Customer Centric Approach In the Turnaround at Madura Garments

In January 2002, Vikram Rao was pitch forked into a role he would never have bargained for: to help turn around Madura Garments, one of India’s biggest apparel companies. This was where he had worked for 18 years before moving to Arvind Mills. Then, in 1999, Rao had helped the AV Birla Group buy it from Coats Plc. Less than four years later, Madura was in serious trouble. It had been incurring losses for two years running. Employee morale was down in the dumps and trade partners were up in arms over its high-handedness. And two weeks before Rao took over, Prakash Nedungadi, its highprofile CEO, announced he would quit. Rao couldn’t have imagined things would come to such a head. After the takeover, the AV Birla group had focused on retaining employees with salary hikes of 50-60%. Then, it had put a bold strategy in place. The first milestone: grow Madura’s top line to Rs. 500 crore by 2001. It was Rao who had brought in the hot-shot marketer Nedungadi from Gillette so that he could use his FMCG experience to execute the strategy. On the face of it, Madura had everything going for it. It had strong brands like Louis Philippe, Van Heusen, Allen Solly and Peter England, and a strong retail franchisee network. And even though operating margins weren’t more than 11-12%, the firm had free cash flows of about Rs. 37 crore in 1999-2000. After the takeover, it also had the support of AV Birla Group chairman K.M. Birla. He had vetted the strategy himself in a 10-hour session with the Madura team and also promised Madura’s senior managers all the support they needed to grow the business. Once the strategizing and the reorganisation was over, Rao had gone back to the Birla headquarters in Mumbai, leaving the operations in the hands of Nedungadi. The start had been promising. In 2000-01, Madura’s business grew by a hefty 30% to Rs. 325.5 crore. The following year, however, even though turnover inched up to Rs.356 crore, profitability plunged. From a cash break-even position in 2000-01, Madura went into the red with net losses of Rs. 7.6 crore. And last year turnover fell to Rs.327.5 crore, the level of two years ago, and losses increased to Rs.14.6 crore. The situation was getting out of hand. Amid rife speculation that the group chairman was getting disenchanted with Madura, in January Rao finally flew into Bangalore to try to set things right. His task was cut out; spin Madura back on track.

the company reckoned that to sell them it needed huge retail space. So when one of the big bets didn’t come off. its mass-market brand. So it planned its own large format (2. ft) Planet Fashion stores. and he ignored the customers’ need and mindset. But they then made a crucial mistake: they forgot to derisk the business.200 crore brand by 2004 from a Rs.000 sq. The objective was to let the customers get a look at the complete product range. Louis Philippe and Van Heusen into complete lifestyle brands. the new management put together an ambitious expansion plan. the garments business was on a roll.000 sq. Neither did they enhance the image of the premium brands. The company also entered the crowded denim market with a range of jeans called SE. Madura’s topline had grown 14%. Betting On Growth When the Birlas took over Madura in 2000.2 The initial signs were that the remedy was working. 78 crore brand in 2001-02. belts. Immediately after the takeover. Both the company and its trade partners expected the results in the second quarter to be even better. It included forays into new categories like suits and extending the established brands like Allen Solly. ft multi-brand outlets were inadequate. even Rao knew that it would take more than just two quarters of sound performance to put an end to the nightmare of the past two years. It planned to turn brands like Allen Solly. That’s why it planned to grow retail space by 30% every year. It figured that the existing category of stand alone 500 . rather a wide range under a single brand. as a former employee put it: “How could a company which had a profit before tax of 20% in 1999 end up with a negative 5% margin?” The answers lay in the way Madura’s growth strategy was conceived and executed. that was a very costly oversight.1. Worse. There was no reason to think that growth would taper off from the heady 30%. The big question that the apparel industry is asking was: Why did Madura’s Performance go into a free fall? Or. bags and other accessories like shoes. Madura also had ambitious plans for Peter England. it simply pulled down the rest of the business with it. . starting from suits and formal wear to ties. Allen Solly was ready to introduce its own brand of women’s wear. As the number of products and brands increased. First. The aim: make peter England a Rs. As the only possibly unisex brand in its portfolio. But clearly. nor did they have the space to stock the entire range. the operating team under Nedungadi bet big on growth through a series of initiative. Nedungadi made two huge mistakes: he tried to apply the FMCG business model to apparel. In the first quarter of this year. In hindsight.

but now the situation reversed.000 outlets. But the assumption that sales . Besides. In the first year after the Birla takeover.” says Rao. So product prices shot up and Madura’s sales fell. In 2001-02. hoping that it would save 4% central sales tax. For a while it looked like Madura had pulled it off. While the premium brands hardly grew during the last two years.5 crore on a turnover of Rs. And Madura slipped into the red. Thereafter. Nedungadi then took his big gamble. “When we took over the business.325 crore. Peter England was available in about 2. The brand team had made another fatal mistake. In February 2001. Volumes did increase by 14%. the government slapped a 16% excise duty on retail price on branded garments.4 crore. The combined affect of the excise duty and import duty hike was that shirt prices. That forced Madura’s inventory to pile up and. or about 14% of revenues. offering three shirts for 999. They pushed through a mega promotion scheme during the last Diwali (in 2003). but topline grew by just 7%. value for money pricing and distribution through C&F agents. where he wanted to try out his FMCG model: big bang mass-media advertising. Even before the excise duty impact in 2001. It also tried to prop up sales by increasing advertising.500. Peter England was trying to come to terms with a higher import duty on fabrics. Being a mass-market brand. IN 2000. positioned Peter England as a Rs. following the World Trade Center attacks. to move it. 300 shirt. 3 crore . the worst hit was massmarket brand Peter England. Madura earned an operating profit of Rs. Now Peter England was a value-for-money brand and its buyers were extremely price sensitive. Sales did take off. as did the investment in the accessories. which allowed Madura to keep its prices low. Madura appointed C&F agents. Now C&F agents received stocks on a consignment basis.” recollected Rao.100-120 per shirt “Seventy percent of Peter England’s merchandise was less than Rs.3 Now all these plans required heavy investments: while the suits factory sucked in about Rs. in effect. To beat the price increase. the foray into women’s wear took another Rs. we added several new competencies such as knits. blazers and accessories.12 crore-15 crore. the garment export market vanished and exporters dumped stocks in the domestic market. Madura was only a shirt company. which used to range from Rs.12. ad spends went up almost 30%. women’s wear. the company had to resort to heavy discounting. the import duty on fabrics went up from 15% to 35%. A third of the fabric used in Peter England was imported. But just a year later everything changed. But neither the advertising nor the discounting could deliver. serviced by company appointed distributors who bought the stock from the company on a cash-and-carry basis. competition was really intense in this segment as there were several regional brands. This was Nedungadi’s pet project. which.

That way you cannot build a distinct image for any one brand. ft running space for each brand. To show this in a meaningful way. Millions of square feet of space will be added in the next 3-4 years. Arvind Brands president Darshan Mehta says: “It is not a good idea to put all the brands under one roof. its volumes fell by a steep 40% in one single year.” says Vasanth Kumar. The small stores will lose customers to them. manufacturing continued to churn out volumes. We had a similar format a few years ago.” says Kumar. These problems were compounded by Madura’s new strategy for retail. The traders complain that Madura’s sales managers behaved with them in a high-handed way. if the retailer cannot allot that to a brand. Of course. have jumped ship to competition. then it is unviable for him. Its strong-arm tactics with trade ended up alienating many channel partners. Yet the strategy has its critics. Vice-President (Marketing). which means that the retailer must stock at least 600 shirts of that brand. the company had its reasons.” says a senior trade partner. a Planet Fashion store had come up right next to Snowhite.S. in Connaught Place. the retailer must have at least 16 sq. Since it was stuck with piles of old merchandise. which show that to select a shirt a consumer sees at least 50 shirts of his choice. In fact. So inventory management became chaotic and stocks piled up. “There is a clear shift in customers’ preference for large format stores. the trade believed that Madura had deliberately opened its own Planet Fashion stores right next to multi-brand outlets to take away business from them.4 would continue at the same rate even after the scheme was withdrawn was proved wrong. Apparently. So Planet Fashion was merely picking up those customers who were looking for a better shopping ambience. a Planet Fashion store right next door to Smartline. But the way it handled the communication wasn’t up to the mark. even though unsold inventory was building up in the channel. and in the past we also sold . Madura could not introduce new designs. “We have research. and dictating what stock the company will supply to them and when. A. thrusting stock upon them telling them not to stock competitor’s products. “The losses on Peter England virtually eliminated all the profit that Madura made on the other three fashion brands. including a large franchisee of Madura in Hyderabad. a large Madura retailer. Some of them. But for several months. To make matters worse. On Bangalore’s CMH Road. The company’s internal systems were not geared to work with two separate kinds of partners – distributors and C&F agents. Abdul Khadir and Sons. stores and plans to take it up to 110 stores by the end of next year. It chose to rationalise the number of outlets because servicing a wise network was no longer easy. the debacle lopped off 17% from the company topline last year. Madura already gets 20% of its sales from Planet Fashion. Spectrum. In New Delhi. Several dealers BW spoke to said they had lost faith in the management.

the Peter England was coming back to its value-for-money moorings. Each of the new ventures like Planet Fashion and Womens’ Wear were paying for itself. The merchandising strategy for each of the brands was being revitalised again. A SAP implementation had ensured that about 400 Peter England retailers were now linked directly to the company’s back-end and get stock replenishments daily.” In the words of a senior ex-employee: “It’s a good way to boost top line in the short-term since sales are booked on MRP and not wholesale prices (less by 33%). while Louis Philippe was upping the ante on quality. As spend has been brought down to realistic levels.5 Arrow and Lee together. Senior managers were asked to travel and meet retailers. Even as the situation crawled back to normal.” The Rearguard Action By the end on 2002. But now we don’t have multi-brand outlets. But in the long term. no one inside Madura is likely to forget the lessons of the last two years in a hurry. Rao had already pushed through many changes. (Source: Business world) . For instance. I am not sure how it will impact brand image and bottom-line. He had put in place a new organisational structure. where the premium fashion brands and the mass-market brands were handled separately.

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