Post two challenging years owing to Covid-led disruptions, VIP recorded healthy sales in FY23 with revenues crossing Rs 2,000 crore mark for the first time. What factors contributed to this growth in sales?
There are a few factors that contributed to our overall growth story. To begin with, fundamental demand came back very strong post-Covid, it was not a pent-up one-time demand but seemingly more fundamental; people possibly have started valuing travel more and have increased frequency than before. That said, key demand indicators remained consistently high throughout the year and fueled growth. Airline passenger traffic through the year increased to come back to pre-pandemic levels. Hotel occupancy levels recorded the highest level and have remained consistently high throughout the year.
In addition to the overall consumption growth of the industry, there was a sharp shift from the unorganised sector to the organised. Almost half of the luggage industry was expected to be a part of an unorganised sector but it has been yielding to the organised sector gradually over the years. The shift accelerated with GST implementation and further, during the pandemic, there was a complete breakdown of the supply chain of the unorganised sector. This was also a key factor adding to the tailwind and is expected to continue, though with lower intensity in the forthcoming years.
We, in fact, leveraged these sectoral tailwinds, amplified by - internal operational efficiencies achieved by increasing upstream control, strong brand activations, attractive designs and strong customer communications. We witnessed an all-rounded growth across brands, segments and channels.
Is demand on the ground strong enough?
The growth in the value segment not only resulted in a high growth rate overall but also helped in gaining market share. This was backed with a hard luggage strategy based on polypropylene-made moulded luggage and significant investment in ramping up own manufacturing that led to competitively superior cost efficiencies. What's more? Cutting-edge innovations in Skybags and VIP brand - tech-enabled, FIFA cobranded and several such themed innovations caught the eye of the consumers. Further, aggressive investment in brand advertisements and activations added to the growth impetus. In addition, our international business also saw a significant shift with the doubling of our revenues in FY 23 compared to pre-Covid.
During our previous conversation, we engaged in a discussion concerning your reliance on China for sourcing a significant portion of your luggage. It is interesting to see a gradual reduction of this dependency. Could you elaborate on the significant transition of reducing dependence on China?
Our impressive growth story during the year was on the back of a completely remodelled supply chain. During our initial conversation, I always talked about how VIP Industries has been one of the early implementers of China+1 strategy — even before the pandemic. One of the important decisions that we have taken to see beyond the China+1 strategy was starting our Bangladesh operations in 2013. In fact, we have expanded it exponentially post-pandemic. In two years post the pandemic outbreak and lockdowns, (FY22 and FY 23) we have scaled up production more than 2.5 times. Today, with a workforce of approx. 6,000. And ~800,000 sqft spread over 8 factories, VIP Bangladesh is one of the single largest multi-category bag-producing facilities in the world. 70 per cent of our revenue is manufactured in-house between India and Bangladesh. Due to this strategy, that we adopted earlier, our China dependency is down to only seven per cent compared to ~ 50 per cent pre-pandemic.
Meanwhile, a major fire incident happened at your Bangladesh factory which contributes nearly 10 per cent of consolidated revenue. How is the factory now getting back in shape?
It was disheartening! The fire incident was at one of the eight factories in Bangladesh. However, the Bangladesh factory had full insurance coverage. While the operations completely ceased at this facility - we quickly covered the supplies with outsourcing stopgaps and accelerated activation of pipeline capacities that were earmarked for coming months.
In addition to the pandemic, there was also the Future Group episode that occurred, significantly impacting a substantial portion of your sales and potentially affecting VIP's revenue. Considering these circumstances, have you successfully overcome the hump?
Initially, the Future Group alone contributed to around ~ 15 per cent of our revenues. The sudden closure of ~ 450 stores across the Future Group banner posed a huge challenge for us at the beginning of FY 23. Our teams were quick to recalibrate and found alternatives to catch the demand in the catchment areas of these stores through other Moder Trade (MT) chain stores, EBO's and MBO's along with promotional fests (kiosks) within malls. We were successful in tapping into the demand quickly through the alternatives and the MT channel grew by 60 per cent against the odds over the pre-pandemic base. Now with most of the erstwhile Future Group stores functional under the Reliance banner and doing well, we have emerged stronger from the setback.
