Inventory Wizards
When the Brothers Benetton launched their eponymous brand in 1965 in the province of Treviso in Italy, little did they know that decades down Benetton India would emerge as the biggest subsidiary beyond their shores. A chequered existence in India since the 1990s when it first set foot at a time when the winds of liberalisation were blowing in, the brand is looking at maintaining its growth momentum and strengthening its foothold in the market. Chief Executive Officer & Managing Director at Benetton India Pvt Ltd since January 2016, (at Benetton India since 2011 as commercial director), Sundeep K Chugh has been instrumental in recasting Benetton's distribution strategy, moving the company from a purely retail model to a more balanced wholesale and retail model, and developing the product and marketing strategy in line with local sensibilities and global alignment. As he steers the growth story aggressively, ensuring that the brand remains the focus of the fickle consumer, Chugh talks at length with Richa Bansal on how he piloted the brand during these choppy times of the pandemic, the challenges as they continue and the road ahead.
Italy had a bad time. India, as also the rest of the world, was also heavily impacted. How has the pandemic affected Benetton India in terms of revenues, business, sales?
All of us were affected by the pandemic which started in the last week of March last year. By the time we settled down, business resumption happened in June and that too in bits and pieces starting with online and then slowly spreading to offline. So, definitely when I look from the viewpoint of calendar year 2020, business was impacted significantly for three months; for the balance five months it was at a very lower throughput. From a 12-month perspective, business was severely impacted. In the month of March 2021, like for like growth was in low single digit. In February in fact, I was very happy to share with my head office that we are in a month where we have grown not only over 2020 but 2019 too because now we have to look up to 2019 as a year to measure our performance. We were very optimistic but now with the surge again we are bracing for another temporary impact. The north, east and south have been giving consistent and stable numbers. The west was impacted significantly. If the pandemic remains confined, there is a possibility that about 75 days in April-May-June are likely to bear the brunt of the virus because of the rising cases in Maharashtra, Karnataka, Punjab and other states. Having said that, we are optimistic as vaccination is catching up fast and hopefully by the end of June 30 things should be getting back to normal. Going back to how we tackled the impact of covid-19, during the October-November-December festival season we adopted a oneseason approach-that is our spring/summer offering was extended to the festival season, and we had winter drops coming in. The pandemic, yes, was a difficult time, but with the efforts we put together across the value chain with our entire team and the oneseason approach, we ensured that our brand was represented in the best possible manner.
Apparel will be your biggest revenue generator, but what is the percentage ratio of footwear and innerwear in terms of sales and revenues?
Footwear and innerwear combined together are 11-12 per cent of our total business. We started working on these two categories 4-5 years back and today they are giving us low double-digit contributions. Both the categories have immense potential and as a team we are trying to work a bit more on these categories. My objective is to take it to 20 per cent in next 3-4 years.
As for the India collection, where are those manufactured? Where are the vendors located, and how many in all?
About 95 per cent of production is done in India and across the country. We have our own factory in Manesar which does 35 per cent of the production and the balance 60 per cent is through 71 vendors in north and south India. A part of our outerwear comes from neighbouring countries like Vietnam and Bangladesh from where some footwear and a limited assortment also comes in. We do import 1 per cent of our collection. All and all, 4-5 per cent of our collection comes from outside.
Could you share the steps that you took across the value chain to bounce back?
By value chain I mean the entire value chain-from taking initiatives on the sourcing front to the product on the shelf, to keeping a check on expenses- how do we manage overall operations in a way that we use technology, leverage digital in the way it was evolving, leverage online as a channel. We defined a product representation strategy through the oneseason approach. We collaborated across functions, ensured that our sourcing team was able to get inventory on time, cut orders which were not required, staggered the inflow of materials in requirement with the markets.
When you are in a pandemic situation, you need to define key projects, engaging and motivating staff, how do we upskill them. We defined our assortment in such a way that we got the right representation delivered at the store in time. The retail team was gunning for the best possible retail productivity. When I say like-for-like high single digit growth in the month of February-this is in spite of walk-ins which were down by almost 40 per cent across the different channels, be they high-streets, malls, airport stores. Some of the metro towns of the country continue to be affected. When it comes to malls, there is a significant lower footfall there what with movies not yet releasing and restriction on timings. So, again, the retail team worked closely with the store staff to ensure that in spite of lower footfalls, how do we look at unit per transactions, store KPIs, driving a better throughput at stores. The finance and planning team helped us monitor expenses suggesting how do we spend money and manage our working capital.
When you look at the physical network, driving aggressive rental reductions was a critical project. Those six months were really tough. Defining projects across key functions, setting up a war-room like setup where each of us would get into a morning huddle to discuss the various projects, identify key focus areas, measuring and constantly monitoring our performance, ensuring that the consumer who walked into our stores even during the pandemic got the best brand experience-all these steps together helped us rebound faster. In markets like Uttar Pradesh, Rajasthan, Telangana, Andhra Pradesh, some parts of Upper North, we grew over last year even in October-December.
What percentage of orders did you have to cut in terms of quantity and value?
If you look at the Indian industry and seasons, March is when the spring/ summer collections are launched. When the lockdown was announced on March 24, we realised this could extend well beyond the 21 days; we were then at the end-of-season sales and had just launched our new collection. So, we decided that the spring/summer collection could be continued as our autumn offering, and the winter/festive collection could be a normal one. This thought also came from the point of view of sustainability-there is no point in ordering and deploying additional inventory and selling it at a discount. This is how we made an entire one-year calendar. Orders were dropped to the level of 35-40 per cent.
Any lines that comes from the principles? From Italy?
1-1.5 per cent.
Does the India office export some of its lines to the other countries?
The Indian subsidiary does not export anything. We cater to countries like Nepal, Pakistan, Sri Lanka, and Myanmar.
Did the dropping of orders impact your relationship with vendors?
When talking of initiatives-one of them is partnering with our external stakeholders. When we were done buying for autumn-winter and about to release our orders, we had a discussion with our all-important vendors. Together, we looked at each category. The vendors had their own set of problems. It was a collaborative exercise done in a way that the moment they were done with their production-we could release orders to them. We stepped in wherever required and our payments were made in time so that they don't struggle. We ensured that by the end of 2020, the entire vendor/partner/small business lot were satisfied with the way we collaborated.
How did Benetton India leverage the online platform?
If you look at our history, we were the first brand to go online. Before the pandemic, our share of online business was around 20 per cent. It was important for us to maintain a healthy balance between offline and online. When you look at the end of the year, we did see a 10-15 per cent jump. But India is a multi-channel country, and every channel has its own importance. Yes, online is seeing a surge right now, but again our intent was to just manage and balance it in the right way.
Does India office do the designing and sourcing?
We have a complete setup in India with a big design team which does the entire planning from conceptualising to the final design and entire production. When we start our season work, we see what our parent company is doing, and we get all the inputs from them. We look at mood boards, colour palettes, themes and then we see how to localise it keeping Indian sensibilities in mind.
In terms of revenue and value generator, what is the contribution of Indian subsidiary to the parent company?
Benetton India for the global company is the number one subsidiary outside Italy. So, Italy is number one market and then we have India.
Were there any store closures?
There were no store closures. We look at our network of 900 stores very diligently and on a regular basis. We have a strong monitoring system when it comes to the performance of each store and we take immediate calls. We don't wait for something like a pandemic and then take a call.
As we talk stores, which was your best performing store pre-pandemic, after the opening and the worst ones?
As I mentioned, markets like Uttar Pradesh, Rajasthan, Telangana, some parts of Karnataka, some parts of Upper North started doing well from October itself. I can give you an example of our own store at Panchkula, which is very close to Chandigarh. That store started delivering well from August itself. And surprisingly, the KPIs at the store were exceptional and an immediate pent-up demand was visible. Also, one thing that we have to understand is how the pandemic was actually working out-the entire market was closed down. But if you look at the number of cases that were coming up in the bigger markets of tier I, tier III, tier IV towns-they were less affected and therefore there were stores in tier II-III which did perform exceptionally well during those difficult months. If I talk about the maximum turnover which we do normally at New Delhi's Terminal 3 International Airport where we clock more than a crore, sales still have not picked up since there are limited international flights. Again, Select City Walk in Delhi does more than a crore every month. But once the mall opened it took time for consumers to walk in. So, my number 1 store would have picked up 5-6 months later than those in the tier IIIII- IV towns. This is how the country has fared and with 29 states and seven union territories, the pandemic was at different levels of intensity from north to south and east to west. So, even if I say that this store did very well, it is difficult to compare with a store that did not do well because it had some critical reason about why it did not do well.
What's next for Benetton India? Any tie-ups or any further expansions?
Currently, from the point of view of the pandemic, we have some priorities which we have defined for the next 12 months. Within those priorities the number one focus is to launch our Benetton India site by the third quarter of this year.
What is the status now with Sisley?
Sisley was in the domestic market but when the brand at the global level was looking at repositioning it as bridgeto-luxury, we decided not to continue with it. It is now under discussion with the global office.
Tell me about consumer behaviour. How was consumer behaving prior to pandemic and when they were shopping online and now? Phygital is the way to go forward-how much has consumer behaviour changed?
In terms of consumer behaviour, a shift to online would have taken its natural course but because of the pandemic, the shift to online got advanced by minimum 2-3 years. Online is only 4 per cent of the total retail industry. For us, it is 21 per cent. It's a very important channel to focus on. But again, offline presence is huge, and you would continue to see consumers come to these channels because some are part of the consumer's evolution journey. In current times, when you look at a consumer's journey towards a brand, it starts in two ways. First online, where the consumer tries shopping on a discount. That's where the customer understands the brand and then slowly moves on to the next level when s/he looks at buying from the brand at full price. For a country like India where per capita income is hardly $2,000 per annum and 75-80 per cent of the consumers are part of a population which is still struggling to meet ends, and where the consumer is continuously evolving be it the fashion or economic dynamics - a consumer's journey starts in a physical atmosphere. For example, an outlet channel-where s/he goes to a distribution counter and then to a large format store and finally when a consumer understands a brand, s/he starts shopping the brand. But when you look at a pandemic scenario or let's say pre-pandemic and post-pandemic (whenever that is) for consumers who understand the respective brands what has happened is adaption. A lot of them have adapted to online quickly. Also, from a buying perspective, what we realise is that when we opened our stores, there was an immediate demand for comfortwear, casualwear, more on the comfort and lounge side. More than behaviour, I would say it was a requirement, something which consumers felt, more so because of the work-from-home conditions. This trend was visible initially for 4-5 months when the markets opened around June-July and till January. The pandemic actually saw a fall in demand for denims. But slowly once things normalised, there was a quick purchase shift towards denims also. Even as we talk, the lockdowns are beginning again; we have to wait and watch how the situation evolves.
Did you have to tweak your collections to bring in more casual stuff?
When we were planning for spring-summer 2021, we focused a bit more on these categories. But when we were planning for autumn-winter 2021, except for some tweaking here and there, categorywise representation remains similar.
Globally, there is a focus on circularity and sustainability. What is Benetton India's focus in terms of circularity at almost every pit-stop of the supply chain?
Sustainability is a part of our DNA. Mr Benetton, while creating the brand in 1965, was very clear that he was creating a brand which had to be socially responsible and sustainable. That's how the journey began. Right from sourcing our garments to managing our people, there is sustainability at every level. In fact, at our latest store at Florence in Italy every element is recycled or used from an existing setup.
What is the focus in India with respect to vendors?
We have well-defined audit norms. From the global ranking perspective, we were rated among the top 2-3 players in terms of sustainability in 2015. We have an audit team. I cannot work with just about any vendor. I have to work with one who is well ranked on sustainability. We try getting our goods by trains and use biodegradable packaging. Right from conceptualising the product to the final sell out, the sustainability element is incorporated all through the process.
What steps are you taking in terms of brand building in India and what are your budgets? How has it been impacted since the pandemic?
When you look at the overall impact, the pandemic has put the brand journey behind by 12-18 months. In 2021, we should be at least at a level of 2019. You can see the overall impact-the brands in their overall journey are behind by 18 months as compared to where they would have been otherwise. The pandemic has pulled us down significantly from a turnover and profitability perspective. Almost five months no business! Returning back will take some time. Looking at the future, what matters for us is product and marketing because in brand building these are the two critical elements even during the pandemic. Even at the peak of the pandemic we did not stop communicating with customers. It was important to stay connected not for any selfish reason but just to keep them motivated and generate positivity and build enthusiasm. So, on the internet if you type "United by Cause", you will find this campaign of ours and on January 26 we launched a video of this digital campaign. For us, product strategy and marketing strategy along with social responsibility and sustainability are important from a brand building perspective, and we would continue to invest and focus on them. We were the first to launch the spring-summer 21 collection. I was at the Elante Mall a few weeks back and I could see Benetton was the only brand selling at full price. There were a host of other brands selling some previous season merchandise, but because we had worked on our product strategy and come up with the one-season strategy, we could stand out against the competition.
What is the discount strategy at Benetton? And was there a change because of the pandemic?
When I talk of the one-season approach, it was to ensure we sell the maximum quantity at full price. Our airport stores offer only 3-4 per cent discount whereas the industry is discounting at 23-24 per cent. A lot of our other stores have been discounting at 7-8 per cent. Our intention is to sell products at full price and not have an end-of-season sales period of 45 days. We keep a tight leash on inventory or the way we buy, supply and sell, and our inventory management has been impeccable in the last 12-24 months and that is helping us manage discounts in a prudent manner. Our discounting in 2019 had gone down 4-5 per cent as compared to 2018. So, if you ask me about brand strategy, we are clear we want to be a brand which focuses more on full price sales, sell quality garments and minimise discounting.
What would be your top tips for small retailers to manage judiciously their inventory?
One: inventory planning has to happen on your sell-out data. Everything has to be on the sell-out generated in the past at a particular location or a particular network. Two: when it comes to planning a growth, it has to be scientific and logical-not any number guided by whims and fancies. Many brands go wrong in estimating the numbers on growth. If you start with sell-out but commit a mistake in growth numbers, then all inventory planning will go for a toss. Go through all possible debates and discussions, science and logic, before arriving at a growth number. Three: once you are done with this, you arrive at value. When you are looking at value, examine how different categories have performed over time, how do you see categories performing in times to come and where do you want to focus upon as a brand. For example, I feel we have done exceptionally well in denims. Let's say we have done exceptionally well in knits, and if I feel knits is what works for me and denims is the category which has done 60-65 per cent full price sell through and I want to focus upon them, then my focus should be on the sell-out base combined with the growth data, and then how do we blend in the categories there-which category to focus upon and which not. Suppose knit tops have not done well, how do I work around it? So, these things have to be really thought through.
And once you are done with all this then look at each channel, look at what is the base level of inventory we are carrying as of now. What normally happens is-you do entire planning on sell-out, growth, categories; but at times you forget about base level inventory either in warehouse or maybe in the old season inventory. If that doesn't go out, it affects your cash and your working capital. You would realise that you have ordered inventory for future sell-outs, but you are still struggling with some past inventory. So, it is very important to understand where we are-whether on the past inventory or the current inventory which is lying in the network or at the stores or the channels. It is important to liquidate it. With all these four points you have done the entire planning; and now I would say the most important thing is how do you monitor it on a daily basis.
It's a daily exercise. You have to look at your inventory movement against your plan on a daily basis and you have to take calls daily. If you just assume that my entire planning would take care of the execution, then that's not how it is going to happen. Your execution has to be equally strong, impactful, impeccable and precise. Let's say if your style has an 8-10 week cycle at the store and if you feel that after 2-3 weeks the momentum or the pace of the style at which it was expected is not getting executed, then a quick call on replenishment or moving it to some other stores or planning it as mid-season sales discount is needed-all this has to be done quickly. I have seen brands with the best products and a great network often going wrong because their inventory planning was not done the right way. For the apparel industry in India, inventory management is the number 1 area to focus on; movement of inventory within states, within partners, stores, channels, can take care of 10-15 per cent of your sell-out. If you are constantly monitoring, then at least 8-10 per cent of your sales can be easily generated by just moving inventory from where it is not selling to where it is selling. And all of this if supported through proper technology-based inputs would definitely help.
Has Benetton India gone omnichannel from the consumer point of view?
As I mentioned earlier, omnichannel will be up there by the third quarter. We were almost about to implement it and then the pandemic happened and because of big surge in the digital evolution, we decided to wait and see to what extent technology has evolved and then implement the latest solutions.
What are your future plans?
As I said, we will be launching the Benetton India site in quarter three. We have already opened 12 stores this year and are looking at opening 30-40 more stores. We would be focusing a lot on newer categories like footwear and innerwear. Eventually, the intention is to maintain our strong growth momentum and continue to be a leader in this market. (RB)
