Sales will be volatile for 2-3 months post-GST, says Samsonite

Over a century old travel luggage company Samsonite made its online retailing foray earlier in April 2017 with the acquisition of eBags (an e-marketplace for bags and luggage in the US) for $105 million. Till a couple of years ago, the brand was in the denial mode to the consumer's digital shopping trend, a visible trend globally now. Ramesh Tainwala, chief executive officer, Samsonite International S.A., in conversation with Ashish K Tiwari, speaks about the company's plans to tap the digital shopping trend, launching eBags globally, including India, implementation and impact of goods and services tax (GST) among others.

What factors really led to the acquisition of eBags?

Strategically, I see it as the most important initiative we have taken in the last 10 to 20 years. It can have an enormous impact on the business as consumers are increasingly using e-commerce platforms to search and shop online. Consumers are not just buying the brand but the entire experience associated with it and that is why a brand like Zara is more successful today than other lifestyle brands. Our category is a little bit like that because the consumer has already decided about digital shopping. We had three alternatives earlier. The first was to simply deny that option. Second, to rely on third-party e-retailers like Amazon and Taobao, but they will commoditise our brand. The final option was to slowly build our own platform, which we had started doing as well.

Then why this acquisition?

We realised that the process (of building own platform) was really slow. What eBags acquisition does to us is that it fast-tracks everything and saves us five precious years of getting to where eBags is. It gives us a proven technology and database of 55 million American users every year. We can not only use it to expand eBags globally but also many other insights to bridge the knowledge gap we have for our own brand business.

Tell us about your future plans for eBags?

With Samsonite taking over the business, we plan to expand eBags (which currently has a US only turnover of $200 million), globally. The platform will also be launched in India sometime in 2018 along with Europe, Australia, Korea and Japan. We are still evaluating the China market. Additionally, we are converting eBags as a centre of digital excellence to provide support to all our businesses worldwide.

An e-marketplace with competitor products as well. Wouldn't that create issues for you as an owner?

We sell across 62,000 retail stores globally but that only contributes to 32% of our revenues. So the rest is still coming from third-party dealers. Like in India, it would be Shoppers Stop, Lifestyle, Big Bazaar, Flipkart and Amazon, those that are also selling various competitor brands. I don't think there will be any conflict as long as we conduct ourselves in a transparent manner. There would be some odd person who'd feel why should I deal with a competitor. But that's his loss because we will make eBags as the ultimate platform for anybody to buy luggage and bags. For Samsonite, all that could happen is that we may get better sales from eBags.

You've been selling on eBags since its inception. How much of your sales are coming from there?

It's a minuscule number around 3% odd.

And how much sales are you garnering from across e-marketplaces in India?

By the end of 2017, we are expecting between 9% and 10% of our sales coming from across e-commerce platforms. The digital commerce revenue contribution number is more or less similar globally as well. However, we are envisaging almost a quarter (25%) of our sales in the next five years coming from the digital platform and eBags will be a material part of almost 50% revenue contribution. Our vision is that eBags will be over a billion dollar business in the next five years.

Are you facing challenges with pre-GST stock in the market?

We are telling channel partners not to bother much about the input credit part and sell all the stock in June itself. We are only asking them to keep 30-days inventory and are also giving extra 5% margin to retailers to sell it off in the market. Our sales growth at 40% in June 2017 has been highest since we registered. Same time last year sales growth was around 20%. Consumers are crazily buying products and we are encouraging our channel partners to sell more and sell faster. We typically carry around 90-days stock that is pre-GST and getting it all exhausted before July 1 will be difficult because there is an inventory pipeline in the system as well. That will be taken care of thanks to the 90-days transition window provided by the government.

What's your understanding of the business scenario post implementation of GST?

Sales will certainly be volatile over the next 2-3 months. Some businesses will see an increase in sales by 30% to 40% and vice-versa, that process will happen. When demonetization happened, sales dropped by 30% to 40% in the first month and gradually it started improving to finally come at the pre-demonetization levels in 4-5 months. The same scenario will get repeated post implementation of GST in a few days from now. However, I believe the government's preparation will be far superior since they will have more control in the GST regime and will use learnings from the post-demonetization exercise to their advantage.

Is there some confusion on claiming input credit?

Our focus is more on encouraging dealers and distributors to finish the pre-GST inventory. Losing sales is a bigger burden than losing input credit and that's what we are trying to tell our channel partners. And if there is a genuine problem in the market in terms of significantly higher amount to be claimed in input credit, I am sure the government will come out with some or the other measure to address this issue. The intention and focus is more on implementing GST and avoid leakages rather than punish businesses.

How do you envisage the market scenario to be during festive sales this season?

People have preponed their purchases for sure across industries. So while companies have booked higher sales earlier so my sense is that festive season sales may not be equally good this year. There will certainly be some moderation of sales going forward as compared to what's been booked already. Someone who's bought a refrigerator in June due to attractive pricing will not buy another one during the festive season. So that impact will definitely happen. But personally, I think businesses will be fine even in that scenario.

What's the update on your footwear business?

We are not excited about footwear as a category. It's not a segment where we have natural competence. It's a negligible business vertical and we are in the process of exiting it completely. Since we don't sell out brands, we will just shut it down.