Strategy to lure top-end luggage buyers working

Ramesh Tainwala’s association with the luggage industry goes much beyond the 15 years he has spent with Samsonite. He started his innings in the industry as one of the suppliers for Indian luggage major VIP Industries and then went on to become the president of the US luggage brand for Asia Pacific and Middle East region. In conversation with Ashish K Tiwari, he speaks about the Indian scenario for luggage, market perception of the brand, recent acquisitions and expansion plans. Edited excerpts.

Samsonite is perceived to be a very expensive brand. Are you doing anything to possibly change that perception?
We are quite happy with that perception and do not want to dilute that brand image in the consumer’s mind. Samsonite is our top-end offering and is supposed to be a prestigious and innovative brand. Any new technology that we develop is first launched under the Samsonite brand and gets launched with other brands after a gap of a over a couple of years.

There is a certain level of expectation in a customer’s mind and many a time, we have noticed that they know the product will be expensive when they walk into the store. People are buying the brand to ultimately experience the brand promise. In fact, there are times when consumers are pleasantly surprised to know that we have an entire range of bags – depending on their definition of affordability -- starting from Rs5,000 going up to Rs35,000 and beyond. Using a Samsonite branded bag also communicates the individual’s social status and we want them to flaunt it.

The urban middle and upper middle class buyer is being targeted through the American Tourister bags starting from Rs1,000 going up to Rs6,000. The product delivers the same quality and functionality as Samsonite. And we have now launched a new brand called AT, which is the rural cousin of American Tourister and is sold at 30-40% premium over unbranded luggage. The AT products are priced from the Rs800 to Rs2,500 and aimed at migrating people from buying unbranded luggage.

So, there are different brands catering to target audience and that is precisely how we think it should be.

Is VIP Industries a strong competitor, considering it is almost addressing the same set of consumers?
VIP remains a formidable competitor as they have certain inherent strengths. Their market share is almost same as Samsonite’s in terms of value. The only differentiation is they concentrate more at the lower-end of the target audience while our focus is premium. We reach out to 85-odd towns and cities with 2,500 doors while they are anywhere and everywhere with over 13,000 doors. It will take us 3-5 years to reach as many doors as VIP has, but we are not in a hurry. We do not want to compete at the lower-end, but help people migrate to high and premium segment and the strategy is working for us.

Could you throw some light on the Indian luggage market and its growth trajectory?
The size of the luggage market in India is Rs5,000 crore growing at a cumulative average growth rate (CAGR) of 15-16% for the last five years. The year 2011 was a very exciting period for the Indian luggage industry, which witnessed almost 35% growth, thanks to the overall boom witnessed across sectors and especially travel, including airline travel. Consumer sentiment is weak in 2012. As a result, growth in travel and luggage industry has come down to 8%. However, if you average out the growth in the past 5 years, it would be in the 15-16% bracket.

What is your analysis of the buying trend in the Indian market these days?
Buying trend is slowly shifting to organised/modern retail, irrespective of whether we open the market for global retailers or not. The mom-n-pop stores as we call it, are on a self-destructive path and we don’t have to blame Wal-Mart or Carrefour for that. People have less time, want to shop in a more convenient environment and do not have the capability to haggle. They want to buy on an announced sale and will buy when such opportunities (discounted sale) are being offered in the market.

How are the margins like in this business?
It depends from channel to channel and can vary from 10-15% in small stores to 15-30% in the case of bigger department stores. Margins also depend on the other retailer’s buying/negotiating power.

What is the contribution of company owned and operated (CoCo) franchise stores and modern retail to India business? And how many stores do you have currently?
It’s a third each, I’d say. The 150 CoCos are largely operated in tier I and select tier II cities. Tapping the market beyond these cities is done through 300-odd franchisee stores. The modern retail has over the last few years grown significantly for us and also enjoys the same ratio. We envisage considerable increase in the number of CoCos going forward as a host of markets have grown in size and buying power, thereby qualifying to be covered by company outlets.

What are your retail expansion plans this fiscal?
Our internal plan is to add 50-odd doors every year. Thus, if we are adding those many, we also face mortality rate of 5% odd, which means we also close 5-10 outlets. So, the net addition is around 40-odd outlets every year. Going by that definition, in three years, we will move up to around 250 doors. On an average, our expected investment in the next three years is around Rs50 crore to be funded through internal accruals.

Could you take us through some of the recent inorganic initiatives?
Sure. Samsonite International has recently acquired a luxury brand called Hartmann, which is into luggage and leather goods targeted at ultra premium customers. The starting point for a piece of luggage under this brand is $2,000 going up to $15,000-20,000. We are still to launch it in the Indian market though, as the brand will have a very limited scope. Hence, a very selective approach will be adopted by launching just 3-5 Hartmann stores in India.

High Sierra is another acquisition we have done in the US. This is a casual and adventure wear company with urban active lifestyle products like T-shirts, flip-flops, backpacks, adventure luggage and sports bags. This acquisition helped us strategically extend the brand portfolio to the active outdoor lifestyle category and will be targeted at the young segment in the 16-35 year age group and positioned between Samsonite and American Tourister with a price range of Rs2,500 to Rs10,000.

What is the response for your footwear products?
Footwear is an interesting category and we are still at the learning stage with it. We’d launched it initially with a 3-year learning phase to be followed by it becoming a profit-making category. We are in the sixth year currently and are yet to take it to the next growth stage.

Having said that, we are confident that this will become a profit-making category in the years to come as there are lots of similarities in the overall processes and approach to running a luggage and footwear business. The differences in the case of footwear are the cycle of new launches and different sizes. New footwear range needs to be launched every six months compared with 2-3 years for luggage products. Same is the case with size wherein there are just 3-4 luggage sizes compared with at least a dozen sizes in footwear.

How is the travel to non-travel ratio in the company?
Non-travel currently is 35% and the balance is travel. However, we are working to increase non-travel to 50%, thereby creating equal ratio between the two categories.