In conversation with Neetu Kashiramka, Managing Director of VIP Industries
In this exclusive interview, Neetu Kashiramka, Managing Director of VIP Industries, asserts that by repurposing the company’s capacity and diversifying its product offerings, it is poised to cater to evolving customer preferences while maximising operational efficiency and market opportunities
The recent GDP numbers have exceeded expectations, particularly in trade and hospitality. Do you see a correlation between this growth and your company’s top-line growth?
Yes, there will be a correlation. I am pleased that the industry is performing well, and I anticipate continued growth. I believe this is part of India’s growth story over the next decade, especially in the hospitality sector, which is poised for substantial growth. If we consider the current penetration of the hospitality industry, it’s still in a nascent stage. For instance, the luggage industry is only a market of Rs 15,000 crore, which is relatively small given our population. I foresee significant growth in this sector, as indicated by reports projecting a 15 per cent CAGR over the next 3-5 years.
We aim to surpass industry growth rates starting from FY25, possibly doubling or growing by 1.5 times. This growth trajectory is achievable as we gain market share. Looking ahead, we are targeting a CAGR of 20 per cent or more over the next three years. Much groundwork has already been laid, particularly for FY25, which boosts my confidence in achieving these targets. Since assuming this role in mid-August, I have prioritised market engagement. Our focus now is on offering compelling products that ensure a purchase when customers enter our stores. This commitment to relevance and innovation is our journey towards sustained growth and market leadership.
Could you elaborate on your efforts to improve market share and address changing customer preferences?
Since assuming this role, we have focused extensively on sales and marketing to drive brand recall and relevance. Through market visits and feedback, we identified gaps in product offerings and customer experience. Consequently, we revamped our product line-up, with 30-40 per cent new offerings in stores. Our strategy is to ensure that when a customer enters our store, they find relevant products and make a purchase decision. This approach has already shown promising results in terms of customer engagement and satisfaction.
How has the shift in luggage preferences impacted your inventory management and manufacturing strategy?
Our inventory situation has undergone a significant shift recently. Previously, soft luggage dominated our inventory, comprising 70 per cent of our stock, while hard luggage made up the remaining 30 per cent. However, there has been a notable change in customer preferences. Currently, the ratio has shifted dramatically to 25 per cent soft luggage and 75 per cent hard luggage. This shift has led to a surplus of soft luggage inventory, while our hard luggage inventory remains balanced. As a result, our Bangladesh plant, which primarily produces soft luggage, is nearly inactive due to the excess inventory that will last for the next several months. It’s important to note that all these inventories are relatively new, with nothing older than a year, which mitigates potential challenges.
To address this surplus and optimise our capacity, we have made strategic adjustments. We have reduced our soft luggage production capacity from 2.5 lakh to 1 lakh units and repurposed the remaining 1.5 lakh of capacity to produce duffel bags. This decision was influenced by the growing demand for duffel bags in the market. Additionally, we have ventured into backpack production, leveraging our excess capacity and tapping into a lucrative market segment, especially in rural areas and public transportation settings where duffel bags and backpacks are highly utilised. By repurposing our capacity and diversifying our product offerings, we are poised to cater to evolving customer preferences while maximising our operational efficiency and market opportunities.
What measures are you taking to maintain competitiveness and drive growth in a changing market landscape?
We have four brands, offering a wide range of options to cater to every customer’s price point. For instance, in Aristocrat, we have luggage starting from Rs 1,800 up to Rs 2,500. In Skybag and VIP, the range extends from Rs 2,500 to Rs 7,000, while Carlton offers products up to Rs 18,000, a significant increase from our previous cap of Rs 10,000. This expansion is expected to improve our margins and profitability, as we focus more on VIP, Skybag and Carlton, which have higher gross margins compared to Aristocrat.
Currently, Aristocrat constitutes 45 per cent of our business, but we aim to reduce this to 35 per cent over the next three years, focusing on a 10 per cent improvement in our premium mix. This strategic shift is expected to boost our EBIDTA percentage from the current 10 per cent to around 14 per cent by FY25 and eventually reach 20 per cent within the next 24 months. Our distribution channels include online and offline channels, with e-commerce contributing about 20 per cent of our business and offline channels encompassing general trade, modern trade, retail stores, CSD and institutional sales. While modern trade and e-commerce are lower-margin segments due to discounting and operational costs, retail stores offer the highest margins, making them a priority for expansion.
We aim to increase our retail store contribution from the current 12 per cent to 15 per cent within the next two years, aligning with our overall strategy of premiumisation and customer experience. In our retail stores, we showcase premium products, focusing on brands like Airtron, Skylight and Bay View, which resonate with our VIP lounge concept. This curated approach has proven successful, with premium offerings like Carton driving significant sales, especially in top cities where customers are increasingly inclined towards premium products. This shift towards premiumization reflects India’s evolving consumer preferences and presents opportunities for growth and market leadership.
How do you leverage digital tools and AI for forecasting, inventory management and decision-making?
My principle is to ensure that all activities and data are seamlessly linked to our ERP system, avoiding separate systems. Currently, we are heavily involved in data analysis and are utilising AI for various digital campaigns. Aside from AI, our focus is on leveraging machine learning and data science for decision-making processes. This includes forecasting seasonality, analysing past trends, and incorporating marketing inputs to refine our strategies. The upcoming implementation of the 3C supply chain module from April 1 will play a crucial role in enhancing our supply chain efficiency and inventory management. Our immediate goal is to reduce inventory levels from the current Rs 800 crore to Rs 500 crore within the next six months. The integrated tool will be instrumental in achieving this target by improving our turnaround time (TAT) for supply chain processes and optimising inventory management strategies.
What challenges or uncertainties do you foresee that could impact VIP Industries’ performance, and how are you mitigating them?
While there’s always some level of risk, especially if the market doesn’t experience growth, I consider that possibility to be very remote. Looking at the country’s current landscape, with the significant number of aeroplane orders, the emergence of new five-star properties, and ongoing infrastructure developments, we believe there’s no immediate concern about industry growth over the next five years. However, unforeseen events like the coronavirus pandemic are always unpredictable and beyond our control.
Additionally, in my approach, I undertake multiple initiatives where not all may succeed. I view this as a natural part of business competition. Making decisions is crucial, and I believe in taking decisive actions. Out of 10 decisions, I anticipate that seven will be successful while three might not yield the desired outcome. I am prepared for such outcomes and consider it part of navigating the challenges. It’s akin to steering a significant shift, much like making a U-turn with the Titanic. Despite the challenges, I am confident in my ability to navigate and bring about positive changes.
Could you share insights on your expansion plans and strategies for store optimisation and customer engagement?
We are prioritising store optimisation in existing markets before expanding further. Through data-driven insights and market analysis, we are identifying optimal store locations and ensuring each store meets revenue thresholds. Our goal is to enhance customer experience, drive footfall, and maximise revenue per store.
What key initiatives or milestones do you envision for VIP Industries in the near future?
We are focused on driving sustainable growth through product innovation, operational efficiency, and customer-centric strategies. Our goal is to strengthen market position, increase brand equity, and deliver superior value to customers and stakeholders. We are confident that our strategic initiatives will yield positive results and propel VIP Industries towards continued success.
Disclaimer: The opinions expressed above are personal and may not reflect the views of Dalal Street Investment Journal.