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Sep, 07 2010

HANDLING BAGS BIZ

THE handbags and luggage market in India is highly fragmented and undergoing a consolidation phase.

THE handbags and luggage market in India is highly fragmented and undergoing a consolidation phase. The entry of players, both Indian and international, in the organised market and the potent role of franchising are some signs of a maturing market.

 

Business potential

The organised handbags and luggage industry captures a share of 40 per cent. Of this, fashion bags have a standing of Rs 800 crore and the luggage market (both hard and soft) is pegged at Rs 10 billion. Women's handbags dominate the segment and has 47 per cent share to its credit. The increasing demand in the segment is giving way to speciality stores. Hidesign, Da Milano, Baggit, Safari, Witco India and VIP are some of the leading Indian franchisors. International labels like Louis Vuitton, Gucci, Kipling, Charles & Keith, Samsonite,  Victorinox, and Le Tanneur are just some international labels expanding their footprints on the Indian shores. Vicky Ahuja, Sales Head, Baggit India, avers, “Franchising is still nascent in the handbags industry because accessories have not yet caught up with the exclusive retail, as compared to say fashion apparel or footwear.”

 

Loopholes

The target group for franchisors in this segment are those in the age group of 15-35 years, women and the business community. With brands becoming more aggressive, the level of competition is also on the rise. However, this is working in favour of the industry, as they are innovating to bring something new.

Franchisors are doing their bit to attract customers. The store lookout plays a key role in bringing in footfalls and raising the level of profits. A right mix of colour, lighting and flooring creates a perfect ambience.

Taking forward this business format is easier as compared to certain sectors in retail. Specifying on the same, Ahuja says, “It's easier compared to, say apparel franchising, where customer has to try garments before buying. In hand bags, customer's decision-making is not a long process and transaction time is short. Therefore, sales output of small stores tends to be quite high.” Besides, assistance and guidance from franchisors will help the franchisees in taking forward their business successfully. N.P. Singh, Director (Retail projects), Samsonite South Asia Private Limited, says, “The company provides training free of cost to the franchisee sales team to handle customers, manage stock and in visual merchandising.”

 

Franchisability

Franchising as a business option is helping brands to extend their presence to more customers and offer an opportunity to aspiring entrepreneurs. Says Ahuja, “Industry is growing by way of increase in consumption across the domestic markets. Franchising let the companies tap various geographical markets at the same time by bringing local expertise in retail and capital to fund the expansion.” The local expertise is where franchisees come into the picture. Their inputs, at times, help the brand improve their performance in those locations. Franchisors are also eyeing grade B and C cities besides grade A to expand.

 

Financial viability

The investments required in this business are relatively low, as compared to other options on offer. The investment required to start a franchise begins at about Rs 6 lakh and goes up to Rs 20 lakh. The break-even period ranges from about two to 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 to 3 lakh.

 

Exit option

The typical franchise term for this industry is a period of three years. In case you wish to exit the segment, each franchisor has a unique agreement in accordance with their company strategies. With Baggit, a franchisee does not have the option to sell the business further. With Samsonite, you have the option to find potential franchisees and sell the business to them with prior approval and discussions with the company. If you do want to exit the franchise agreement before the term, then you have to pay a price which is disclosed in the franchise agreement.

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