Is the PE backed Indian apparel retail story turning sour?

On the other hand, a very diverse approach has been adopted by Cotton World - a Mumbai based apparel retailer with around 21 outlets in 9 cities in India and can be considered amongst those who initiated the retail revolution in India. Though started way back in 1987, it adopted a conservative and slow approach of expanding store count.

According to a spokesperson of Cotton World, “When you approach a PE, they talk in terms of having a store count of 150-200 stores in a minimum period of time.  Since their target period of staying invested is between 3-5 years, they try to maximize revenues by adding stores, with the assumption that profits will follow.

“One of the biggest factors which can influence growth in retail is foreign tourists. A small country like Spain had around 40 million tourists visiting the country a few years back. In the same period India had just 2.5 million tourists. So the experience of investing in a model, which may be successful, say in Europe or US, may not meet the same success in India”.

Explaining their business strategy, he says, “We work at a very slow and steady pace. We zero on to a new store only and only if we are sure that the store location will be profitable. We are also now considering adding to the store count and hope to add around 20-25 more stores by 2015. While evaluating the new locations, rentals will be a prime consideration. Lastly, we would prefer to rather grow on our own feet”. 

The source explaining about the mentality of a typical PE investor says, “The PE investors invest in various sectors and industries. Assuming they invest in say 50 companies, they may end up losing money in around 5-7 investments. But the returns generated by the rest are enough to cover the losses of the 5-7 investments”. 

Fibre2fashion News Desk - India