The Investor friendly designer

ANITA DONGRE LOOKS more a mother running errands before school pickups (she has one college-going son) than a designer who now has the backing of private equity (PE) biggie General Atlantic (more of that later) as she gives a tour of her factory in Rabale, an hour and a half’s drive from Mumbai’s Bandra suburb. In a knee-length everyday dress (her creation), Nike sneakers, and hair pulled into a ponytail, the 50-year-old designer deftly negotiates mud and cement slush at the construction site. With Navi Mumbai’s hills at the back and surrounded by open spaces and grassy knolls, the factory will be one of three interconnected buildings with mammoth windows and long, open corridors designed to make air conditioning mostly redundant. “It’s my dream office,” Dongre says, pointing at the hills.

It’s actually much more than that. In her 30-year career, it’s her biggest push yet. Indian designers outsource most of their garment-making to small, third-party outfitters: Dongre, for example, works with 65 satellite factories across Mumbai, and cities in Punjab, Rajasthan, and Karnataka. It keeps capital costs down and lends some flexibility to the business; depending on demand you can add or reduce third-party garment makers. A designer-owned factory is, therefore, a great barometer to gauge ambition and thinking. Among women designers, Ritu Kumar, the industry’s grande dame, has three units in Kolkata and Gurgaon, each averaging 33,000 sq. ft. Kolkata-based designer Anamika Khanna has a 10,000 sq. ft. facility and another smaller one. Biba, another women’s apparel maker (which is more mainstream and less designer), founded by Meena Bindra and now run by her son, has a 75,000 sq. ft. factory.

In contrast, Dongre’s Rabale complex will be spread over 180,000 sq. ft. Much, though not all, of the garment making at third-party factories will move here next year onwards. Once the factory gets going, it will house at least 1,000 workers, plus a motley crew of designers, merchandisers, fabric buyers, etc. Though a single unit will lift fixed costs, it’ll allow Dongre to monitor production better, help her keep tabs on quality, protect her intellectual property, and ultimately help her ramp up both in India and abroad.

Dongre isn’t India’s best-known woman designer. That title is Ritu Kumar’s, who, at 69, is still a force to reckon with. Others such as Anamika Khanna and Kiran Uttam Ghosh are also arguably more feted. But among them all, Dongre seems the smartest businesswoman, who has identified a need in the market and built a business of respectable scale around it. So, if Kumar’s business is largely high end and sells around 200,000 units a year, Dongre has positioned herself as an affordable fashion house. Last year she sold 1.6 million pieces across her labels: Anita Dongre Designs, with which she began in 1999, followed by AND (Western wear), Global Desi (ethnic wear), Anita Dongre-Iinterpret, Anita Dongre Timeless, and Grassroot. She’s also tapped plus sizes, which few designers have ventured into. The segment is around 20% of her overall sales, with extra-large size contributing as high as 11%. The model hasn’t just proselytised the brand, it has catapulted her from designer to entrepreneur with phenomenal growth. Her revenues for FY13 were Rs 275 crore.

Dongre says she’s not “aggressive” about luxury. Globally and in India, designers tend to start at the top, making expensive clothes for the ramp or stores in tony areas of major metros. But neither does she believe that everyday clothes should be frumpy. Her credo: Just because they are affordable, doesn’t mean they have to be badly designed. So she dresses up women for everyday occasions—going to work, hanging out with friends, or going shopping. A range she admires: Armani Exchange.

She sells through 100 exclusive branded outlets and 340 multi-brand stores. The location of the branded outlets says a lot about how she thinks; most of them are in places such as Mumbai’s Juhu Tara Road and Kolkata’s Manicktala Road, not posh, but somewhat upmarket. Mukesh Sawlani, Dongre’s brother and CEO of the company (Anita Dongre), says they take care not to fall for marketing prestige, and pick their locations accordingly. For instance, India’s most pricey high street, Khan Market in New Delhi, where a 500 sq. ft. store can run up a rent of Rs 7 lakh a month, doesn’t have a single Dongre shop.

Dongre is a product of her times. When she began in the late 1990s, a combination of globalisation, higher disposable incomes, advent of modern retail, successive wins at international beauty pageants, proliferation of media, etc. had begun pushing up expectations of everyday women’s wear. Arguably, had she started a decade earlier, she’d have been too early; equally, had she started a decade later, someone else would have occupied the space.

In a business where dead stock and astronomical rents can bleed revenues, the PE community has bought her story. In 2008, Kishore Biyani’s Future Group took a 23% stake in the company. Biyani now says he “is closing discussions for an exit” seeing an opportunity to maximise returns, but doesn’t offer details. Biyani adds that Dongre makes the most money in her industry. (He has sold his 28% stake in Biba as well, while funding similar opportunities like a women’s wear brand called Mineral, owned and run by Priyadarshini Rao, a Mumbai-based entrepreneur.)

Sawlani admits they are talking to a set of investors. He, however, reveals that the family is willing to dilute its near-70% holding further, if required. The buzz is that Biyani has sold his stake to General Atlantic for nearly Rs 150 crore. The PE firm is putting in Rs 100 crore more into Dongre’s outfit for another 10% or thereabouts. That would value the company at upwards of Rs 600 crore.

AT WORK IN her 6,000-plus sq. ft. leased factory at Marol Cooperative Society, Andheri East, Dongre watches like a hawk as clothes get put together in the “final cutting room”. It’s a hall with no air conditioning where tailors work on pieces of embroidered fabric, oblivious to their boss’s presence. The designer, who hates being spotted in restaurants and hardly socialises, visits the room frequently to see how a top is coming together—say, if the shoulders are even. Sometimes, she works on a piece herself. “When a garment has a flaw, it doesn’t sell. It’s the dead stock that drags down profit,” says Dongre. A few mismatched or badly tailored pieces may seem like a small number, but when making thousands of tunics or trousers, they add up.

Dongre says she knew she wanted to be a designer by the time she was 15. She’d watch her mother Pushpa Sawlani, a skilled seamstress, make clothes for her three girls, even as she raised them and did other stuff around the house. “I don’t know where she got the time; remember she brought up six kids,” she says. After school, she joined Shreemati Nathibai Damodar Thackersey Women’s University, where she studied dress designing and later even became a member of the faculty.

It also helped that her father was a textile trader. She learnt to source materials from him. “A lot of the Sindhi [her community] textile traders were uncles who would humour the little girl,” she says. Twenty-five years ago, textile mills wouldn’t sell their choicest fabrics to small boutiques, simply because they catered to big export houses. All that got offered was surplus. But Dongre quickly circumvented that by buying in bulk. “Morarji Mills would make the best cotton in the world, but would not sell me less than 3,000 metres. I’d buy it,” she says. She’d then sell the excess to other boutiques.

The early years taught her a lot. Once, in 1993, she remembers running out of funds for an upcoming collection, and approaching her father for a loan of Rs 50,000 for six months. He gave her the money, but not without charging the market rate of interest which he deducted in advance. “It taught me the value of money, and that nothing comes free,” she says. Dongre’s is a family-run business, and there are clear demarcations and responsibilities. Dongre’s the designer with big vision, while Sawlani is CEO and the numbers guy who watches costs. One sister, Priyanka Hira, handles customer care, while another, Meena Sehra, heads operations. The output is like any other fashion house, which means she does two major collections in a year—summer and winter—and lots of small ones. She also runs a separate bridal range. Dongre regularly sits with her design teams—four groups of three or four designers—tosses ideas around, and gives design briefs. “It’s great fun to go in every single day and make new clothes,” she says.

When Dongre started out, she had just four master tailors. Now there are 40. The company’s hierarchy is relatively flat. Step into Dongre’s office, which is devoid of expensive décor, and you’ll see a group of designers having a meeting, and designs and blueprints up on computer screens. Heads don’t turn, and no one stands up when she walks into any of the departments. Her conference room doubles as a holding cell to display her latest collection. It’s her Mela line, consisting of salwar sets, tunics, and tops emblazoned with typical Indian motifs from fairs and carnivals. Dongre says her inspiration comes from everywhere: Designs on walls of hotels, wrappers of food items, and things she notices travelling around the world.

Last year, when she heard that Giorgio Armani had leased a 60,000 sq. ft. building in New York to put all his collections and labels under one roof, Dongre did the same at her store on Mumbai’s Linking Road. It’s the topper among all her stores in sales per square foot, pulling in nearly
Rs 10 crore in business so far. Now she’s contemplating more such concepts across the country.

THE GAP THAT Dongre has addressed, however, is narrowing fast, as women shoppers gain exposure to foreign brands. If it was affordable fashion that women wanted yesterday, it’s the discerning, edgy look that makes them feel different today, and that’s where opportunities are also emerging. So, recently Dongre teamed up with the Birla Group’s Grasim Industries to create a natural fibre called Liva, which she showcased at the Lakmé Fashion Week this August. It has a pliable texture and is marketed by Dongre in her stores.

Dongre’s bigger challenge will come from, well, newer, younger Anita Dongres. A stone’s throw from her Linking Road store is Vinegar, a trendy clothing brand that was started by Varsha Bhawnani in 2012. Bhawnani, a graduate from the Indian School of Business, was inspired by clothing giant Inditex that sells under the brand Zara. “Zara’s business model was built around replicating designs from expensive brands at a cheaper price point and then turning the stock around as fast as possible,” she says. Instead of launching two collections a year like most brands, Zara changes every two weeks, so customers visit the shops more often. “Think fast-forward fashion with relentless consistency,” says Bhawnani. She says she already has an office in Madrid, Spain, housing designers and distributors.

It’s too early to predict how successful Vinegar will be, but the point is outfits like that, plus Zara, H&M, etc., will prove a threat to Dongre. She’s got some amount of size on her side. A nearly Rs 300 crore turnover isn’t something to be sniffed at. But equally, it’s not terribly formidable. U.S. Polo Assn., one of the brands licensed by Arvind Mills, has scaled up to a similar size in less than four years. While the categories may be different, the point is that the right brand with the right support could easily upstage her. Moreover, there aren’t too many examples of entrepreneur-led garment labels (as opposed to those backed by corporations) building scale and then sustaining it, in India.

Sawlani agrees these are valid issues for Dongre. But he argues that in India if they can maintain even a semblance of the current clip of growth (the business doubled in 2012-13), they’ll be fine. Meanwhile, they’ll also look at newer revenue streams from abroad.

Going international is the big thing for all Indian designers. But as Anamika Khanna discovered, having an international plan is no guarantee of success. She created a label called Ana-Mika in 2004 and attempted to make a go of her designs abroad. “They said, ‘I love your stuff. I want to hang it on the wall.’ ” She displayed her budding collection as part of a preview in London, acquired a 10,000 sq. ft. factory in India to boost production four times, and even managed to raise venture funds for the project. Luxury department store Harrods picked up her merchandise, which was the start of her clothes being sold in 140 locations across the U.S., Japan, and Europe by the end of four years. But it lost steam, and by 2008, post the financial crisis, the venture was shut. “We grew too fast,” concedes Khanna.

This means the expansion wasn’t thought through like an organised business plan, costs weren’t factored in, and production wasn’t calibrated with profit. Also, Khanna did it with some £2 million (Rs 12.24 crore) in financing, which was probably not enough. In contrast, foreign brands fund losses for years. Former model Feroze Gujral, who has worked with Burberry and Tod’s, says, to make it as an international label, you have to look long-term, make the investment, and develop an ability to market your brand so you build global reach like, say, a Gucci or an LVMH Moët Hennessy Louis Vuitton. Their levels of international awareness have been constructed over decades, she adds. “That, and the inherent strength of Indian embroidery and other embellishments for clothing.”

But it takes more than just creating awareness to sell to the West. For starters, the biggest drain on margins overseas are logistics costs, and the risk of creating a collection ahead of time, taking it to an agent, and marketing it. The same is true for where the easy money is. With Western designers, it’s the accessories such as fragrances, jewellery, bags, shoes, and belts that draw in the fat margins. Few Indian designers make those successfully at home, let alone internationally.

Dongre is aware she’s not going to be able to compete with the Diors and Chanels of the world anytime soon. “I’m not looking to go into the premium segment abroad,” she says. While anyone in the trade would kill to replicate the success of Zara, there are also huge lessons to be learnt from its forays across the world. Zara is not the same everywhere. Sizes and styles that sell in Spain don’t make it to India, and while there may be overlaps, specifics differ. How is Dongre addressing that? “The range of global styles would get much larger when we go there and, of course, the size mixing would change,” she says.

Devangshu Dutta, who runs Third Eyesight, a consultancy that specialises in retail and consumer products, says for a brand like Dongre’s, boosting domestic top line is no problem. He draws a parallel with the quiet success of Blackberry (the men’s apparel brand), which has been around for 20 years and does Rs 500 crore in sales. But he feels generating allure in foreign markets is a different ball game. “If you’re taking yoga abroad, it’s an easier sell than taking it from, say, China.” Apparel hasn’t yet been as established in India as it has been with Western labels. And in Dutta’s view, one way to build the so-called mystique around Dongre’s labels would be by selling to the Indian diaspora and NRIs. “It’s like namkeen packets which get passed around to foreigners through Indians rather than being sold directly.” He also adds that the lesson for Indian designers going abroad is to price and style their clothes properly. But the acid test is to figure out how to make a global product that will sell on the streets of Bangkok, London, Beijing, Paris, as well as Delhi and Gurgaon, and at what price.

Dongre is not averse to that idea. She has opened a store in Mauritius, given the number of people of Indian origin living there. Her next target will be Indians living in Western capitals. But to succeed she knows she has to change mindsets. Indian labels still don’t evoke the same emotion as international ones. A few years ago, while on vacation in Melbourne, she ran into a clothing line with labels that read: “Made in Australia with pride”. The tag stuck with her. So, will the containers she sends out to new markets in the future say, “Made in India with pride”? Dongre smiles as she says it’s quite likely.