conscious decision?

When we launched the brand, it was on the premise that it would be value-for-money. Call centres and BPOs too were beginning around the same time and it spread consumerism. Youngsters didn’t want to be caught shopping where their fathers traditionally went. This gave us the opportunity and we expanded. While Koutons remained at the district level, Charlie Outlaw catered to the tier-2 and 3 cities.

Our consumer mapping exercise revealed that youngsters wanted to look their best in all parts of the country but had little choice in tier-2 and 3 cities. Hence, we decided to tap this market.

You have also expanded more on the franchise route rather than company-owned outlets? What is the reason behind it?

We followed a lean and mean model of expansion. About 90 per cent of our store expansion is carried out through franchisees. Our aim is to create entrepreneurs. We identified shopkeepers who were making very little profit but were sitting on huge retail space and gave them an option to bear the costs of fit-outs while the inventory is managed by us. The average agreement period of a franchise spans nine years. This method of expansion minimises our capex requirements, rentals and employee costs, which have been a drag on margins and funding requirements of many retailers in India.

Koutons is exploring the concept of a family store. This apart, you have also ventured into the footwear and accessories business?

We are pursuing the concept of family stores. While the men’s stores typically measure between 1,000 square feet and 1,500 square feet, our 185 family stores are of 3,000 square feet to 4,000 square feet. We are converting existing stores into family stores where clothing lines for men, women and children are available together.

Did you slow your retail expansion during the economic slowdown? What about your overseas foray?

We did go slow on expansion during the last six months. Some shops which were unviable were shut down. We are currently consolidating our position in the domestic market and have temporarily put a brake on entering West Asia and the Chinese market.

How will you be funding your expansion from 1,400 stores to 2,000 by the end of 2009-10?

The company plans to fund the proposed expansion through debt. We have a comfortable debt-equity ratio. We will raise debt for the expansion programme and will dilute stakes further only if the need arises.

What about foreign direct investments in retail?

The retail sector needs to be granted industry status. The advantages of such a status are greater focus on retail development, fiscal incentives for the retailing industry, availability of organised financing and establishment of insurance norms.

Fashion is a seasonal business? How do you manage to keep abreast of trends?

While our in-house team works on the designs, we also consult the fashion forecast houses in Italy and Europe to decide what kind of fabric would be in demand.

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