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Arvind Ltd invested $ 10 million in its e-commerce business in FY17

By Nikhil Pahwa and Apurva Venkat

Textile retailer Arvind Limited had invested over $ 10 million in Arvind Internet, which is the e-commerce division of the company, in its last financial year ended 31st March 2017 (FY17). The company in its Q4 results said that e-commerce had been the fastest growing channel for the company in FY17, albeit “on a smaller base”. Arvind’s brands include Flying Machine and Excalibur, and it also has rights to sell global brands like Nautica, Calvin Klein, Gap, Tommy Hilfiger, Gant, Arrow, and US Polo Association amongst others. It has a 50% joint venture with Tommy Hilfiger.

In May last year, the company had launched its omni-channel initiative NNNow.com, and it also owns Creyate.com, which was launched in August 2014. It also plans to launch its Mega Mart (now branded as Unlimited) stores online.

While the company did not disclose the operating costs of the Arvind Internet unit, it said that investments in the business will taper off this year, and expects that this investment will reduce by 20-25% in FY18. Even in the previous earnings call, Arvind Ltd pointed towards heavy investments in its online business as a reason for reduction in EBITDA margins. At that time, the company had said that the year-to-date investment in the business had been Rs 50-52 crores.

Last quarter, Jayesh Shah, Director and Group CFO of Arvind had said that the company expected a loss of Rs 70-72 crores in the business during FY17, but predicted that loss would reduce to Rs 10-15 crores in FY18, “based on the revenue that may come in”. “…the traction is very good and very encouraging,” he said then, “though financial numbers may not suggest that. I think on all parameters, be it the number of orders that are hitting, the sale that it is doing, all of that are very encouraging and I think all the parameters that we had or milestones that we had fixed internally are coming good.”

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Arvind Ltd is writing off its entire investment in this business in operating expenditure. In FY16, it wrote off around Rs 10-12 crores, Shah had said in the Q3 conference call.

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Arvind also retails Aeropostale on Amazon. In the Q3 conference call, J Suresh, MD of Arvind Ltd, said about online sales that “they have a discount on the old season stocks, suppose 50 items, you may find discount in some 10 items, so it is not that everything is discounted. The nature of online channel is there is always certain stocks which are discounted which are the old season stocks.” Its Mega Mart / Unlimited brands already sell on Amazon, Myntra and other stores, it said.

In Q1, it had explained how its model is different from existing ecommerce retailers: The company had said that with the Internet segment it would look at converting its own stores and providing an online opportunity for them. “”If you go to an Arrow store”, J Suresh had said “and you are not finding your size, then the system actually now provides an opportunity for that, to find out where the stock is available. It could be in the neighboring store, it could be in another store in the same city or in the neighboring city. So we are actually now making deliveries from the store.” This means, according to Suresh, that there is no loss of sale because of non-availability of size, and a wider variety of items are made available to the consumer.” How the delivery from the store will help is that costs will be lower from a fulfilment point of view, and “from the return cost point of view because it is going to be serviced out of the store and the third also is much more efficient model because we are going to deliver from store.”

“So we are looking at a 3%-4% improvement in our store sales because of saving the sales. So it is not a typical ecommerce model or investing very heavily to acquire consumers.”, he had said then.

Profits

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Arvind expects that starting first quarter current financial year investment in the segment should taper off and go down by at least 20-25% for the next 2 to 3 years. In its Q3 earnings call the company had said that it expects a loss of Rs 70-72 crore for the segment in FY17 and about Rs 10-15 crore in FY18. The company had also said that by FY19 they expect the segment to break even.

Financials

For Q4FY17 Arvind Internet had reported revenues of Rs 5.77 crore and loss of Rs 20.66 crore. In the previous quarter the company reported revenues of Rs 4.71 crore and loss of Rs 28.35 crore for the same segment. It had reduced its losses by 27%. The total revenue of the company for Q4 was Rs 1541.76 crore and profit of Rs 44.51 crore.

Download: Results / Conference calls: Q1, Q3, Q4.

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