Har baap ka sapna, bas SETTLE ho jaye beta apna ! (completing the man !) A note on Raymond Franchise Stores.

India is a land of the plenty, unlike the US, not of opportunities, but of money. Every businessman daddy is trying to “settle” his beta with an enterprise. Being huge fans of rentRaymond has a target to open 300 mini-franchise stores in the next one year. I am of the opinion that not only will they achieve it, but they will also make 300 businesses successful. My thoughts are as follows.

“Har baap ka sapna, Beta settle ho jaye aapna !”

India is a land of plenty, not so much of opportunity, but definitely of capital. Our inherent attitude of saving for the next generation and more if possible, has created huge amounts of under employed and under-utilised capital hoarded in wasting assets like, FD’s, land and gold. Father’s have traditionally used two means to settle theirs sons – One – hyper educate them or Two – buy them a place in the rent economy of the country. Ask around and you will see the crazy fetish people have for rent, dealerships, C&F agencies, distributors etc etc, and if it happens to be one of a multi national company like Nestle or HUL, then you need the additional masala of “influence” to get it !

Anyway, Raymond has sensed this and has rolled out a plan to open 300 mini-mini-franchises of about 1,000 sqft each in the country. The dealerships have an investment cost of about 20,00,000/- into the deposit and interior + the working capital. These dealerships  typically make about 16-20% return on ROCE, making it extremely successful to run one.

Advantages of a Raymond Franchise

• Unlike Garments that can go out of season, Textiles don’t really have an expiry date. Rejection, return and loss on stock is pretty minimal.
• Raymond sells 2,700 crores of branded textiles, out of the 7,000 crore sales of branded textile sales in india. Thats a whopping 40% ! Siyaram’s and Arvind’s sell about 800 cr each, but they are a far cry behind.
• A super lucrative part of owning a cloth dealership, is that you get to make tailoring revenue. Not only is this not shared with the company, but I doubt if any of it is even shared with the taxman 😉
• Margins are 22% for for garments and 20-30% for textiles.
• Raymond promises “value at every price point” and it’s manages to sell in almost every category from 300 rupees a meter to 35,000 rupess a meter. The range is probably the largest in the world. The range selection is simply up to the dealer to figure out what will sell in the locality of his shop.
• The wedding just became a 3 night affair. Raymond was typically the go-to place for the Reception night in the wedding celebrations. With the introduction of Ethnix, Raymond also caters to the Sangeet as well as the actual wedding. Frankly, men hate to get stuff tailored in multiple places and are super happy to get everything in one place.
• Seasons in the sun ! With its new plant in Amravati for linen, Raymond – the name synonymous with pure wool will soon be synonymous with Khadi and Linen, both of which are traditional Indian fabrics, which got lost along the way. Watch Sui Dhaaga for a better understanding of what I’m talking about. From just being a go to guy in the winter, Raymond just became an all seasons shop with the new fabrics.
• Accessories – Raymond stores not only have readymade shirts now, but they have a host of accessories, whose sales are very encouraging. Shoes, Belts, and now even underwear, cufflinks. As a percentage of sales they would be in the 2-3% range but have huge profitability and branding potential.
• Landlord Favourites – There is such a thing called an anchor client in real estate. Landlords want these tenants to take up space in their building as they in themselves become landmarks. They usually get favourable rates too. Raymond, showrooms almost have the same status.
• Re-investment of existing dealers – Raymond encourages their existing dealers to open up new franchises. They have a priority when they apply. Dealers are usually able to open a new one ever 3 years.

Advantages to Raymond 

• Sales growth without capex as all the money into the interiors etc are met by the Franchise.
• Just – in – time. Raymond will not accommodate stock requests larger than 10% of the original order of the franchise. This causes, franchises to overstock a little bit out of fear at the same time, reduces the working capital for Raymond.
• 3km distance. Raymond has changed the guidelines recently and allows a showroom every 3km from the earlier limits of 6 km. Bata too has done this.
• Raymond is able to push existing dealers to open up Parx, Park Avenue showrooms too.
• With ideas from Singularity University, Gautam Singhania is said be working on ideas to disrupt the supply chain.
• This allows Raymond to make investments according to their plans
  • • Invest only into Strategy and Core.
    • Only Strategy – Partner with Others
    • Only core – Find Outsourcing Partners

Looks like bad boy Singhania will be able to pull this off without sweating too much.