He has helped the global brand Esprit to grow by sales nearly 10 times in as many years. But he finds selling garments, the main money spinner of the company, is an extremely boring job. That's why he has a vision for India: he wants every woman visiting his stores to look beautiful with his company's apparel. Heinz Krogner chairman and group CEO, Esprit Global, spoke to Business Standard during his recent visit to Mumbai. This was his first visit to India although Esprit has been partnering with the Aditya Birla group for last 18 months. Excerpts:
What brings you to India? Are you also lured by the country's growth story?
We are an international brand operating in 44 countries. So, I can not afford to ignore this fast growing economy. If we have to call ourselves a global brand, we have to be in India. The younger generation is on the move and I am sure there will be a demand for brands that they can acquire anywhere in the world. Why should they travel to London to buy Esprit? Why shouldn't Esprit come to you? It has to be with your dynamics in your economy, with people and also the standard of development that you have achieved. I am very much impressed with the country in my first visit. I have never seen such a busy and moving crowd that I have seen in New Delhi and Mumbai.
Where does India figure in your business pyramid of these 44 countries? Which are the countries that give you maximum revenues?
Of course Europe. 75 per cent of our revenues come from Europe. We are strong in France and Germany, Switzerland, Austria and the UK. I think we should go out and not just stay in Europe and the US. We are doing well in North America, strong in China and other Asian countries such as Singapore, Taiwan, Hong Kong. We just signed another distribution contract with Korea, also an exciting economy. India is one of the important countries for us because of its sheer size and rapid development.
You see, selling garments is a boring job. That's why I have a vision for India. I want to make every woman visiting my store beautiful. I don't mind if I don't make money in the process.
But you are a listed company. Will your shareholders forgive you if you don't make money?
They will fire me (laughs). We are the fastest growing brand over the last 10 years. When I joined the company, the turnover was $350 million. This year it will be $4 billion. This has happened with in 10 years The market capitalisation grew from $350 million to $13 billion. I will tender my resignation if I fail to deliver. But I am sure we will succeed in India.
Did you have any idea of the country or its people, before this visit?
I had an experience with the Indian people, when I was in Mauritius. Also, I learnt something about Indian culture when I worked in Sri Lanka. But this is a completely different country now.
But, as a brand Esprit has lot in common with India. We do not cater to mature people or celebrities. We cater to young people, students, people with computer industry, banks. We are not a saturated kind of brand. Here people are same like Esprit, young and dynamic. We match here much better than with mature countries. Like in Germany it's no sensation anymore for us and we are not a sensation for them. Here everything is you, and it will be you for next 15-20 years.
How are you growing in India?
We have been here for a little over 18 months now. We have not focussed on as much the numbers as the quality of the business. We do not make any special products for India as the end consumer deserves the same product available in the other international stores. Why should we discriminate the Indian consumer because you want it cheap?
If you want to have an international brand you deserve the international standard as a consumer. Our partner has to pay the import duty, which is high. But I think it's an absolutely right decision because they get the original and not the cheap version of Esprit. In India you would find the same assortment, same quality and the same price as in other global stores. We will look at options at positions in malls and highstreets.
Are the rising real estate prices affecting your business plans?
If our competitors can afford it, we have to afford it as well. We always try to buy or to rent real estate as cheap as possible. But if we see our competitors doing it we have to say we can do it also.
You have about 11 product lines globally. How are you planning to introduce them in India?
We have started with women casual, which is our biggest strength. Initially our formats were focusing on men and women with different target groups. But as time goes by, we will also consider kids wear in place and we have complimentary shoes and accessory lines. We have 11 product divisions and we theoretically need stores with more than 15,000 - 20,000 sq ft to display them all in a proper way. We have a modular system which is depending upon the ability of the size of the store. All product lines will be the original worldwide global lines. There is not going to be special or extra designs as that not what the consumers want. They want the international shopping experience.
Which categories, you think, will drive your growth in India?
When it comes to women's wear, the denims, jackets, T-shirts, sweatshirts and blouses are the important key drivers. As far as men's is concerned, the shirts category is strong we are also strong in denims. Denims drive our business globally. Our categories are sufficient for this market and there is no need to introduce special products in India.
How do you plan to expand presence in the untapped women's wear market in India?
I don't know if it's untapped. But our business consists of the 60 per cent of the women's offering anyhow. So we are strong on the women's side in general. Men's wear constitutes about 30 per cent followed by kids wear at 8-10 per cent. So automatically we come with a big offering for women. That's normal. Also women shop more. As in developed markets women spend about 2.5 per cent than men a year.
Unlike other companies, you have 12 seasons a year. How do you manage this?
A girl goes 8-10 times in a store and looks what is new. If she goes for the third time and doesn't find anything new, she will not shop anymore. If you come about 10 times we have to give new attractions. So we have organised our design teams to design 12 times a line. This has lot of advantage. Consumers find new things at every visit.
Secondly, it gives us opportunity to amend our mistakes. If we have too much merchandise we can also manage our stock position by buying less 11 times. Our economics are right for that and offering. How we manage is, you need to know your target group.
We are clear about how the girl generally dresses herself. What job she does or how much money she has. We also know that this girl is not a fashion victim, but wants to be cool. We give newness but under consideration of what was previously offered. It will not be similar but also won't be compeletely different as it dosen't make sense.
Our customer is a steady customer. We have 12 divisions so in turn we have 144 collections a year. This has to be done with planning and discipline as the time to market is very short. From the first day of an idea to alien untill it hit the store should not be more than 5 months. Traditionally companies have 8-9 months, we may be down to 4 months. This could be a part of our partnership with Madura as we are experienced in this.
Do you plan to introduce Red Earth, the cosmetics brand in India?
Not at the moment. It's a very small operation. It's mainly in Asia and just started in the US and made a general distribution agreement in Europe. In my opinion we have another 5 years to focus on Esprit in India. If someone would come and distribute it then we can look into it. It has no strategic essence for us at the moment now.
What are your targets for Esprit in the Indian market?
It's a magic number and the magic number is $1 billion. The Indian market with $1 billion turnover in 7-10 years, we will be all happy together. We want to become a major player in this market. My partner (The Aditya Birla Group) has to make money. The more they can manage the less will be their costs per unit. They have long term plans. But at the same time, they need the critical mass which they don't have now. Our Chinese joint venture will be $1 billion in 4-5 years. They say they want to grow by 30 per cent. They have the infrastructure in place.
Are you exploring manufacturing opportunities in India?
We sell about 150-160 million pieces of garments a year. There is only limited capacity in countries which we work already. We work on better products and there are not many good manufacturers even in countries like China, Indonesia, even in Italy. So we look at India for global operations as well. We will intensify our presence in this part of the world on the manufacturing side.
Currently 50 per cent of the whole group is sourced in Europe and 50 per cent is sourced in Asia. Of this, about 35 per cent is sourced in China and 5 per cent from India and Bangladesh which could be scaled up to 20 per cent. We are analysing the fabric market in India. In 10 years, probably India will be one of our biggest manufacturing hubs in the world.
