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NEW DELHI — A business in which L Capital, LVMH Moët Hennessy Louis Vuitton’s investment arm, has just bought an 8 percent stake might not make caution its primary strategy. But William Bissell, managing director of Fabindia, one of India’s leading ethnicwear retailers, is best known for his considered decision making. So, three months after L Capital — which has a $640 million fund for investments in India and China — acquired a piece of the company, Bissell is still talking about restraint.
This story first appeared in the August 22, 2012 issue of WWD. Subscribe Today.
In an exclusive interview, the first since L Capital put the money into the chain, Bissell said, “Cautious growth is our motto for 2012. Cautious because it’s a turbulent time. Growth, because the Indian economy is still ripe for a lot of growth.”
L Capital clearly sees that potential. India’s textile and apparel industry is growing fast: According to consulting firm Technopak, the industry’s revenues are expected to more than triple from the present $70 billion to $220 billion by 2020, which includes both domestic consumption and exports.
“India is all about vibrancy and color. Not many companies source from such diverse places as Fabindia does. Not many ceo’s have visited 70 percent of the districts of India like William has done. The company has its eyes and ears close to the customer, on the one hand, and then feet and hands close to the ground across India, and is able to listen to what the customer wants and reach out to give them what they appreciate,” said Ravi Thakran, managing director of L Capital Asia.
Fabindia is the second investment made in India by L Capital, after Genesis Luxury last year. The private equity firm bought the 8 percent stake in Fabindia previously held by New York-based Wolfensohn Capital Partners, which it acquired in 2007 for about $10 million. The amount L Capital paid for the stake was not disclosed.
“We admire what L Capital has done and how they respect a brand’s DNA,” said Bissell. “Another very powerful part of the partnership is to grow Fabindia internationally, where we don’t have the networks or the knowledge to understand markets, which I think they do.”
The last year has been a big one for Fabindia. In addition to the L Capital funding, Premji Invest, the investment fund owned by the information technology group Wipro’s billionaire chairman Azim Premji, acquired a 7 percent stake in the retailer for 1 billion to 1.25 billion rupees, or $18 million to $22.5 million. Fabindia also made its first acquisition, of the U.K.-based company East.
It is a huge new market segment for Fabindia, from which Bissell said he hopes to learn a lot about retailing in the U.K.
Unlike many other retailers in India, Fabindia has grown but without explosive growth in its top-line numbers.
“One of the things the retailers convinced banks and investors was that if they go for top line, then the bottom line will follow. That axiom doesn’t work. You can get top line — we could double our top line in a year, that’s easy — but then our bottom line would get hugely affected. I think that wisdom is coming in now and banks are looking very closely at the bottom line,” said Bissell.
He stressed that growth targets continue to be high, with the retailer aiming for 25 percent growth in sales over the next year and an increase in profits of 35 to 40 percent. The focus on domestic growth will remain, although there is a plan to open 20 to 50 stores internationally over the next 24 to 36 months, depending on the partnerships forged in countries such as Indonesia, Malaysia, Singapore and Saudi Arabia.
Fabindia has managed to maintain its growth in its home market despite a rocky retail landscape over the last few years. The company’s offerings now include apparel, home furnishings, organic products and beauty. From its founding in 1960 by John Bissell — William’s father — it has established itself by using traditional techniques, skills and manual processes, linking more than 80,000 craft-based rural producers to modern urban markets.
“We genuinely believe not many companies can marry commercial good with social good. Fabindia is one of the best examples of this. A nonprofit venture eventually depends on someone else creating the funding, while what is needed is really an enterprise which can sustain the social good, and Fabindia is exactly one of those companies. The future model for sustainable development is through businesses like these,” said L Capital’s Thakran.
Some Fabindia observers have been upset as the brand has evolved its positioning, opening stores in shopping malls and smaller towns that are less exclusive than the locales where it opened originally. Analysts praise the strategy, though, saying it is the best way to grow the brand and its store base at a time when retail has been sluggish.
“We’ve come out of a silly season in retail and we’ve been opening stores very carefully, with a strong eye on the profit, even if it means opening less stores. We try not to lose a good opportunity, but it means we are increasing the hurdles for opening new stores,” Bissell explained.
He said that in the last few seasons Indian retail has seen the classic bubble as companies have expanded by piling up debt.
“The thing about every bubble is it’s going to burst, but the question is when,” he said. “I think that ‘when moment’ will happen this year where the retail bubble will be punctured by the current scenario.”
Fabindia is worth an estimated 5 billion rupees, or $90.3 million at current exchange, and combined with its subsidiary East, which has sales of 3.3 billion rupees, or $54.2 million, is valued at an estimated total of 8.3 billion rupees, or $150 million.
This year, Fabindia will launch new women’s lines. The first will be Heritage, which is “really our interpretation of Western styling,” said Bissell. “What I’m really proud of is that it is a unique offering. For men we have Traditions, which is our historical offering, and then we have Everyday, which is a lot of new things for men using our fabrics, our cuts, our styling.”
The Fabindia silhouette has changed over the last two years, as have the prices. “Our strength is the Indian look. There’s nobody else who does it like us. Our Western wear sales have been growing rapidly too — almost doubled in the last two years. It’s not Western as interpreted by Zara; it’s as interpreted by Fabindia,” said Prableen Sabhaney, the retailer’s head of communications.
“The one big advantage that retail in India has over anywhere in the world is that it’s an instant cash business,” said Bissell. “A healthy cash flow is a very big thing. That’s fabulous about the business.
“Another key point is that retail in India is a very unforgiving business in that the customer is very value conscious here, much more so than in the West,” he added.
He also stressed that although customers are inspired by Western fashions, one of the big things about the Indian market is that it loves its own heritage. It is in this space Fabindia has carved its niche even as the competition has been heating up with global retailers such as Mango, Zara and Forever 21 entering the Indian market.
“Initially, there’s that ‘wow’ factor for consumers, there’s a massive uptick, which is really nothing more than suppressed demand for products that are finally available here,” Bissell said of the new entrants. “Then the reality sinks in. That’s a really big thing about this market. Many Western retailers entering India feel that they will be able to replicate the growth model of other countries. Marks & Spencer discovered that this was not quite the case when they opened in India. Their prices were high and people said they would wait until they traveled to shop. Then they had a massive indigenization process. Indian customers did the same to The Body Shop.”
Both brands responded to the needs of the Indian market by reducing prices and adapting their offerings. “If you’re used to working at a 70 percent gross margin and you come to India and you’re told to work off a 45 percent gross profit, you don’t want to do that and, also, it’s hard to sustain. The brand DNA might find it hard to sustain,” Bissell said.