Will Raymond dress tomorrow's man?

WHERE DOES GAUTAM HARI SINGHANIA get his suits? Given his yacht-sailing, Lamborghini-driving ways, you might put him down as a Brioni man perhaps. But, heck, no. The 46-year-old chairman and managing director of the Rs 3,642 crore Raymond Group swears by what he makes. “Not because it’s the right marketing thing to say, but because I actually feel good in it.” Raymond’s other big fans—Ratan Tata and Lakshmi Niwas Mittal.

Singhania picks his suits from the Chairman’s Collection of fabrics which is made from fine wool. Each year, Raymond buys out the priciest bale available in Australia (yes, all of it) and processes it into Super 250s wool—Super denotes that it’s pure wool by the International Wool Textile Organisation’s standards. The number indicates the fineness of the wool—250 tops the chart, and is finer than cashmere and perhaps closest to vicuña, the fine fabric woven from the fleece of the protected Andean camelid.

In many ways, Raymond harks back to an era when suits were only meant to be bespoke. Though the Chairman’s Collection accounts for less than 1% of Raymond’s sales, feeding male vanities is its stock in trade. And it’s been a master purveyor for decades. On its website, it retains the tagline—“The guide to the well-dressed male”—that it coined in the ’70s to launch an instructive campaign for the man who took pride in his appearance. It’s a theme that’s endured. Raymond isn’t just about the quality of fabrics or garments. In Mumbai, at the busy crossroads of Tardeo and Heera Panna market, at least three 20-by-40 ft. Raymond billboards loom, larger than life over the city, in a declaration of what’s stylish that season. They are an unofficial landmark, having been there for over a decade.

Over the years, Raymond has carefully crafted its image; it spent Rs 950 crore in brand-building in the last decade, compared to Rs 440 crore spent by S. Kumars Nationwide.

But, for all its size (it can dress every person in Mumbai) or range (its fabrics are priced from Rs 150 a metre to Rs 1.5 lakh a metre, plus there are many ready-to-wear sub brands), or heritage (it’s been around since 1925), can Raymond dress tomorrow’s man?

On the face of it, that’s a no-brainer. Even its competitors concede that Raymond is synonymous with male clothing. Darshan Mehta, president and chief executive of Reliance Brands, which is the licensee for labels such as Ermenegildo Zegna, admits that Raymond’s cachet is possibly the best in the country today. He wore a Raymond suit at his wedding—he’d have been a rebel if he hadn’t—and says that the richest men in towns such as Nagpur in Maharashtra or Bhilai in Chhattisgarh are Raymond dealers.

Yet, with the advent of brands such as Ermenegildo Zegna, Canali, and Brioni, and the government’s willingness to allow foreign direct investment in single-brand retail (think GAP or H&M), the industry’s drivers are moving away from availability or price, to global fashion trends and hipness. This is more visible in the larger cities. In the first week of July, there was a sort of stampede at the Zara outlet at High Street Phoenix, a popular mall in Mumbai. The Spanish company that makes smart casual wear had just announced a sale. Customers had to wait for hours to reach the trial room and the cash counter and the mayhem continued for three days.

The importance of being with it shows up in market valuations as well. Bangalore’s Rs 745 crore Page Industries, which manufactures innerwear under the Jockey brand, and is considered cool, has a market capitalisation of Rs 3,200 crore compared to Raymond’s Rs 2,414 crore.

Devangshu Dutta, managing director of Third Eyesight, a brand and retail consultancy, says large Indian companies are caught between the mass segment dominated by China and Bangladesh, and the premium space where European and American brands rule. “If they aren’t already competing with the best in the world how will they do it when those companies get here [in a bigger way with 100% FDI]?”

Prasad Bidapa, fashion consultant and a one-time Raymond model, sees it differently. “Nobody cares about or wears failed foreign brands being brought to India,” he says.

But Bidapa adds that Raymond could do with a dose of style from designers, such as Rohit Bal or Manish Arora. “Raymond isn’t a father’s brand, it’s an elder brother’s brand. But it could become the father’s brand if it isn’t reinvented.”

FLAMBOYANCE AND STYLE COMES naturally to Singhania. His parties, teeming with fashionistas, businessmen, and politicians, are always a big draw and often end in a champagne breakfast. His lifestyle sometimes distracts from his business avatar but, as his friend Zavaray Poonawalla of the Poonawalla Group says, Singhania has never hidden who he is. But behind the seemingly charmed existence of the sartorial magnate is a challenging legacy.

In 2000, when Singhania took over the business from his father Vijaypat Singhania, Raymond’s nearly Rs 1,000 crore revenue from textiles and readymade garments, and its chain of exclusive stores, put it way ahead of competition.

A year earlier, Kumar Mangalam Birla, a year younger than Gautam Singhania, whose firm Grasim competed with Raymond in the textile business, made his first big move into readymade garments by acquiring Bangalore-based Madura Fashion & Lifestyle, which had a revenue of Rs 275 crore from brands such as Louis Philippe and Van Heusen.

In FY12, Grasim’s garment and textile business turnover at Rs 3,289 crore pipped Raymond’s Rs 3,146 crore. Throw in an additional Rs 1,700 crore for Grasim from the recent Pantaloon acquisition, and it has clearly emerged the leader in India’s Rs 60,000 crore apparel industry.

For Singhania, who loves a spin on a go-kart or fighter aircraft, this is no drag race. It is panning out to be his biggest test yet.

In the middle of the global downturn in 2009, Raymond reported its biggest ever loss of Rs 229 crore. “A downturn is like dengue [fever]. When you have it, and I have had it, it’s like the worst thing ever. It’s like the end,” he says. “But you get over it.” Raymond spent 2010-11 implementing a turnaround strategy, including trouble shooting. In 2011-12, it refocussed on long-term thrust areas.

A year before Singhania took over, the government announced the Technology Upgradation Fund Scheme (TUFS) which offered a 5% interest rebate on loans to textile companies. Indian companies could now compete with their overseas counterparts who got capital cheaper. The industry got another fillip in 2002, when garment manufacturing’s small-scale status was removed and TUFS extended to it. That was manna when bank loan rates were at 16% and more.

The first throes of a huge shift were evident in the textile and apparel business when the safari suit, popularised by Rahul Bajaj and Dhirubhai Ambani, started to disappear and customers began opting for Van Heusen, Louis Philippe, and other brands.

Consultants Technopak and Third Eyesight had then reported an impending boom in apparel retailing. Singhania responded to the shifting market by focussing on apparel and retail. He got on board big-name marketing executives, such as Nabankur Gupta from Videocon who came in as group president in 2000. That same year he sold Raymond’s steel division to Germany’s ThyssenKrupp, while cement went to Lafarge India. Some of the proceeds were ploughed back into apparel.

He bought popular casual brand ColorPlus for about Rs 40 crore in 2002—its sales grew from Rs 35 crore then to Rs 191 crore in FY12. There were also partnerships, such as Raymond UCO Denim (with Belgian denim maker UCO) to manufacture denim, and a joint venture with Italian brand GAS in 2006. Other brands in Raymond’s repertoire included Notting Hill, Zapp, and Be:. Raymond also created an upmarket brand called Manzoni. (A Manzoni tie cost up to Rs 12,000 and a pair of cufflinks set with semiprecious stones over Rs 8,000, while a Raymond tie was priced between
Rs 500 and Rs 1,000.)

In 2007, about Rs 100 crore was invested in 11 GAS stores. And when Van Heusen and Allen Solly launched their lines for women, Raymond countered with women’s wear under the Park Avenue and ColorPlus brands.

No stranger to quick decisions, between 2007 and 2008 Singhania yanked ColorPlus women as well as Zapp and Notting Hill when they failed to tot up the desired numbers. “We have to keep trying different things until we achieve scale. If we don’t, we move on,” he says.

There were some tough people moves too. In 2008, Singhania moved out old-timer Pradeep Bhandari and made Deepak Khetrapal the chief operating officer of Raymond. Khetrapal had been at Raymond only a year, having come from Singapore where he ran the Asia-Pacific operations of security solutions firm Gunnebo AB. Bhandari continues to be an independent director on Raymond’s board.

Khetrapal’s style of management, especially the way he ruthlessly closed down businesses, ruffled feathers. During the 2009 downturn, he lost no time in ending the GAS tie-up and shut down the denim plants in the U.S. and Belgium, where some 500 employees were laid off. Raymond’s stake in a Romanian denim plant was reduced to 25%.

That was also the time when the plug was pulled on its nearly-decade-old investments in Manzoni and Be:. “Raymond may be positioned at a premium scale but it’s a mass-market brand, so its success is linked to that,” says Khetrapal. Concepts such as eco-friendly clothing were introduced. “‘The complete man’ [another of Raymond’s taglines] was great but we felt we had to dress everybody,” says Khetrapal, referring to its mass market strategy.

In 2010, Khetrapal quit abruptly, handing over his resignation to Singhania just before a board meeting was to begin. A senior executive in Singhania’s inner circle says there were “differences in vision”. Others feel Khetrapal was increasingly seen as the one calling the shots, rather than Singhania. Says a senior executive who worked closely with board members for four years: “Khetrapal’s fresh voice was seriously shaking up status quo and not all of it was appreciated.”

In all this time, Birla was cranking up on customer experience, and experimenting with retail strategies for newer formats of stores in malls. He launched the not-so-successful ‘The Collective’, which retailed high-end brands such as DKNY, Armani, and Dolce&Gabbana. He also tied up exclusively with global brand Esprit and set up large stores, only to scale them down later. Other competitors were also gaining ground.

S. Kumars reported a revenue of Rs 2,700 crore and a net profit of Rs 172 crore in March from selling brands such as Reid & Taylor and Belmonte. Birla’s Madura Fashion & Lifestyle increased the number of its stores to 1,129 in FY12 from 698 stores in FY10; Raymond’s went up to 853 from 676. Raymond stores are certainly more sprawling, but Birla’s acquisition of Pantaloon will more than double its retail space. The silver lining for Raymond is that its gross margins from the textile business at 17% are twice Madura Fashion & Lifestyle’s.

THERE ARE TWO CLEAR paths available for Raymond. One, to continue manufacturing, selling, and exporting high-quality worsted fabric to customers across the world. The other, to find ways to increase value addition of its fabrics by converting them into ready-to-wear garments. In case of the latter, when selling branded garments, the retail prices are, on average, four-and-a-half times their total manufacturing costs. Over a long period of time, after defraying retail costs, companies make margins ranging from 50% to 100% more than fabric manufacturers.

Indeed, if you hear some of his managers, Singhania may be aiming even higher. Sreyas Joshi, president of Raymond Apparel, a 100% subsidiary of Raymond, wants to build Park Avenue into “the Hugo Boss of India”, a plan that was mooted in 2005. The group’s 41 Park Avenue stores account for Rs 290 crore or 29% of its garment sales.

But as Joshi’s ex-boss Khetrapal says, it just doesn’t work like that. “You can’t make a mass-market brand into Hugo Boss overnight.” Fashion labels are built from the word go.

Be that as it may, the core of Singhania’s latest strategy hinges on value addition. His plan of action to ensure Raymond continues to hold leadership position: building an efficient supply chain to bring down lead time; continuing penetration into towns and cities; and focussing on power brands to maintain premium pricing. Global tech firm Accenture is helping put in place a system to manage just-in-time inventory and maximise efficiency in the supply chain.

Singhania seems to be in the right place at the right time again. Technopak’s 2012 projections for menswear sales is Rs 84,200 crore. A McKinsey & Co. research paper says household income will increase to Rs 2.48 lakh in 2012. With a miniscule market share in men’s apparel, Singhania feels there is enough room to grow.

In 2010, Raymond launched exclusive shops where tailors custom-stitched suits, shirts, and trousers. Singhania plans to expand that across the country. It recently kicked off a training centre for tailors in Patna, Bihar. Over the next five years, The Raymond Tailoring Centre will train some 10,000 students.

That was a clever move since skilled tailors are in short supply. As older tailors retire, replacing them hasn’t been easy. The students are also expected to have a bias in favour of Raymond fabrics. A couple of years ago, as part of a business project meeting, Singhania signed off on a project code-named “P-500”. It took notes from the census and selected some 700 towns to venture into.
Under its “P-99” project in 2009, Raymond has opened shops in 99 small towns. “We have a 1,500 sq. ft. store in Chomu, Rajasthan. It’s a tier VI or VII town where we’re getting some Rs 60 lakh in revenue,” Singhania says. (Chomu’s population is 50,000.) The company is also testing the concept of a 200 sq. ft. store inside medium-size Eicher buses. “In the big cities, one is too busy to travel. So, we thought why not let the store come to you,” he says.

In retail, Singhania is using his signature style. In February, he hosted one of his trademark wine-and-cheese parties, complete with a red-carpet opening for Raymond’s 650th store on upmarket Warden Road in Mumbai. At 15,000 sq. ft. over three levels, it’s the largest in the country. Inside, fabrics in a multitude of colours and designs are displayed along the walls. Rakesh Pandey, Raymond’s president of retail and business, says that smaller formats are also being planned. There is also the annual Parx Supercar show that puts together Lamborghinis, Ferraris, Aston Martins, and Porsches. It has caught the attention of a young crowd and had a turnout of some 50,000 spectators this year. (Parx is a value-for-money brand launched in 1998.)

Last year, Raymond moved into polyester and viscose blends (it gets its polyester from Reliance Industries and viscose from Grasim) and added some brighter colours to its profile. “Burgundy suits and pastel linen jackets weren’t available 10 years ago,” says Aniruddha Deshmukh, president of textiles for Raymond. “We now have cotton fabrics for suits. That hasn’t been introduced in 80 years,” Singhania adds.

One thing is clear: As the industry here gets more aligned with global customs, Singhania is stretching his company across a huge product range. In the process, whether it’ll end in reinventing the company or whether that will satisfy the increasingly fashion-conscious customer remains to be seen.

Indeed, one way of interpreting Raymond is to see it as an aggregation of individual labels, and not a homogenous outfit. Global luxury majors such as LVMH Moët Hennessy-Louis Vuitton or PPR are structured somewhat similarly. “We don’t want to be the largest. All our research tells us we’ve got the respect of the market. That’s what we want to continue to be—the most trusted,” says Singhania.

The biggest battle, the way he sees it, may not be in taking on competitors, but in redefining what the company once stood for. He has a legacy to contend with and watch over, while it evolves and equips itself to deal with the future.