Home / Knowledge / News / Apparel/Garments / Is the PE backed Indian apparel retail story turning sour?

Is the PE backed Indian apparel retail story turning sour?

17
Sep '12
Mr Siddharth Bafna
Is the PE backed, Indian apparel retail industry growth story falling apart or turning sour? Considering the increasing number of garment retailers who are suffering from growing debt pressures, more so those funded by Private Equity (PE) investors, it could be true to a certain extent.

These include the poster boys of Indian retail, particularly kidswear retailers like Lilliput and Gini & Jony. Lilliput is saddled with a huge debt and had fallen-out with PE investors Bain Capital and TPG. Gini & Jony also saw Reliance Capital exiting from the company. Other PE invested apparel retailers like Koutons and Spykar Jeans too are in trouble.

On the back of the unprecedented growth rates posted by the Indian economy in the first decade of the current century, clothing retailers went on an overdrive and opened new stores with funds borrowed from PE investors, without considering profitability and sales target ratios of each store.

The moot question that arises is – Were these PE investors not closely monitoring their investments in these retailers or are they themselves responsible for goading the retailers to expand indiscriminately. Mails sent to Indian offices of PE investors - Bain Capital and TPG remained unanswered.

According to a knowledgeable source, the apparel retailers put across sales figures of their high revenues generating stores in metro cities like Delhi or Mumbai and used them in calculating the revenues by multiplying these figures with, if they were to set up X number of stores. PE investors got sucked in by these figures and invested hugely in these retailers.

According to the same source, the Indian retail sector looked very promising in middle of last decade. However, these investors were not knowledgeable about the Indian retail industry nor did they have the experience of investing in retail in India. What they did not foresee was that a market like India has its very own set of challenges and did not realize the risks.

The retail markets in US and Europe are very different from those in India, the source reveals. A consumer over there does not think of throwing a shirt or footwear in the dustbin bought three months back, while an Indian consumer may wear it for 3 years or more. In short, the Indian market does not have the capacity to absorb these many numbers of brands. This is the most fundamental theory, the PE investors overlooked.

This is what led to the situation, in which well-known Indian apparel retailers are saddled with huge debts with banks and also the PE investors. Bellwether clothing retailers like Shopper’s Stop and Westside too could have expanded rapidly, considering the resources at their disposal. However they chose the profitability route rather than just hiking revenues, the source adds.

“When a PE investor invests in a company they have a five-year horizon. In order that their investment turns out to be profitable, they endeavour to increase the sales and profitability of the retailer and suggest rapid roll-outs of new stores”, explains Mr Siddharth Bafna, Partner at Lodha & Co.


Must ReadView All

Pic: Shutterstock

Apparel/Garments | On 15th May 2021

Australian govt earmarks Au$1 mn for boosting fashion industry

The government of Australia has earmarked Au$1 million to promote and ...

Pic: Sorbis / Shutterstock.com

Apparel/Garments | On 15th May 2021

Prime Content| US textiles & apparel imports grow 4.32% in Q1 2021

The import of textiles and apparel by the United States increased by...

Pic: Amanda Wakeley

Fashion | On 15th May 2021

British luxury fashion company Amanda Wakeley enters administration

The British luxury fashion designer Amanda Wakeley’s company, AW...

Interviews View All

Textile Industry, Head honchos

Textile Industry
Head honchos

Strike a balance between handmade in India and 'Make in India'

Textile Industry, Head honchos

Textile Industry
Head honchos

We are staring at livelihood crisis for weavers

Footwear Industry, Footwear Retailers

Footwear Industry
Footwear Retailers

Still struggling to mop up higher sales

Nina Smith,

Nina Smith

GoodWeave International, a nonprofit working to end child, forced and...

Benedetta Terraneo,

Benedetta Terraneo

Miko Srl, a subsidiary of US-based Sage Automotive Interiors and a member...

Ritu Oberoi,

Ritu Oberoi

Established in 2018, Forsarees is a socially driven business enterprise,...

Tiasha Renganathan, Twinery Innovations by MAS

Tiasha Renganathan
Twinery Innovations by MAS

Twinery-Innovations by MAS is the innovation arm of Sri Lankan company MAS ...

Kevin Young & Tom Lucas, Web Industries

Kevin Young & Tom Lucas
Web Industries

Web Industries is a precision formatter of nonwoven materials used in baby ...

Karan Bose, Hula Global

Karan Bose
Hula Global

Hula Global, a leading isolation gown manufacturer in India, has been...

Aprajita Toor, Aprajita Toor

Aprajita Toor
Aprajita Toor

The creations by Aprajita Toor were born out of a deep desire to create...

Sarah Denise Cordery, Sarah Denise Studio

Sarah Denise Cordery
Sarah Denise Studio

Manchester, England-based Sarah Denise Studio provides relevant fashion...

Abhishek Bajaj & Samiksha Bajaj, Samshek

Abhishek Bajaj & Samiksha Bajaj
Samshek

Samshek is a fashion forward tech brand which combines digital experience...

Press Release

Press Release

Letter to Editor

Letter to Editor

RSS Feed

RSS Feed

Submit your press release on


editorial@fibre2fashion.com

Letter To Editor






(Max. 8000 char.)

Search Companies





SEARCH

Leave your Comments


May 2021

Subscribe today and get the latest update on Textiles, Fashion, Apparel and so on.


Advanced Search