It may be a few thousand miles away—literally and figuratively—from London’s fabled Savile Row and its bespoke suits but The Raymond Shopin south Mumbai’s Breach Candy gets an A for effort. The 94-year-old apparel and textile brand’s atelier occupies three levels of the 36-storeyed J.K.House, the Raymond group’s headquarters. On display are suit-adorned chiselled mannequins; a range of fine cotton and linen fabric; handmade leather shoes from Spain; accessories like cufflinks and ties; and even Indian ethnic wear.

For generations of customers, it might take a minute to recalibrate. Because it is a new Raymond. And the old rules don’t apply.

The shift isn’t merely optical. Change is visible in approach too. Located 40 km from J.K. House is J.K. Gram, a 120-acre township in Thane, home to Raymond’s flagship textile mill till it was shut down in 2010. The unit had started moving its geography—to Vapi in Gujarat—from 2005. Gone are the chimneys billowing smoke (some moss-infested ruins remain) and blue-collared workers punching in and out at the sound of the siren. These have been replaced with sprawling glass-and-steel hangars comprising open offices for management strategists and young fashion graduates, the latter sketch-ing designs or examining fabric to build the season’s collection.

In an evolving textiles industry, for instance, it continued to hold the affection of its customers while peers like Vimal, Oswal, Mafatlal, and S. Kumars have been marginalised. The concern, however, is that its existence was sub-optimal at best. Growth had stagnated, operations were inefficient, and many of its businesses were losing money.

“Any company has to change with time. Evolution is a process and if you don’t evolve you become irrelevant,” says Gautam Hari Singhania, 54, who took over as chairman and managing director of Raymond from his father Vijaypat in 1999. “Raymond was a company that primarily made worsted woollen suiting. Now there is cotton, synthetic, leather, cashmere, vicuna, and new categories like shoes, accessories and readymade garments. Simply put, Raymond is transforming into a lifestyle brand.”

In fact, lifestyle is the key word in the group and also Raymond’s largest business, accounting for over 90% of its turnover. This has meant a heightened customer-centricity. Overall growth has asked for a greater openness to explore new businesses like realty, which can help the company capitalise on its inherent strengths (a strong brand and distribution network). Singhania has chosen “ownership over management” and given a free hand to the new management. This entailed stepping down as chairman of group companies (the apparel and FMCG business, for instance), remaining only a director on their boards. He, however, retains chairmanship of the flagship parent, Raymond, which had a turnover of close to ₹7,000 crore in FY19, and is No. 212 on the Fortune India 500 list for this year.

For Singhania, change had become an imperative and was easier to push after 2015, when Vijaypat gifted his share in the company to him. The business positivity that ensued, however, was overshadowed by an acrimonious spat be-tween father and son, but more on that later. For now, this story will stay focussed on a business ailing from old age, getting the surgical intervention it needed.

Sanjay Behl, chief executive officer of the company’s lifestyle business, says, “Somewhere as a brand, we were getting older in a country that was getting younger and missed an entire generation of customers.” Till the 1990s, Raymond's mainstay was the in-demand category of tailored clothes. However, after liberalisation and the birth of modern-day organised retail, there was an influx of ready-to-wear garments in the country, offering new fashion with acceptable quality that could be conveniently bought at stores.

“We tried to cope with the change but the shift in our product portfolio and brand ethos couldn’t keep pace. Our product communication centered on the messaging of the ‘The Complete Man’ was stuck in the past while the definition of the complete man itself changed,” says Behl, 51, who has had stints at Reliance Communications and Hindustan Unilever in the past.

In 2013, when he joined the company, Behl recalls how Raymond’s lifestyle business was fragmented with “moderate to poor operating margins”. The core category of tailored suiting wasn’t growing; high commodity prices and debt on the books were eating into profits. Of the four businesses—suiting, shirting, garmenting (contract manufacturing for other labels) and branded apparels (Park Avenue, Parx, and ColorPlus)—only suiting was cash positive, while the others were losing money.

This done, Raymond invested heavily in strengthening its core. It doubled its investment in building a retail presence, expanding from around 700 to 1,501 stores across formats, including The Raymond Stores and exclusive outlets for brands like Parx, Park Avenue, and Color Plus. It spread its reach to over 650 cities and, while extending its stores footprint, especially in tier 2-3-4 towns, it followed an asset-light approach by appointing franchisees. “We focussed on growth, but also equally on return on capital employed (RoCE),” Sanjay Bahl, Raymond’s group chief financial officer, says. “Till now, Raymond had been focussed on capacity creation for growth. That involved capital investments. To improve RoCE we needed to be asset light.” As a result, the group’s RoCE has improved from 9.1% in FY16 to 11.2% in FY19. Bahl says that the RoCE for the lifestyle business is even higher at around 21%.

The product portfolio was also simultaneously sharpened. The number of SKUs (stock keeping units) in its stores was reduced and the collection was rotated four times a year, up from three times earlier. The Raymond brand was positioned as bridge-to-luxury with classic styling (like formal shirts and suits); Park Avenue was positioned as premium and contemporary (think ankle-length trousers with slim cuts); Parx was made more affordable and edgy (floral shirts and hoodies for college-goers); and Color Plus—a brand Raymond acquired in 2002—focussed on smart casuals.

Raymond Store
Raymond Store
Image : Narendra Bisht

Though suits made by Raymond are standard western wear at Indian weddings, the company realised it was missing out on other functions like mehendi and sangeet which require Indian wear. Earlier this year, Raymond launched a sub-brand called Ethnix through which it will retail ethnic wear, including kurtas and sherwanis, for men. In doing so, it will compete with national players like Manyavar, a trailblazer in the organised ceremonial wear business, and Fabindia.

Parallel to these initiatives at home, Raymond has an eye on the world too. In 2017, it inaugurated a new factory in Ethiopia to supply readymade garments (as a contract manufacturer) to well-known labels in the U.S. and Europe. These include Macy’s, JCPenney, Joseph Abboud, Charles Tyrwhitt, Hugo Boss, Ralph Lauren, and Banana Republic. It even set up a dedicated office in New York’s Times Square to understand latest fashion trends in that market, assess high-potential products for international clients and manage end-to-end production and supply to them. The Ethiopian outpost is strategic for Raymond. It offers captive demand for Raymond’s fabric capacity in India. Also, finished goods from Ethiopia are shipped to the U.S. and the U.K. at zero duty, making them price competitive.

Raymond also wants to extend its made-to-measure expertise to global markets. Given its legacy and a growing interest in tailor-made clothes in India, Raymond has invested in expanding its network of‘Made to Measure’ stores and set up a dedicated centre in Bengaluru. Earlier this year, Raymond started managing the dedicated section for tailor-made suits, called Tailor Square, within Macy’s departmental stores. (This entails an end-to-end oversight of execution, from measuring the size of the customer to getting the suit made in Bengaluru and sending it back to the U.S. to deliver to the customer.) It also supplies to the largest made-to-measure player in the U.S. called Tailored Brands.

All these efforts have seen the lifestyle business’ revenue grow substantially. From around ₹3,500 crore in FY13, it has risen to ₹6,227crore in FY19. Around 15% of this comes from the international business. The overall lifestyle Ebitda (earnings before interest, taxes, depreciation, and amortisation) is at 12%-13%, says Behl. Also, unlike earlier, all four categories of the business will be cash positive by the end of FY20, he adds.

The coming of age of the branded lifestyle business is evident from the group’s recent restructuring plan in which it has proposed the division be spun off into a separately listed firm. In a credit rating note, ratings agency CRISIL observed that the new company’s credit profile would benefit from “its dominant position in worsted suiting, higher operating margins, and strong retail presence supported by established brands”.

“Over the last 10 years, Raymond has consistently ranked as the most trusted and desired brand in the Indian apparel space in our brand trust surveys, despite its sales remaining static,” says Chandramouli Nilakantan, CEO of TRA Research, a brand consulting firm. “A lot of the credit goes to the current management team, which is doing a good job in executing the overall vision the company has set before itself.”

Image : Narendra Bisht
As a brand, we were getting older in a country that was getting younger and missed an entire generation of customers.
Sanjay Behl, CEO of Raymond Lifestyle Business

Raymond’s FMCG business earnings aren’t consolidated in the flagship company’s financials as the listed company only holds a 47.7%stake in it; the balance is held directly by the promoters. A restructuring is under way to combine the two companies running products under the two brands—KamaSutra and Park Avenue—into a single entity which will hold the entire FMCG portfolio.

Bagri, CEO of the FMCG business, says that the consumer products, despite their strong brand recall, weren’t being distributed and marketed properly. There were several inefficiencies in the running of the business, leading to losses, he says. For instance, the entire distribution chain would collapse if one area manager left the company since he was the only one who knew his territory.

Bagri, 50, decided the firms would not launch any new products till the backend was fixed since new launches were doomed to failure due to quality and supply chain issues. His first move was to hire the right talent to occupy senior leadership positions. “It was difficult hiring top talent initially since the businesses weren’t doing well. That’s where I had to use a lot of my personal equity to convince people to join,” he says.

Image : Narendra Bisht
Till now, Raymond had been focussed on capacity creation for growth.... To improve RoCE we needed to be asset light.
Sanjay Bahl, Group Chief Financial Officer at Raymond

Competition was thriving—brands like Durex, which had entered the market later and gained scale—while KamaSutra wasn’t innovating enough to make its mark. As a result, it had slipped to No. 5 in the pecking order of condom sales. “It was all about availability, visibility, awareness, and innovation,” says Bagri, who took the call to beef up KamaSutra and Park Avenue’s distribution reach. The field sales force grew fourfold in 18 months, he says. Along with this, the pace of launch of new products was stepped up. He set his team the target of making KamaSutra the No. 1 sexual wellness brand in India.

It worked. In 15 months, KamaSutra has become the second largest brand of sexual wellness products in India. The business reported a turnover of ₹569 crore in FY19, up 29% year-on-year in a challenging market. Ebitda has also grown to ₹27 crore from a loss of ₹1 crore in FY17. The Park Avenue-KamaSutra combine has attained leadership in the male deodorants category with a 19.1% share of the market.

The newest challenge the group has taken n is its foray into the uncharted territory of real estate. Its success will hinge on the equity of the Raymond brand, particularly when the real estate market is facing one of its worst-ever slumps, with low consumer sentiment, liquidity challenges and a pile-up of unsold inventory. But, undeterred, Raymond Realty launched its first residential project on a 20-acre land parcel, inside J.K. Gram, in March 2019.

Image : Raymond
It was difficult hiring top talent initially since the businesses weren’t doing well...I[used] personal equity to convince people.
Giriraj Bagri, CEO - FMCG, Raymond

The decision to enter real estate was based on this intent: It wanted to deleverage its balance sheet by monetising its land holdings in a prime neighbourhood close to Mumbai. At the time of speaking to Fortune India, Raymond Realty had sold 70% of the inventory in the first three towers and 50% of a fourth tower, according to K. Mukund Raj, CEO of the realty business.

Mukund Raj, 57, who previously led Larsen and Toubro’s real estate business, says a combination of Raymond’s brand promise, an ideal location, speedy and quality execution, and innovation has helped it buck the downtrend. Singhania even authorised an expenditure of ₹32 crore to build an experience centre for the group’s new real estate offering. “A builder met me recently and expressed shock at what I was doing by spending so much. I told him that I am not a builder, I am a brand builder,” Singhania says. “We are trying to build a project that stands for quality and lifestyle and my experience centre actually needs to talk about what I am going to do.”

At the same time, Raymond is selling land to reduce its long-term debt. As of FY19, the net debt amounted to around ₹2,000 crore. Of this, long-term debt accounts for around ₹850 crore, while the rest is working capital. To that end, Raymond sold a 20-acre land parcel in Thane in October to private equity player Xander Group’s retail arm, Virtuous Retail South Asia, for around ₹700 crore. Proceeds from this sale, net of costs, of around ₹350 crore will be used by the company to retire long-term debt. This, along with cash flows expected from the newly commissioned facilities to make linen at Amravati in Maharashtra and the Ethiopia plant, should help Raymond become debt-free in four years, Bahl says.

To optimise cash flow and ensure the balance sheet doesn’t get stretched, Mukund Raj is taking a “calibrated approach” to construction. Raymond is only going ahead with the construction of a new tower once 60%-65% of the flats in it are already sold, he says.

The opportunity is obvious to the group: The 120 acres that Raymond owns in Thane has are venue potential of 25,000 crore. The first phase itself has sales potential of ₹2,000 crore, Mukund Raj says. Not surprisingly, with Raymond Realty, the intent is to build a full-service real estate company that has the necessary expertise and resources in-house including sales, marketing, operations, design, procurement, and architects, he says.

At the same time, Raymond is selling land to reduce its long-term debt. As of FY19, the net debt amounted to around ₹2,000 crore. Of this, long-term debt accounts for around ₹850 crore, while the rest is working capital. To that end, Raymond sold a 20-acre land parcel in Thane in October to private equity player Xander Group’s retail arm, Virtuous Retail South Asia, for around`710 crore. Proceeds from this sale, net of costs, of around ₹350 crore will be used by the company to retire long-term debt. This, along with cash flows expected from the newly commissioned facilities to make linen at Amravati in Maharashtra and the Ethiopia plant, should help Raymond become debt-free in four years, Bahl says.

Image : Raymond
We are trying to build a full-service real estate company that has all the necessary expertise and resources in-house.
K Mukund Raj, CEO, Raymond Realty

But what will it take for the Singhania family to become bitterness-free? That’s a parallel battle being fought closer to home, be-tween father and son, making the positive business developments more creditable. Because Raymond has continued to do well despite the feud over a property dispute.

In a nutshell, the matter dates back to an agreement, according to which, Vijaypat would receive an apartment in the redeveloped J.K. House at a pre-agreed price. When the construction was finally complete after delays, the value of the property was found to be much higher than what was agreed on. The house was supposed to be sold by Raymond, the listed company, to Vijaypat. Singhania, therefore, referred the matter to the company’s board, which asked for a shareholders’ vote to decide the matter. Citing corporate governance requirements, Singhania—who would have been a beneficiary of the transaction—recommended voting against the proposal and abstained from voting too. The matter is currently pending in court, father and son haven’t been on talking terms since, and the conflict in a leading business family has inevitably made headlines.

“Issues with my father are what they are. They are painful but one has to deal with them,” Singhania says. “But none of my family problems have any bearing on the company.” This is largely because, in the case of Raymond, “either by accident or design, the entire ownership is in the hands of one section, which has insulated the business from any adverse fallout”, says Rajiv Agarwal, professor of strategy, family business and entrepreneurship at S.P. Jain Institute of Management Research. Typically, in family businesses where wealth has been destroyed, both the warring factions were playing an active role in business, he adds. In that sense, Singhania’s control over the company—a gift from his father—has worked in Raymond’s favour.

(This story was originally published in the December-March issue of the magazine.)

Follow us on Facebook, Twitter & YouTube to never miss an update from Fortune India. To buy a copy, visit Amazon.