Koutons Retail

Delhi based Koutons Retail has shown tremendous growth post it’s listing in 2007. The company operates in the fashion wear apparel segment category. However it has now expanded its product merchandise to become a complete ‘family shop’.

BUSINESS:

Incorporated in 1994, Koutons is an integrated apparel manufacturing & retail company. It is in the business of designing, manufacturing & retailing apparel under the “Koutons” & “Charlie Outlaw” brands.

They have a network of 1420 exclusive brand outlets across India. The company has positioned the “Koutons” brand in the middle to high fashion segment ranging from formal to party wear. The company had reinvented & re-launched their old premier brand “Charlie” as “Charlie Outlaw”. It forayed into women wear with Les Femme and kids segment with its Koutons Junior brand. As of September 2008, Les Femme contributed 6% of the revenue, & Koutons Junior contributed 5% of the revenue and the Men’s segment contributed 89% of the revenue.

The company increased number of stores from 1,175 in FY08 to a little over 1300 stores as of now. It is looking to expand the store count to 1,800 in FY09. This will entail expansion of space from 1.20 million square feet as on September ’08 to 1.5 million square feet in FY09. It targets to open 100 exclusive stores of each in FY09. The company has already forayed into footwear. It would also introduce men’s accessories like innerwear, women’s accessories like handbags and kids’ accessories. This will help in maximizing the overall sales per square foot for its stores. Its acquisition of Upper Class range of womens’ wear marks its entry into the premium segment. Its presence in the West Asia will also help Koutons make an entry into this region. The average sale per sq ft for Koutons is about Rs 12,000 and for Charlie it is Rs 8,000.

FINANCIALS:

The sales have grown at a CAGR of 69.4% from Rs 96.3 crore in FY05 to Rs. 793.5 crore in FY08. Net profit during the period grew at a CAGR of 142 % from Rs 1.9 crore to Rs 67 crore. It’s operating margins have been hovering between 15-20%. But with the slowdown in the economy in the recent quarters, operating profits have shrunk by about 200-300 basis points. Despite this, the company has some of the best net profit margins ranging between 5-7%. New product launches as well as new line of business have helped to maintain the overall growth of the company. KRIL has been rolling out stores aggressively since the last two years and is looking at a pan India presence.

GROWTH DRIVERS:

The company has been doubling in size compared to about 40-50% YoY growth reported by other retailers. However it cannot be directly compared to other players because its format and business model does not permit so. The company will be able to maintain its high profit margins as it’s offering is attractively priced.

Their franchisee model relieves them of the burgeoning rental costs, which are eating into retail margins. But the aggressive expansion has resulted in blockage of funds in inventory. This has forced the company to go for working capital funding. Larger volumes would bring in economies of scale thus further reducing cost.

The company has been making a conscious effort of not rapidly opening new stores but rather expanding the existing stores.

Foray into women wear and kids wear will drive company’s growth in future. Kids segment requires quick replenishment as the child outgrows its outfits within six months—thus providing huge sales potential. The company also plans to foray into West Asia and China.

OUR TAKE:

For the company that believes in providing fashion and quality at affordable prices, going ahead with rapid store roll out could be a big challenge. Nonetheless, we believe economies of large scale could help the company in stabilizing its operating costs and sustaining the current slowdown.