Arvind rebrands Big Megamart stores to create new value format


September 9, 2015

Richa Maheshwari, The Economic Times
Bengaluru, 9 September 2015

Textiles major Arvind Ltd has created a new value department chain branded ‘Unlimited’ by converting large stores of its existing chain Megamart that has been struggling to shed its ‘discount format’ image.

The Ahmedabad-based firm has rebranded nearly 25 Megamart outlets of more than 10,000 square feet each as Unlimited and plans to have 125 stores under the new format in five years.

"We realised that even though we have sort of changed our proposition, still people associate the name (Megamart) with discounts," said J Suresh, managing director and CEO of Arvind Lifestyle.

Arvind will sell premium brands such as Arrow and US Polo at Unlimited stores but will focus more on mass-priced franchise brands such as Geoffrey Beene and Cherokee.

The stores will mostly stock full priced merchandise with an added focus on women and kids wear. "Space for women and kids will nearly double at our new stores compared to earlier which was mainly focussed on men’s range," Suresh said.

Megamart started as a discount outlet to liquidate old stocks in 1995. Arvind transitioned the Rs 600-crore Megamart chain into a value retailer three years ago and started optimising it to improve profitability. As a result, its store count has come down from 216 in in FY12 to about 130 at present, but it could not really get rid of the discount format tag.

Industry analysts point out that the online players have almost completely wooed away discount hunters across the country.

"If you look at the market, the whole discounting trend is owned by ecommerce sites now," said Devangshu Dutta, chief executive at retail consulting firm Third Eyesight. "For any physical retailer if there is an opportunity to review its real estate, then it’s better to look at something with better prices and better margins," he said.

Arvind now plans to halt expansion of smaller Megamart stores as they earn just 1.5% EBIDTA margins and have been a drag in sales too with 2% growth last fiscal.

Instead, the company will only open large format stores that operate with 8% margin. The existing Unlimited stores contributed nearly Rs 300 crore in annual revenues.

In India, the value department store chain format is less crowded with only three large players — Tatas’ Westside, Reliance Trendz and Landmark Group’s Max — currently operating in the segment.

"If you look at the value space, I think it is the largest market and quite unorganised today," said Suresh of Arvind Lifestyle. "But as we go forward, it will get organised," said the man who steers the traditional textile group’s efforts to shift its business focus away from ‘commoditised’ clothes business to brands and retail. Besides having its own brand such as Flying Machine and Excalibur, Arvind also partners nearly two dozen international fashion brands, including US Polo, Gap, Elle and Ed Hardy, in the country.

Market analysts are positive about the company’s potential. "Attractive revenue growth driven by the scope for growth for large brands in India, improving margins driven by the ‘power brands’ and optimisation of Megamart operations, better working capital, and asset turns higher than the company average should all fuel its financials," a recent Credit Suisse report said.

(Published in The Economic Times.)