‘GST Has Been A Boon For Our Industry. The Formal Sector Has Received A Boost’
Riding the wave of economic expansion of the fast-moving travel and travellers industry is India’s decades-old luggage brand VIP. The implementation of the Goods and Services Tax (GST) gave the travel industry a massive fillip, evident in the faster growth in sales of VIP Industries in the last two quarters. Will the luggage business sustain these high growth rates? BW Businessworld’s Clifford Alvares caught up with VIP Industries’ Chairman and Managing Director Dilip Piramal for an insight into what drives the company, its brand strategy, and economic progress.
Excerpts:
It goes without saying that VIP is one of the oldest brands. But, what are you doing to keep the brand abreast with changing market conditions?
VIP is a third-generation brand, and retains its strength and durability, well-known as it is for its stylish and mobile luggage. Wherever there is a heritage brand which takes in the third generation, youngsters don’t identify with it easily. That is inevitable. That is why we launched Skybags ten years ago, a more modern brand. That is how VIP keeps abreast of change.
How has GST implementation impacted your business?
The GST has been a boon for our industry. The formal sector has received a boost. There seems to be a shift from the informal to the formal sector; as our economy becomes more formal, the regulated sector will do extremely well. That’s good for businesses such as ours?
The industry is seeing volume growth? Has the need arisen to cut prices of your products?
Volume growth is on account of growth in travel. We have indeed cut prices once the GST on luggage came down to 18 per cent, from the original 28 per cent. We have passed on the benefit to consumers in line with the revised GST rates. However, the commodity cycle is shifting and we are experiencing huge increases in procurement prices of raw materials. This means we may have to raise prices to manage these higher costs.
Now that your brands straddle all segments, how are you managing the logistics and distribution?
The larger you grow, the more complicated operations become. I would say that all our five brands are doing well. It is not only the logistics, but the distribution channels too have to be aligned because not even a single shop stocks all our five brands. In fact, outlets will not carry more than three brands. For example, there are other brands where we sell our Carlton product. Sometimes, there is a VIP in such shops, but not always.
Each brand has a personality. Carlton is at the top end for sophisticated businessmen. VIP is a traditional brand and appeals to families. Skybags is the young brand, and popular with backpackers. Aristocrat is our value brand, more economical. Alpha is the small-town brand, and far more economical. This alignment of brand personality, distribution channels and products has to be true.
Are you investing heavily in brand building and market share ?
Building a brand is very expensive. It is an investment. Product research and advertising constitutes a very large percentage of our sales. Today, we are benefiting from all our brands, and our multi-brand strategy is working rather well.
Our market share is good: more than 50 per cent in the regulated or formal sector. We are content with that. Our focus now is on expanding the market, rather than capturing market share. Beyond a point, it’s expensive to increase market share as costs go up.
Is having a multiple-brand strategy better than having very few brands, considering that they distract attention from key focus areas?
I think there is no fixed formula as such. The marketing strategy should be governed by key principles such as identifying a target group, then creating brands to suit that target group’s need, want or desire. A multi-brand strategy helps in a diverse country such as ours, as it helps cater to various consumer segments, depending on various attitudes and behavioural traits that these segments exhibit.
Are you planning to introduce more brands or looking at an acquisition?
Our luggage brands cater to almost all consumer segments now and I think all these brands have yet to fulfill their true potential. In such a context, we do not intend to launch a brand. Currently, we are not actively exploring any acquisition opportunity and are hoping to grow organically. Not many acquirable companies are available. Capacity is infinite for us, as we outsource domestically and globally.
How do you see market shares changing in the next few years in different luggage categories?
Unlike earlier, now the market changes quite quickly. Consumer preferences are changing every two to three years because of the rapid pace of urbanisation and digitisation. Information flows fast and consumer preferences change on the basis of this information. This is true for all industries today — and luggage is no different. Consumerism is a reality.
In future, consumer touch points such as ecommerce and modern retail formats will lead growth in the business. Consumer convenience is the guiding principle for the rise of these channels and this will change traditional ways of doing business.
How is soft luggage doing, compared to hard luggage?
Both hard and soft luggage are doing well. After years of stagnation, growth in hard luggage has recently revived, driven by demand for polycarbonate, which has all the strength of hard luggage but is as light as soft luggage. The latter has been doing well for years and continues to grow, especially backpacks and duffles.
You have changed the strategy of manufacturing and outsourcing. How do you see the business of outsourcing evolving?
We continue to manufacture our hard luggage in-house. We started sourcing soft luggage from China because of cost benefits, as well as the better fit and finish we get. However, we have augmented our manufacturing capabilities by building a dedicated soft-luggage plant in Bangladesh in order to reduce dependency on and transit time from China. We are also, to a considerable extent, increasing our sourcing from India.
How do you see consumer demand?
Demand for luggage depends on travel (everyday travel, business travel, daily travel). The travel industry in India is growing healthily. Air travel has picked up in the last decade and the regional-connectivity measures of the government will only further accelerate growth in travel. This will help create and sustain good demand for luggage in future.
