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Retail 2010-07-18

Bagging franchise profits

The handbags and luggage market in India is still highly fragmented, however, it has now started showing some maturity with the presence of organised players. Franchising is contributing to a greater extent in bringing about this change and franchise oppo

By Neha Malhotra Sub Editor, Franchise India Holdings Limited, Web Division

Handbags and luggage industry have moved from being a necessity to a fashion statement. The organised market captures a share of 40 per cent and of this share, fashion bags have a standing of Rs 800 crore while the luggage market (Both hard and soft) is pegged at Rs 10 billion. Women’s handbags dominate the segment with 47 per cent share in it.

Reasons for growth

Increase in travel is said to be one of the major reasons for the augmentation of this industry. Growing cautiousness with relevance to style, more disposable incomes, increase in the number of working women, demand of quality products have collectively led to the expansion of this industry. N P Singh, Director (Retail Projects), Samsonite Group says, “The Indian luggage industry has moved from unorganised to organised with our brand store presence all over India through EBOs and shop-in-shops in the departmental stores. This has made buying of a quality luggage very convenient to Indian consumers.”

Tale of franchising

Franchising for accessories is growing at a fast pace. Franchising as a business option is helping brands to extend their presence to more customers. Commenting on the franchise aspect in this industry, Vicky Ahuja, Sales Head, Baggit says, “Franchising is nascent in handbags industry because accessories have not yet caught on in exclusive retail as compared to fashion apparel or footwear.” However, it is presently undergoing a consolidation phase.  Sahil Malik, MD, Da Milano states, “A retail franchising business opportunity is quite appealing because most of these opportunities revolve around sales of particular products that consumers want or need and is one of the mediums that help you cater to the customers in places where it becomes difficult for operating the company owned outlet and thus, supports the expansion function. Besides, the scope of franchising in India’s fashion accessory industry is increasing day-by-day as it is an opportunity for the brands to expand globally.”

With brands becoming more aggressive, the level of competition is also on the rise. However, this is healthy competition which is working in favour of the industry as they are innovating to bring something new to the industry. Dilip Kapur, President, Hidesign says, “We have stayed focused on our strong heritage of craftsmanship. The natural sensuousness of our vegetable tanned leathers and the solid brass hardware gives us a distinct look. Contemporary styling with clean silhouettes makes Hidesign an ideal investment not to mention its competitive pricing among luxury goods is unbeatable.”

Franchise brands and extended portfolios

Franchising has enabled the brands to increase their presence not just in India but overseas also. Internationally, Hidesign has 65 exclusive stores and a distribution network in 23 countries that has placed its product in over 2,000 stores. Da Milano is an integrated leather brand that manufactures and retails high-end leather bags and accessories for both men and women. Samsonite which was born in 1910 is now sold in over 150 countries across the globe. Dandy Collections, a leather and allied goods manufacturer, distributor and exporter in value segment is associated with nearly all renowned Indian retail chains and has a sound franchise system. Baggit is a leading Indian premium brand of ‘Bags & accessories’ for women that came into existence in 1990.

Brands are looking to do that extra bit to woo their customers and increase their footfalls. Apparel and footwear brands are extending their portfolios and bringing bags under their umbrella of product offerings. Franchisors like adidas, Reebok, Tommy Hilfiger, Charles and Keith, Madame etc, are just a few names that also have bags on offer. It is also working the other way around where brands into bags and luggage are expanding their assortments by adding shoes and other varieties of bags in their stores. Samsonite has already the same while Da Milano plans to start retailing shoes by the end of this year.

Money ratio

The investments required in this business are relatively low as compared to most of the retail franchising options that are on offer. The investment required starting a franchise for a bag or a luggage store begins at about Rs 6 lakh and goes up to a sum of Rs 20 lakh as we move higher on the segment of the brand the franchisee wants to partner with. A standard store size is of 500 sq. ft for a Samsonite store, fit outs cost somewhere around 1500 per sq. ft and stocks cost about Rs 7-8 lakh taking the total to Rs 13-14 lakh. The break even period ranges from about two years to a period of three years. The return on investment and margins are pegged somewhere around 25 per cent and the working capital that a franchisee may need an amount of Rs 1.5 - 3 lakh.

International offering

The presence of international brands in this segment has proved to be beneficial for the industry. Louis Vuitton, Gucci, Kipling, Charles & Keith and Le Tanneur are a few international labels expanding their footprints on the Indian shores. Catering to the higher end of the spectrum, we can categorise these brands in to the luxury segment which is now pegged at $377 million. The international players have increased the level of competition and now Indian franchisors have begun following the international trends and designs to carve a nice for themselves. International franchisors have the scope to cater to a larger consumer base which is attracting them to India and inspiring more players to explore opportunities in Indian market.

Future expectations

The future seems to be promising for this industry. Avenues to be explored have not reached optimisation, the plethora of opportunities will grow over time. Present franchsiors are bullish on expansion and have sketched out extensive expansion plans. Also with the entry of more international franchise labels, more opportunities are on the horizon. Being optimistic about the industry, Ahuja articulates, “Expectations from franchising are always on getting and passing customer intelligence/insights and also delivering to the customer the brand’s customer service promise. These two factors are critical apart from the operations management of the retail front end.”

The future seems very bright and the opportunities immense, with such indicators, the industry is poised to be an ideal franchise option.

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