KOUTONS RETAIL

KOUTONS RETAIL - CASE

STUDY
IRF BUSINESS PLAN COMPETITION
TEAM SUPERNOVA

11

Acknowledgement
Apart from the efforts of the group, the success of any project depends largely on the
encouragement and guidelines of many others. We take this opportunity to express my
gratitude to the people who have been instrumental in the successful completion of this
report.
We would like to show my greatest appreciation to Prof. Aditya Jain. Without his
encouragement and guidance this project would not have materialized.
The guidance and support received from all the members who contributed, was vital for the
success of the project. We are grateful for their constant support and help.

CONTENTS
EXECUTIVE SUMMARY ..................................................................................................................... 4
MARKET ANALYSIS........................................................................................................................... 6
ABOUT KOUTONS COMPANY ...................................................................................................... 15
A BRIEF HISTORY ......................................................................................................................... 15
BUSINESS MODEL ........................................................................................................................ 18
ORGANISATIONAL STRUCTURE .............................................................................................. 20
PRODUCT PORTFOLIO ................................................................................................................ 21
SOURCING ..................................................................................................................................... 22
COMPETITIVE STRENGTHS........................................................................................................ 23
ANALYSIS AND EVALUATION ..................................................................................................... 25
WHAT WORKED ...................................................................................................................... 25
WHAT WENT WRONG............................................................................................................. 26
RECOMMENDATIONS .................................................................................................................... 28

EXECUTIVE SUMMARY
Koutons is a brand story which has gone sour. This 1000 crore corporate brand is now facing
the worst period of its existence- facing mounting debt and bad press regarding the financial
position and the stock price moving southward. Koutons , the brand owned by Koutons
Retail India Ltd was born in 1991. The original name of the company was Charlie Creations
which was later rechristened as Koutons. Koutons is both the corporate brand and an
individual brand . The company has a range of readymades with the brand name Koutons.
Along with it , the company also has other brands of clothings like Charlie Outlaw, Le
Femme etc. The current post focuses more on the individual brand.Koutons Retail is a classic
entrepreneurial story. The company was founded by Mr. DPS Kohli. Mr Kohli and his
family owned a television manufacturing business which was destroyed during a riot. Mr.
Kohli had to suffer huge financial losses from that even and had to work as an insurance
surveyor for long . Later he ventured into the retail textile business.Koutons grew really fast.
The company became India's largest retail apparel chain in a span of 10 years . In 2009, the
company had around 1400 Exclusive Brand Outlets (EBO) making it the largest apparel
chain. The company had a turnover of around Rs 1000 crore in 2008-2009.Koutons was a
brand built on a very unique strategy - deep discounting. Deep discounting is a pricing
strategy where the brand offers huge ( often mind-blowing) discounts on an unusually high
MRP ( Maximum Retail Price) . So the consumers are attracted towards the product seeing
the huge discounts which are actually not a discount ( in pure sense).
Koutons has a popular discount scheme known as 50% + 40 % off. So there is a 50% off on
the MRP and then another 40% off on the discounted price. So the consumers obviously are
delighted to get a shirt with an MRP of Rs 1500 for as low as Rs 450. Another very successful
offer was " Buy 4 garments for the price of One ". Seeing this unbelievable offers , consumers
flock into the showrooms and buy what ever that is available .Along with the deep
discounting strategy, the brand also invested some money in the brand building.Koutons
has the tagline " The way ahead, always " . It had campaigns featuring foreign models and
usually the showrooms are located in upmarket malls thus giving the impression that
Koutons are a premium brand. But frankly no one really knows whether Koutons really
sells a shirt for Rs 1500. But nobody was complaining because consumers got a feeling to

getting a good bargain and that is what matters. So this model worked well for the firm for
more that 20 years. As usual, 20 years is pretty long time for consumers to learn the
discounting model. The sales started drying up and the cost and inventory started building
up. More discounts followed and revenues started sliding. The company landed itself into a
financial trouble.
The brand really was able to tap the " value for money " psyche of the Indian consumer.
Indian consumers like a good bargain and for long years, the firm was able to capture profit
out of it. But the popularity of other discount outlets of established brands and the quality
issues of Koutons paved the way for the downside for the brand. According to some
newsreports, the company faced the issue of inventory mis-estimates and huge debts. In the
deep discounting model, the brand is secondary. What matters is the attractiveness of
discounts and high media spends announcing the discounts. It is not the brand that pulls the
customers but the perceived bargain. Of course the consumers should feel that the brand is
aspirational . So it is a kind of a very risky , clever strategy. Project aspirational image and
use discounts to pull the consumer in.
Koutons as a company is in financial trouble and the fate of the brand depends on how the
company survives the crisis. The deep discounting model will work in a market like India as
long as the firm is able to project the aspirational image. It lacks the glamour of brandbuilding but may work for short-term. In the long term such deep discounting will
eventually kill the brand.

MARKET ANALYSIS
The Indian apparel buyer is varied and can be found across the entire spectrum of brand
and price consciousness. The segment that Kouton has chosen to target is the one that
aspires to convenience and brands and yet wants the products to be reasonably priced.
Currently this buyer has a variety of options. While the Indian organised retail sector is
under-served, and predictions for the market are very attractive, the number of buyers
willing to pay a substantial premium is relatively small. Unorganized retail options are
abundant and the buyer has several options at hand. While this reflects that Koutons may
have made some responsive choices in their approach to pricing, it also indicates that the
buyers have tremendous actual power. The good news is that the segment that will pay a
premium for convenience is steadily growing.
"India is a tough market, the system is laborious," Gayatri Ruia, Development Director of
Palladium in Mumbai, a mall that houses several brands, including luxury and premium.
"The average Indian wealthy person sees no value in branded goods. The few who do are in
the habit of shopping while vacationing abroad."1
"The problem is, most of India's rich prefer buying their luxury abroad. "This is partly
because, unlike in the west, even the rich Indian is a price-conscious one," said Shobhaa De,
Indian newspaper columnist, socialite and novelist."2
"Demographic trends in India are changing, with increase in disposable income levels,
consumer awareness and propensity to spend. According to NCAER data, the Consuming
Class, with an annual income of US$ 980 or above, is growing and is expected to constitute
over 80 per cent of the population by 2009-10. There is a change in the consumer mindset
that has led to a trend of increased consumption on personal care and lifestyle products as

1
2

http://www.vccircle.com/500/news/luxury-retail-not-part-of-indias-success-story
ibid

well as branded products. These trends offer great growth opportunities for companies
across various sectors, including textiles. Supporting the increasing demand for
consumption is the revolution taking place in Indias retail sector. Organised retail is playing
a key role in structuring the Indian domestic market, reinforced by the rapid rise of
supermarkets, malls, theme stores and franchises across urban India. India thus presents a
large and vibrant market for textiles and apparels, with a potential for sustained growth."
(Corporate Catalyst India - pdf report on the Indian Textile Industry)" "The Indian textile
industry faces a host of constraints:
Fragmented structure with the dominance of the small scale sector
High power costs
Rising interest rates and transaction costs
Unfriendly labour laws
Logistical disadvantages in terms of shipping costs and time pose serious threats to its
growth
Foreign investments are not coming in as the overall factors influencing the industry are
not investment friendly"
"The most significant period of growth for the sector was between year 2000 & 2006, when
the sector revenues increased by about 93.5% translating to an average annual growth of
13.3%.The sectors growth was partly a reflection of the impressive Indian economic growth
and overall rise in income level of consumers."3
"Against the backdrop of an ageing world, India processes the advantages of having a
largely young population. 35% of Indias population is under 14 years of age and more than
60% of the population is estimated to constitute the working age group (15-60) till 2050.Twothird of Indian population is under 35, with the median age of 23 years, as opposed to the
world median age of 33. India is home to 20% of the global population under 25 years of age.
This trend is projected to continue for the next decades. The large proportion of the working

Tanveer Malik, Asst. Professor, Ajay S. Joshi and Sweta Pandit, Lecturers, Shri Vaishnav Institute of
Technology and Science, Indore "Organized Retailing in India: A Buzz of Flourishing Business".
Obtained from Fibre2Fashion.com
3

age population translates to a lucrative consumer base vis--vis other economic of the world,
placing India on the radar as one of the most promising retail destination of the world." (Org
retailing in India - Buzz..)
Suppliers:
The textile industry is the second largest employment sector in India. In addition it
contributes around 3% to India's GDP. Yet it is highly fragmented4. Archaic laws have
prevented aggregation and widespread growth of large textile houses. "This unique industry
structure is primarily a legacy of government policies that have promoted labour-intensive,
small-scale operations and discriminated against larger scale firms"5. "Apparel is produced
by about 77,000 small-scale units classified as domestic manufacturers, manufacturer
exporters, and fabricators (subcontractors)." (Indian textile industry - An overview)
"Although quota restrictions have been dismantled, Indian textile players continue to
grapple with archaic government regulations such as the "Handloom Reservation Order"
and the "Hank Yarn Obligation Order"." " A recent study by the Textiles Committee noted
that a mere 6% of the workforce in the Indian apparel industry has received formal
institutional training. At the supervisory level, only 2% of the workforce is trained. This
certainly presents a very disappointing picture for a segment that is expected to drive the
growth of the entire textile industry in the future.
According to the Textile Policy, the Indian apparel sector is projected to grow to about $25
billion by 2010 from about $12 billion at present. This seems to be a tall order given the
quality of manpower and infrastructure India now possesses. The lack of training has taken
an immense toll on overall productivity, even as India boasts of having one of the cheapest
manpower pools globally. "6
" apart from spinning, such activities as weaving, processing and garmenting are
fragmented in India. (http://www.atimes.com/atimes/South_Asia/HF06Df01.html)"
"What is preventing manufacturing in India from becoming the engine for mass
employment it has been in East Asia? Take the textiles and clothing sector which accounts

Ministry of Textiles report:"Assessing the prospects ..."

Dr.M.Dhanabhakyam, A.Shanthi, Bharathiar University, Coimbatore, "Indian textile industry - An
overview" Obtained from Fibre2Fashion.com
6 http://www.atimes.com/atimes/South_Asia/HF06Df01.html
4
5

for a fifth of Indias exports. It employs almost 10 percent of Indias workforce, or some 35
million people, and has the potential to add another 12 million new jobs --dwarfing the 1-2
million jobs created by the much-heralded IT and BPO sector. The sector was expected to
boom after the multi-fiber agreement was abolished in 2005. While in the first year of quotafree exports, textiles and clothing exports jumped 23 percent, similar to Chinas, growth
slowed to about 10-12 percent the following year (2006). Not only was this slower than
China, it was also slower than Bangladesh, Pakistan, and Vietnam.
The sector is clearly facing constraints that are hindering its expansion. Chinas remarkable
success with exports of 20 billion finished garments or roughly 4 for every person in the
world - has largely been explained by its state-of-the-art factories and efficient transport
infrastructure. While huge infrastructure bottlenecks have undoubtedly kept Indias textile
and clothing industry small and fragmented, what is perhaps less well-known is how Indias
archaic labor regulations are hurting the sectors growth.
Anecdotal evidence suggests that Indian manufacturers often set up several plants instead of
a single large one to get around labor laws. This, however, limits their flexibility to meet
seasonal variations in demand. They also lose out on economies of scale and investment: on
average, Indian textile and clothing firms have only 10-20 percent of the machines that a
typical Chinese plant does."7
As such the suppliers for the organized retail of apparel have low bargaining power.

Sadiq Ahmed and Shantayanan Devarajan "Labor Laws: To Create Good Jobs, Reform Labor
Regulations" Sadiq Ahmed is Sector Director Poverty Reduction and Economic Management (PREM),
Shantayanan Devarajan is Chief Economist South Asia Region, The World Bank
(http://go.worldbank.org/8DBED1XFT0)
7

(High Level Value chain from Corporate Catalyst India - pdf report on the Indian Textile
Industry)

(Porter's diamond from Corporate Catalyst India - pdf report on the Indian Textile Industry)

Substitutes:

Organized retail of apparels has tough competition from the small retailers and custom
tailors that are easily accessible and offer competitive prices to their customers.
"The major constraint of the organized retail market in India is the competition from the unorganized sector. Traditional retailing has been deep rooted in India for the past few
centuries and enjoys the benefits of low cost structure, mostly owner-operated, therein
resulting in less labor costs and little or no taxes to pay. Consumer familiarity with the
traditional formats for generations is the greatest advantage to the unorganized sector. On
the contrary, organized sector have big expenses like higher labor costs, social security to
employees, bigger premises and taxes to meet."8
" Assessing the Prospects for Indias Textile and Clothing Sector", NCAER - National
Council of Applied Economic Research, July 2009.

Tanveer Malik, Asst. Professor, Ajay S. Joshi and Sweta Pandit, Lecturers, Shri Vaishnav Institute of
Technology and Science, Indore "Organized Retailing in India: A Buzz of Flourishing Business".
Obtained from Fibre2Fashion.com
8

"4.3 Knowledge of demand structure and consumer behaviour is essential for a wide range
of development policy questions and macroeconomic policy. The expenditure and price
elasticity are very helpful in characterizing the demand situation in markets. In this section,
expenditure elasticity and price elasticity derived with data from the consumer expenditure
survey, 61st round, NSSO. This survey is for the year 2004-05."

"4.4 Retail is very important activity these days. The simple act of selling goods and services
to the end consumer by retailers is becoming complex by the consumer driven highly
competitive market of the day. The complexity gets reflected in all prominent aspects of
retailing from procurement to billing and checkouts, from the backend to front end
operations etc. Innovation and differentiation have become the watchword in retail and
newer retail formats are being evolved to meet the aspirations of the modern day consumers
(IMAGES KSA TECHNOPAK, 2005). Retailing is important sector in terms of employment
and income generation.

"4.4.1 Apparel Retailing in India

During 2006 total consumption of fabric and garments including exports is estimated at Rs
2813 billion, out of which amount of spending on textiles and clothing items by the
household sector was estimated at Rs 1,556 billion and exports were of the order of Rs.561
billion. In 2006 exports constituted 20 percent, household expenses 55 percent, and non
household expenses 25 percent of the total sales value of cloths in 2006. Total value of
production of fabric and garments for the same year was Rs.1294 billion. Thus average sales
margin in 2006 comes out to be 117.35%. Table 4.7 indicates that the average margin on
textile and clothing products was 109 percent in 1999, 126 percent in 2003, 139 percent in
2004, and 127 percent in 2005. Such a high margin is mainly due to the long chain of
wholesalers and retailers involved from the production stage to the final consumer stage.

The comparison of production and consumption estimates, along with the NSSO data on per
unit margin for wholesaler and retailer in Table 4.8, indicates that on average, two
wholesalers and two retailers, along with duties, could add up to a margin that is close to
100 percent. The margin for two wholesalers and four retailers will add up to 122.74 percent
for cotton textile products and 106.72 percent for garments."

ABOUT KOUTONS COMPANY

A BRIEF HISTORY
The Company was incorporated on November 25, 1994 under the Companies Act,
1956 as Charlie Creations Private Limited. The name of the Company was changed
to Koutons Retail India Private Limited with effect from February 7, 2006. The
Company was converted into a public limited company and its name was changed
to Koutons Retail India Limited with effect from June 27, 2006. Koutons started
primarily as a denim brand but are today manufacturing and selling complete men,
women and kids wardrobe under the brand name Koutons , Les Femme and
Koutons Junior respectively. Another brand from the stable of Koutons is Charlie
Outlaw, which caters to the teens of the country with apparels including jeans, Tshirts, jackets etc. Koutons Brand is catering to the Upper & Upper Middle Class of
Society with a vast target age group between 18-60 years Koutons Retail India Ltd. is
the leading retailer of readymade and fashion wear brand in the country today. With
more than 1400 outlets across India, it has a wide range of apparel designs suited for
all segments including corporate, formal and casual dressings. Koutons aptly creates
the conducive environment for a family outing, making family shopping the best
experience at an affordable price - all at one place.

Agreement to acquire the partnership firm M/s Charlie Creations

The Company was incorporated with the main object inter alia to take over the
existing partnership firm, M/s. Charlie Creations which had Mr. BS Sawhney and
Ms. Amarjit Kaur as partners (the Firm), along with all its assets and liabilities.

Pursuant to this object we entered into a Sale of Business Agreement with the Firm
on January 2, 1995 in order to acquire the business of the Firm as a going concern
with effect from January 1, 1995. Under the Sale of Business Agreement, we acquired
all the assets and liabilities of the Firm appearing in its balance sheet as on December
31,1994, including plant, machinery and fixtures owned by the Firm, cash in hand,
debts due to the Firm, stock in trade, consumable stores and immovable plant and
machinery, trademarks, design and licenses owned or obtained by the Firm, benefits
accruing to the partners of the Firm from all contracts, pending subsisting or under
execution, the loan availed from the Bank of Baroda and all other statutory dues or
liability. We acquired the business of the Firm for a total consideration of Rs. 585,000.
Further, the partners of the Firm had undertaken not to carry on the same business
either personally or in association with any third person without our previous
written consent.

EVOLUTION
1994
The Company was incorporated as Charlie Creations Private Limited with the main
objective of inter alia acquiring the business of the M/s. Charlie Creations.

1997
The Company diversified its business by introducing non-denim trousers in the existing
product range of denim apparel.

Awarded the title "Best Menwear (Casual) Collection by Apparel Exporters and
Manufacturers Association.

1998

The Company launched the brand Koutons

Award received for best display of denim clothing from CMAI-Ashima Group.

2000
Award received for Outstanding Domestic Sales from Clothing Manufacturers Association
of India.

2002
The first exclusive brand outlet under the Koutons brand was opened
2003 Mr. DPS Kohli was awarded the title of Entrepreneur of the Year by the Institute of
Trade and Industrial Development.

2005
Nominated for the Brand of the Year-Men's Casual Wear (Large) by the Clothing
Manufacturers Association of India.
2006
The Company was converted into a public limited company and consequently its name was
changed to Koutons Retail India Limited with effect from June 27, 2006.
The Company re-launched the brand Charlie Outlaw On October 5, 2006 104 Charlie Outlaw
exclusive brand outlets were opened in a single day, which was recorded in the Limca Book
of Records 2007
UTI Venture Funds Management Company Private Limited subscribed to 852,500 Equity
Shares out of which 680,000 Equity Shares were allotted at Rs. 600 per Equity Share* and
172,500 Equity Shares were allotted at Rs. 800 per Equity Share*.
Argonaut Ventures subscribed to 575,000 Equity Shares at Rs. 800 per Equity Share*.
Awarded the title Most Dynamic Brand of the Year 2006 by LYCRA Images Fashion
Awards.
Awarded the title Value Retailer of the Year 2006 by Star Retailer-The Consumer Way.
Nominated for the Chain Store of the Year at Apex Award, 2006 by the Clothing
Manufacturers Association of India
Nominated for the Brand of the Year - Men's Casual Wear (Large) at Apex Award, 2006 by

the Clothing Manufacturers Association of India

2007
Passport India Investments (Mauritius) Limited subscribed to 600,000 Equity Shares at Rs.
350 per Equity Share.
FID Funds (Mauritius) Limited purchased 1,162,791 Equity Shares from the Promoters at Rs.
430 per Equity Share
Mr. DPS Kohli was awarded the title of UDYOG VIBHUSHAN for Excellence in Industrial
Performanceby the Institute of Trade and Industrial Development.
2008
Launch Of Shoes. Launch Of brand 'Les femme' for ladies & 'Koutons Junior' for kids.

Mission Statement
"Value for Money and High on Fashion" being their USP, Koutons has given the
brand an extension delving into specific consumer segments. The ga rments are ma de
keeping in v iew the ov erall need of the niche ma rket and the ba sic/fa shion demand
of the India n masses. Our product range also ca ters to the tastes of all segments. Our
Brand is placed as the most dynamic brand of India .

BUSINESS MODEL

To emerge as the most profitable retailer in India by being the most efficient

To provide contemporary fashion at affordable prices.

To cut away all areas of distribution and value chain that do not benefit the
consumer.ra

Fashion & Quality @ Affordable Prices

Respect for the customers views

Use our vast experience and insights for improved products.

Stay abreast with international developments

Achieve volume and sale to be globally competitive.

Growth through leadership.

Aim to lead through innovation & improve through introspection to serve the
customers and stakeholders equally and become an efficient and low cost
operator with a commitment to quality.

Aim to be world leader yet remain firmly rooted to our local markets.

Koutons Retail India Limited Key Data:

Ticker:

KOUTONS

Country:

INDIA

Exchanges:

BOM

Major Industry:

Apparel & Textiles

Sub Industry:

Miscellaneous Textiles

Employees:

667

Market Cap:

554,507,856

2010 Sales

Currency:

12,037,631,000
(Year Ending Jan 2011).

Indian Rupees

Fiscal Yr Ends:March

Share Type:

Ordinary

Shares Outstanding: 30,551,397

Closely Held Shares:19,890,298

ORGANISATIONAL STRUCTURE
Mr. D.P.S Kohli, Chairman, Koutons Retail is one of the founding pillar of Koutons. He
heads Marketing, Finance, Information Technology, Administration and Human Resource.
Mr. Kohli had a vision of providing fashion at an affordable price. This vision has taken
Koutons from a relatively small beginning to a dominant player in the menswear branded
garments. He is a remarkable leader who can visualize an opportunity and implement it
efficiently which has resulted in the success of the brand.
Prior to the birth of Koutons, Mr. Kohli was involved with the family business of retailing
bicycles, electrical and electronic goods in Orissa. In 1982 he shifted to the electronics
industry and started manufacturing his own television under the brand name "Apollo". He
lost everything in Sikh riots in 1984, but he never gave up and later on teamed up with his
brother in law Mr. B.S Sawhney and launched Charlie Creations. The focus was on
providing fashion and quality at an affordable price.
In 1997, Mr. Kohli launched Koutons with a focus on complete mens wardrobe.
Understanding the consumer behaviour, he decided to create his own brand outlets. He
desgined a franchisee model that turns small business men into entrepreneurs. He realized
the potential of the domestic market and worked hard for a win-win relation between the
company and his franchisees.He has been honoured with number of recognitions.
He was awarded the title of "UDYOG VIBHUSHAN for Excellence in Industrial
Performance" by the Institute of Trade and Industrial Development. He was awarded the
title of "Entreprenuer of the Year" by the Institute of Trade and Industrial Development in
2003.
He has been awarded the title of "2008 Top Marketing Man Award" by IMM, Delhi.
He was also awarded the title of "Most Admired Fashion Face" at Images Lycra Fashion
Awards 08 Mumbai.
B.S.Sawhney
(Managing Director)

The other founding promoter of the company, he looks after Sampling, Merchandsing,
Sourcing and Sales. He is instrumental in company's growth.
G.S. Sawhney
(Deputy Managing Director)
The youngest of the company, he looks after the Warehouse,Logistics,Production and
Personnel. He is instrumental in making the growth of the company possible.

PRODUCT PORTFOLIO
KOUTONS MENSWEAR
The well known apparel house, Koutons Retail India Ltd. has unveiled their latest collection
of menswear. This collection offers a wide range of formal and informal clothing for men for
the age group of 18 years and above. Known for their comfort and durability the brand has
become synonymous with 'fashion and quality' at affordable price'. The collection caters to
men which includes the working professionals.
The collection includes the shirts, T-shirts, pull overs, sweat shirts ,denim and non-denim
trousers, cargo and shorts for men in trendy yet formal shades the collection also offers a
variety of fabrics to choose from. The basic formal shirts are available in linen and cotton
fabrics. The range is also available in blended fabrics. The special product range wrinkle
resistant flaunts ten to twelve colors to choose from. Using wrinkle-resistant technology the
company has sought to introduce a new breed of weaved hundred percent cotton fabric and
blended cotton.
The latest collection of Koutons menswear is a range created for today's generation of men
who wear what they like and firmly believe in themselves. The collection is for those who
like to blend comfort with style.
KOUTONS WOMENSWEAR - LES FEMME
Koutons Retail India Ltd. has unveiled its women wear collection named "Les Femme". Les
Femme collection offers a wide range of formal and casual wear for women. The collection
Les femme caters to young women in the age group of 16-34 yrs of age and includes
apparels like t-shirts, party wear, lycra, semi formal shirts, denims, capris , tunics, cargos
denims. The collection makes a fashion statement with Knits T-Shirt, shirts for formal and
casual attire available in full, half and 3/4th sleeves etc.

Les Femme offers the new high fashion range which has lot of sequence and bedded work
done on the apparels. Satin and lycra are presented in dazzling colors and reminiscent
patterns. The collection makes a fashion statement in itself at affordable prices.
The range is in sync with the changing moods of the youth and working class, which go in
for care free and relaxed lifestyle, Les Femme provides them with comfortable but classy
wear. Les Femme is a brand created for a generation of women who wear what they like and
firmly believes in individual personality. Almost every piece designed and created for 'Les
Femme' collection depicts timeless creation blended with sophisticated simplistic detail.
KIDSWEAR - KOUTONS JUNIOR
All set to redefine the kids wear market in the country, Koutons Retail India Ltd. has
unveiled the Koutons Junior collection exclusively meant for the fashion conscious kids of
21st century. The collection offers a wide range of trendy and playful apparels for kids.
Known for their comfort and durability, the brand has become synonymous with 'fashion
and quality at affordable prices'. Koutons Junior offers a wide range of apparels t-shirts,
shirts, night wear, capris, cargos, denims, dangris to denim skirts for boys and girls in the
age group of 2-15yrs.
Right from providing formals and casual for boys and girls, Koutons Jr. offers a youthful
and trendy blend of bright shades and wintery hues along with playful cuts and patterns for
kids. The yarn used in Koutons Jr. 100% cotton,100% acrylic, lambs wool blend. The all new
kids range is made from superior quality fabrics keeping in mind the delicate and sensitive
skin of children so the natural fibers used in the apparels are soft in feel for young kids.
Koutons Besides the normal range of apparels a special range of accessories is also available
which includes bags, sun glasses, swim glasses, pencil boxes, bottles, caps, belts ties and
many more.

SOURCING
Koutons entirely rely on third-party suppliers for fabric and other raw materials. The prices
for such fabrics depend largely on the market prices for the raw materials used to produce
them, particularly cotton. Adverse fluctuations in the price, availability and quality of the
fabrics or other raw materials used in our manufactured apparel could have a material
adverse effect on cost of goods sold or our ability to meet customers demands. The price
and availability of such raw materials may fluctuate significantly, depending on many

factors, including crop yields and weather patterns. Any material shortage or interruption in
the supply or decrease in the quality of these raw materials due to natural causes or other
factors could result in increased
costs of goods sold that Koutons may not be able to pass on to its customers, which in turn
would have a material adverse effect on our margins and results of operations.
Apparel retailing in India is highly working capital intensive. Additionally, Koutons also
manufacture our own products which increase our working capital intensity primarily
because of high inventory levels. It has a number of franchise agreements with various
parties for opening exclusive brand outlets. Under the franchise model being followed
Koutons carry the inventory on its books till the sale of the apparels to the end customer and
do not pass the inventory risk to the franchisee. This business model requires maintaining
high inventory levels and is working capital intensive. Inventory levels in excess of customer
demand may result in inventory write-downs and have a material adverse effect on the
operating results and financial condition
As Expansion of product offerings involves significant costs and uncertainty hence could
adversely affect the results of operations.
Its growth strategy to expand into new geographic also proved to be risky.
Pursuance of such a growth strategy exposes to risks which may arise due to lack of
familiarity with the development, ownership and management of retail business and the
customer preferences including:

Adjusting retail methods to different geographies;

Obtaining necessary governmental approvals and permits under unfamiliar

regulatory regimes; and

Attracting potential customers in a market in which they do not have

significant experience.

COMPETITIVE STRENGTHS
Exclusive Brand Outlets
The majority of apparel manufacturers cum retailers in India operate through a combination
of retailing through exclusive outlets as well as through national chain stores and multi
brand outlets. This entails supplies being managed directly and through distribution agents.

Koutons operate on a model of marketing apparels directly through a chain of exclusive

brand outlets and thus are independent of external marketing pressures attributable to the
national chain stores, multi brand outlets and other intermediaries.
Integrated player with low-cost sourcing capabilities
An integrated player across the entire value chain of manufacturing and retailing and one of
the major strengths includes in-house finishing facilities and rigid quality controls. They
source raw materials through intermediaries (who procure raw materials from various
international markets). They also employ extensive logistics and supply chain management
systems to maintain maximum flexibility, which enables to meet needs in an efficient
manner without relying on any one vendor, factory or country. By virtue of a centralized
purchasing system, Koutons also tried to achieve standardization in quality control systems.
Unique brand positioning
Koutons position itself as a High Fashion Value for Money brand. Koutons brand is
positioned in the middle to high fashion segment, offering a complete range of mens
wardrobe (in the age group of 22 to 45 years) ranging from semi formal to casual and party
wear. Charlie Outlaw brand is a casual brand targeted at fashion conscious youngsters in
the age group of 14 to 25 years. The belief was in providing customers value for their money
and position apparels at a reasonable price with a focus on volume sales. There is an
untapped market in the middle income segment which is both brand conscious and
aspirational in nature.
Design and merchandising expertise, with a pulse on fashion
A team of designers and merchandisers who are supported by a staff of 40 professionals,
including assistant designers and technical designers. Specialized design teams for each of
the apparel categories, ensuring that each of design teams has specialized skill sets.
Marketing and merchandising teams keep themselves abreast of the various fashion
developments and mixes it with the creativity of professionally qualified designers working
to create a distinct style statement at affordable prices.
Wide apparel range
A wide apparel portfolio which ranges from shirts, non denim trousers, denims, suits,
blazers, T- shirts, cargos, capris, sweaters etc. They manufacture and retail through exclusive

brand outlets the complete wardrobe of a man and are in the process of launching a range of
apparels for women and kids.
IT Infrastructure
The company has recently introduced a state of the art information flow system. They are
currently maintaining sale, records and store inventories on specially developed computer
applications known as WIZZAPP and Ginesys. These softwares enable them to maintain
mirror images of the data base at head office and stores across various locations. All daily
transactions at either end are updated through pooling of incremental data of new
transactions. This helps to maintain complete control from the head office over all the stocks
and sales on a daily basis.They have recently installed a state of the art enterprise resource
planning system developed by Ramco Systems, which will ensure the optimum usages of
current resources given the systems strength in financial postings and analysis. It also gives
an edge in inventory management through the creation of a detailed virtual warehouse with
bins and sections along with a logistics solution.

ANALYSIS AND EVALUATION

WHAT WORKED
1. Brand Positioning
Positioning the brand as Value for Money and High on Fashion definitely helped
the brand make inroads into the consumers mind. This was brand positioned at the
value seeking middle class in Tier 2 and Tier 3 cities
2. Fully-integrated business model
The company's manufacturing-led retail model eliminates intermediaries cost (which can
range about 25-40% of MRP) at multiple stages
3. Economies of scale

Koutons is the largest discount retailer of readymade apparels for men, women and children
in India with its own manufacturing facilities in North India. It manufactures semi-formal
and casual wear under the brands Koutons, Charlie Outlaw, Les Femme and Koutons Kids.
Each of these brands operates in a separate segment, ranging from the premium to value
segment.
4. Asset-light unique business model
Koutons Retail operates exclusive brand outlets through the franchisee route. The franchise
arrangement of the Company is essentially structured on three models namely: (a) locations
which are company-owned/ leased and company operated (COCO); (b) franchise locations
which are company owned/ leased and franchisee operated (COFO); and (c) franchise
locations which are franchisee owned/leased and franchisee operated (FOFO). As on
August 2007, the company had approximately 86% of the outlets under FOFO model, 13%
under COFO model and 2% under COCO model.
5. Expansion through Tier 2 Cities
The Companys strategy to target Tier 2 and 3 cities for Expansion gave it the opportunity to
expand in un-tapped markets.
WHAT WENT WRONG
1. Incorrect Market Estimation:
Over aggressive expansion plans based on an over optimistic estimation of the industry in
its nascent stage of growth resulted in funding crisis
2. Flaws in Business Model:
The business model is that of low margin/ high working capital which translates into the
ROI being marginally higher than the cost of capital in good times and marginally below the
cost of capital in bad times.
3. High Inventory Holding Resulting in Higher Discounts:

Company suffers with high level of inventory and working capital (70-80% of sales). In the
June quarter, after paying interest of Rs 23.4 crore, the company managed to make a net
profit of only Rs 5.5 crore.
Besides this, rising inventory, which compelled the company to offer its products at
discounted rates, has put pressure on its margins. Its net profit margin has fallen to 6.7%
from 8.5% in the past three fiscal years.
4. Heavy Debt Burdens:
The company's debt trebled to Rs 624 crore in the two years ended March 2009. Although
Koutons has yet not published its FY10 balance sheet numbers, industry trackers say that the
debt may be over Rs 1,300 crore. During the past three fiscal years, its debt rose six fold
while its net profit went up by just 2.4 timesIts debt to equity works out to be 2.6.
5. Over Discounting Led to Re-positioning the Brand as a Discounter:
Excessive discounting throughout the year repositioned the brand as a discounter and made
it extremely hard for them to sell at full price.
6. Concentration on Expansion in North:
The Company went over aggressive in its expansion in North India, with more than 50% of
its distribution concentrated in North, purely because of its geographical strengths in the
region resulting in an un-even distribution. While the Brand was over distributed in the
North, it could not leverage the brand strength in Rest of India.
7. Poor Location Selection:
In Order to keep the rentals in check, the organization took over spaces which were away
from the shopping hot spots and had poor customer walkins.Koutons opened stand alone
stores in residential areas which did not do enough business to sustain retailing cost and
also compounded the working capital problems because of poor throughputs
8. Other External Factors

Consumer Purchasing Power Buoyancy: Retailers have mis-judged the Indian

consumer psyche with the preconceived notion that the Indian consumer like his

western counterpart would expend a significant proportion of his income on

discretionary spending.

Funding requirements: Organised retailers are currently hit by a liquidity

crunch with equity funding drying up and debt funding becoming extremely
difficult to service. Moreover most retailers are already highly leveraged and
have difficulties servicing their existing debt. Their interest cost has increased
affecting the net margins, primarily due to two reasons higher levels of
borrowing to fund expansions.

Personnel: The cost of retail sector employees has been high with people
recruited at extremely high salaries in the past.

RECOMMENDATIONS
1. De-risking the Business Model:
Increase Proportion of Buy and Sell Business Model even at a lower profitability.
Can explore following instruments

Buy and Sell EBOs

Department Stores

High Quality MBOs

Company can offer a higher margin 3% to 5% higher than the prevailing market rate
to ensure higher penetration. It can leverage its strengths on manufacturing and
ensure the costs are under check. It can improve operating margins and cost
structure by consolidating manufacturing and distribution operations and reducing
selling, general and administrative costs, and by actively seeking efficient sources of
production, whether through internal sources of supply or through outsourcing.
Koutons must intend to continue to: (a) identify efficient manufacturing operations
and improved raw material sourcing; and (b) maintain and enhance a low cost
infrastructure and a flexible supply chain.
2. Continue Brand Building Position itself as Value for Money, Fashionable
Family Retailer

3. Shutting down non profitable stores/ Category Optimization

4. Stop excessive discounting at EBOs. Convert some poor location stores to
Factory Outlets to liquidate excess inventories.
5. Target the growing segments
Strengthen the competitive position and recognition of its brands.
Kouton should advertise in print and broadcast media, as well as market directly to
consumers through billboards, event sponsorships, celebrity sponsorships, special
event advertisements and advertisements in selected periodicals. In addition, they
should continue to have a strong presence at trade shows and events throughout the
country.
Further improving our cost structure.
Core belief of the brand is in providing quality apparels at affordable prices.
6. Pursuing potential strategic acquisitions to complement existing brand
portfolio.
Koutons should look forward to acquire or merge with businesses with
synergetic possibilities for designing, manufacturing and retail operations.
7. Increase geographic penetration by spreading the network of exclusive brand
outlets
Introduce apparels to new geographic areas and consumer sectors that are presently less
familiar with branded apparels. For the Koutons brand, there is an established network in
north/north western India and are rapidly consolidating network in western and eastern
India. The chain should plan to consolidate its presence across all regions in India and also
seek to increase the business with existing customers by offering them apparels that are in
line with the latest fashion trends and by capitalizing on the relationships with them by
offering them at affordable prices.