Aditya Birla Fashion Shakes Up Ethnic Wear Business But Niche Brands Struggle
The company has invested about Rs 773 crore so far to build an ethnic wear portfolio.
Aditya Birla Fashion and Retail Ltd. is accelerating its play to create a portfolio of ethnic brands across categories, occasions and price-points as the apparel market returns to normalcy following Covid-19 setbacks. However, analysts are wary that this strategy has led to a fragmented portfolio and a prolonged phase of losses.
Three of its key subsidiaries within the ethnic wear portfolio — Jaypore E-commerce Pvt.; Finesse International Design Pvt., which runs the brand Shantanu & Nikhil; and Indivinity Clothing Retail Pvt., which owns the Tasva brand—grew sales but are unprofitable.
Yet, the overall ethnic wear business has turned profitable. As of March 2022, the business reported an Ebitda or operating profit of Rs 30 crore on sales of Rs 310 crore. It is solely driven by Sabyasachi Couture, which sells garments, accessories, and fine jewellery. The company posted a profit before tax of Rs 44.7 crore in FY22, against a loss of Rs 15.2 crore in FY21.
In the first quarter of FY23, Aditya Birla Fashion reported ethnic sales of Rs 101 crore, though growth was muted versus Q4 in the previous fiscal. But the second quarter is expected to bring cheer as shoppers celebrating the festivals and attending social gatherings turn to ethnic wear in a big way.
The Kumar Mangalam Birla-owned company entered the $20 billion Indian ethnic wear segment in the fiscal ended 2020, with the acquisition of the Jaypore brand for Rs 104.8 crore, and then invested Rs 57.9 crore for 51% stake in Shantanu & Nikhil. In FY21, it formed partnerships with designers Tarun Tahiliani and Sabyasachi. In FY22, it further widened its portfolio via the organic route by launching Marigold Lane, a premium women’s ethnic wear brand, and Tasva, a premium men’s ethnic wear brand.
According to Motilal Oswal, the ethnic wear market is evolving driven by the shift from tailored wear to ready-to-wear, and a growing interest among the youth to rediscover their culture and heritage.
"This compelled firms to craft strategies to scale operations, rather than operate in niches," the brokerage said in a note on Aug. 24.
Overall, the company has invested about Rs 773 crore so far to build an ethnic wear portfolio. It plans to fund the ethnic wear business for a couple of more years with the recent Rs 2,195 crore fundraise from GIC of Singapore, which will acquire a 7.5% stake in Aditya Birla Fashion.
Among the recent acquisitions, the retail arm of the $60 billion Aditya Birla Group also acquired a controlling stake in House of Masaba Lifestyle in FY22. "This partnership aims to create a young, aspirational and digital-led brand across the affordable luxury segment in the fashion, beauty and accessory categories", it said in a statement filed with the exchanges.
The plan to build the brand into a 360-degree lifestyle brand over the next few years with multiple product extensions aimed at both—the Gen-Z consumer as well as the evolved consumer. "Focus will be on being digital-first—athleisure, fashion, jewellery, home, beauty and wellness," said Abneesh Roy, executive director-institutional equities, Nuvama Group, citing a recent analyst meet with Ashish Dixit, managing director of ABFRL.
He highlighted that the company's right to win in the ethnic-wear segment is its consumer understanding built via Pantaloons—a Rs 750-crore plus ethnic wear business—and deep knowledge of the supply chain.
The company has also been revamping its Pantaloons stores over the last 18-24 months, expanding its private label portfolio and increasing focus on omnichannel to drive near-term growth. The retail format, however, saw weak same-store-sales growth as conversions and did not see a significant improvement from pre-covid level. Its high share of mall-based stores has also impacted recovery, which stood at 67% of pre-pandemic level in FY22.
ABFRL plans to expand its network with 70-80 new Pantaloons outlets this fiscal and also, take its private label share from 61% in FY20 to 75% in FY25.
Competition, meanwhile, is heating up in the apparel space.
The Mukesh Ambani-led Reliance Retail Ventures Ltd. and the Tata Group-owned Tanishq have also upped their game in the ethnic wear business.
As for the fast-fashion segment, foreign brands such as Zara and Tommy Hilfiger have already established themselves, while brands like H&M and GAP, among others, are venturing in the Indian market as well, spurring heightened competition, said Roy.
However, there's a flip side.
"ABFRL is straddling multiple growth categories including ethnic wear, athleisure, direct-to-consumer... And this is creating a long tail of a fragmented portfolio mix, with a prolonged phase of investments and losses," according to Motilal Oswal.
The brokerage has also raised concerns over capital allocation.
While the fundraise from GIC can significantly strengthen its balance sheet, the company has invested in smaller and niche segments, which may not contribute meaningfully to overall revenue and profitability but still dilute earnings, it said, adding "there is limited clarity on the fund deployment."
In FY23, the company said it will be completing the Reebok acquisition and plans to initially invest Rs 400 crore in its new D2C subsidiary, called TMRW.
Eyes Aggressive Expansion, But Execution Crucial
For each of its key ethnic brands, Aditya Birla Fashion and Retail plans significant store additions:
Jaypore to have 15 stores in FY23; it currently has eight.
Tasva remains the focus across all ethnic brands as it plans to open 70-75 stores in FY23 with a massive campaign.
Longer-term target of 250 stores by FY26 with Rs 500 crore revenues.
India’s first billion-dollar pure-play fashion powerhouse, the company has a network of 3,487 stores across approximately 30,787 multi-brand outlets with 6,381 points of sales in department stores as on June 30, 2022.
“Aditya Birla Fashion and Retail, via its acquisitions, now has multiple growth levers spread across segments with well-laid out plans for each of them,” Roy said. "Going ahead, execution will be crucial, delivering on metrics across these brands." Watch out the space.