Talking to ETNow, Rakesh Biyani, Joint Managing Director, Future Retail, talks about the success that the brands and the products have seen currently and how they are planning to take it further.
Future Lifestyle has grown at a very impressive 21 per cent revenue CAGR over the last four years, much faster than others present in the space. What is the next big trigger for growth and what do you believe will give you an edge over your peers in an extremely competitive sector?
Over the last couple of years, we have redefined the two retail businesses that we have, which is Central and Brand Factory. The Central high definition format has performed very well and we have got a lot of new stores lined up. The growths have been very strong and that trend seems to be continuing. I believe that our focus on the assortment that we sell and our customer service at the store has worked very well.
Similarly, we believe Brand Factory is one of the most promising concepts that we have and hence we are looking at a journey which takes us to 300 plus stores over the next five years. To achieve the end, a lot of work is happening both on the product and in partnerships.
Finally, what is going to continue to drive growth is the power brand business. One of the key power brands in that is Lee Cooper where we have recently announced the partnership to do footwear business. The partnership will itself take the last year’s numbers for Lee Cooper to Rs 600-crore plus and our goal in the next four to five years is to make it a Rs 1500-1600 crore promising denim lifestyle brand. So, quite a lot of exciting things are happening at Future Lifestyle.
What is making the analysts so excited about Brand Factory? How has it performed as opposed to your Central and brand business over the past one year and what is it likely to do in the short term?
Looking at Brand Factory, almost 50% of the stores are less than two years in business and the number of openings which are scheduled to come are significantly large. Also, there are a combination of factors that has helped brand factory gain a lot of attraction. First is the fact that across both metros and non-metros, the traction has been very strong. Plus, our internal mechanism as well as the fact that many brand partners have now started recognising the power of Brand Factory has helped the channel.
The entire deal to offer in Brand Factory is that here you are not only able to experience touch and feel of the product but also find the offers very attractive and that has found very much popularity amongst the youth that comes back in large numbers to these stores.
Also, you have mentioned that there is cut-throat competition, I think the market is expanding so much in India that as long as you are sort of building the right proposition for your customers, there is more than enough customers walking into the stores and are happy seeing what we have to offer and therefore buying it.
What are the few value unlocking possibilities that you are seeing for Future Lifestyle?
The balance sheet is quite strong. Both, the net working capital and debt to equity ratio has been progressively going down.
Our focus has been on the retail side of the business for quite sometime, because of which the power brand is sort of lacking. But, with sheer focus we have been able to even register growth in the power business segment. For instance, our ‘ALL’ business which is India’s only real plus size clothing business is looking very promising especially since its introduction in the online fora. Apart from it, there are other brands such as Lee Cooper, John Millers, Scullers, that are widely distributed and hence, we believe that over a period of time, not only can we make our distribution stronger but also there will be a scope for category expansion.
Brand Factory concept is more like a discounting meaning you are selling merchandise at a discounted price. Do you think that in your way to generate volumes and turnover, you are compromising on your margins?
Yes, it is correct that the margins are lesser as compared to in a departmental store but at the same point of time, low margins do not mean that the EBITDA is going to be low. It also depends upon what expense levels and what productivity levels that one are able to generate. So, in that sense we are quite focussed there and are also trying to ensure that we can turn the stocks much faster which typically does happen when you have a discounted product.
Are you looking at getting more discounted concept in other products as well or you will right now be sticking only to fashion or to businesses which is going to be very unique and limited like the Brand Factory?
I think Brand Factory as a concept is quite complete. While it leads to fashion, at the same point of time it is definitely focussed also on footwear and all kinds of lifestyle accessories. So, it is a multicategory business and over a period of time, we will keep developing other categories as well to become larger. The store size on an average is about 25,000 square feet, so there is a lot of space in the stores to present all categories in a complete range; thereby, making it even a more attractive destination.
What are your expansion plans overseas, what kind of capex plans do you have lined up?
The current plan is very India focussed. I think there is lot more territories that we can take our stores to. In the last one year or so, we have opened four stores in east of India and all four have done quite well. Along with this, our expansion plans include the two major cities i.e. Mumbai and Delhi and as well as the southern markets. For now, there is no intention to take any of the brands to overseas.
In terms of capex, it is quite close to about 300 crores that we have planned to spend per year approximately to fund the expansions. And the company is therefore generating adequate amount of cash to fund for itself.
Since, you do have all that capacity expansion lined up what is the square feet addition that you are likely to make in the year in terms of stores?
So, between all the concepts put together, on an average per year it is about anything between 800,000 square feet to about a million square feet odd.
How do I measure the profitability because all concepts will have different margins, they would have different footfalls, the same store sales also again would vary depending on which store we are talking about and which season are we talking about. So, should we purely look at the profit which you are generating per square feet as a measure of where the business is moving?
Well, one measure is profit per square foot, the other is about the EBITDA percentage on the total sales. The EBITDA percentage is something which we are currently at about 9 per cent odd and our long-term objective is to move into a double-digit level. And with the sort of an expansion that is planned the backend costs continue to get leveraged and which itself ensures the fact that ultimately the net EBITDA at corporate level will keep expanding.
On the other hand, I think the profits are much larger in places where the business has scope to expand, in contrary to head office for instance, which has already sort of evolved, Plus, because of the fact that you continue to drive a double-digit growth, the EBITDA generation from that is even stronger.