Mumbai: The rising middle class, its sheer numbers and growing aspirations make India an attractive market for multinationals. Yet, the market is far from easy to crack.
For one, India is different from the rest of the world because consumers look for more value for money—what is considered premium in India may just be a mid-market brand in other parts of the world. What it means is that marketers have to figure out a different strategy to tap Indian consumers, and it may not always work.
About two years ago, Samsonite International SA, the world’s largest luggage maker, launched AT, a brand from its American Tourister range, to cater to Indian mid-market consumers. But the brand did not live up to the company’s expectations. Now, Samsonite has come up with a different brand and strategy for India, says Ramesh Tainwala, who took over as global chief executive officer (CEO) in October and has set the target of doubling revenue to $5 billion by 2020.
Edited excerpts from an interview:
It’s been only about six months in your new role and you have announced the acquisition of (US-based) Tumi Holdings Inc. for a sizeable $1.8 billion. How did this deal happen?
It is a deal that makes most strategic sense for the company and not just now but even 15-20 years ago. So I have been a part of this company for the last 25 years and I know of our active interest for last 15-20 years. But for some reason the deal didn’t happen.
What changed now?
It is very easy to put a reason behind it. But there are many reasons that have to fall in line together. It is not only about our interest to get them. But it should be also of their interest to come to us. It’s almost like a marriage. A few things that have definitely helped is that the debt market is in a different zone. The cost of money is more attractive. Also over the last couple of years, our valuations in terms of our multiples have converged into each other. In the past, their multiples were way higher than our multiples. That makes life easier. Also the next big jump for Tumi will come from outside of North America. A majority of their revenues still come from North America, which is a homogenous market. When you step outside North America, the market gets fragmented in terms of consumer taste, preferences and distribution channels. Lack of scale was an impediment for them to grow whereas Samsonite operates in 100-odd countries.
You have in the past spoken about doubling Samsonite’s global turnover from the current $2.5 billion to $5 billion by 2020. How will that happen?
We are lucky to be in an industry where there is secular growth in the sector which is not getting affected by the macro factors. For instance, in China which is in the midst of a slowdown, outbound travel has grown at 30% in the first quarter of 2016. Even in our European and North American business, we have seen that people don’t stop travelling even in the worst economic crisis. And as long as they are travelling, we are okay. On a global scale, the travel industry is expected to grow at 5-6%, according to the World Tourism Organization. That has been the trend over the last five years and will be the expected trend for the next five years. For us to double our business we are talking of a growth of 12-13% and that is what we have been doing in the last five years, primarily trying to gain market share in categories and price segments where we have low market share.
With Tumi you enter into the premium market. Which are the other areas of growth that will help you achieve this target?
Until eight years ago non-travel, which includes backpacks and business bags as a category, was minuscule to our overall revenues; we had licensed all our non-luggage to some other companies. But since 2010 we have bought back all our licences and now it’s already become 30% of our overall revenues as of 2015. For Tumi, the non-travel segment contributes to two-thirds of their overall sales. With Tumi we hope to enhance our expertise in this area and by 2020 we see this category contribute 50% to our overall revenues.
Where does India fit into your global operations?
India is a very important part of our business, it is our fourth largest market in the world, just behind US, China and Korea. India is also one of our fastest growing markets. We see this becoming our third largest market in next two-three years now with the launch of Kamiliant, our new luggage brand that will offer cabin bags at sub-Rs.5,000 price points, which accounts for 80% of the Indian market.
Are you looking at a larger play then in this market?
With Kamiliant we want to operate in this segment which is below Rs.5,000 and where our competition was so far enjoying a monopolistic market share. Now we are looking at challenging them in this segment.
You had experimented with a lower price point brand two years ago with American Tourister.
Yes, we wanted to have a strategy that was less expensive and more safe. We created a sub-brand called AT with American Tourister to operate in the market. A new brand requires a lot more money and effort to push out the brand. Hence we did an abbreviated version with AT, but it did not work as consumers just traded down to AT from American Tourister as for him it was just the same brand. We did not get additional market share. We realized this within six months of launch and dropped it immediately.
How does India compare to the other markets?
In India, outbound travel is expected to grow at 12% over the next five years, fuelled by (the desire of a) newly franchised middle-class to go and see the world. It’s common with what we are seeing globally. Similarly, people are less excited to possess things and more excited to spend on experiences. If I look at my own kids, my daughter does not want to own a house. She wants to change her house every five years. She’s just got married and prefers to live in a smaller house than maintaining a big house. She doesn’t want to own a car and prefers Uber. This is true with my colleagues in America as well.
The thing which makes India different from the rest of the world is how the market segmentation takes place here. The price value perception here is different. Here Samsonite is a super-premium brand at $120 for an average cabin luggage piece. This segment (super premium) is just 10% of the overall Indian market. In the rest of the world, luggage pieces starting at $100 and above constitute 50% of the overall market.
What percentage of your sales are coming from online sales?
It is 6% currently but I see this going up to 25% in the next three-five years. In 2014, it was 3% and has doubled in one year. In some markets like Korea, China and UK, online sales is already 15% of overall sales. The whole e-commerce world will be very different in the next five years from now. The pure play companies have made consumers confident of shopping online and educated the consumers, but the beneficiaries could be someone else. What they need to figure out is what more can they offer to the consumers. Globally, in Korea, a third of our business came fromLotte.com in 2015. In Korea there is no price difference between the online and offline prices, only the range is wider online. So people shop online for convenience and range.