Friday, May 22, 2009

Tie Rack in India. Will it get tied down?

Tie Rack's entry into India, via a tie-up, throws up knotty questions on its retailing and profitability. While Tie Rack seems to have done well in many countries the question about it doing equally well ,in India, is debatable.There are several reasons for this.

Reasons against:
- Tie Rack is mainly a men's accessories brand. As the brand name suggests, the main line is ties. The market for ties, in India, is very small. Nay, microscopic.

A Tie Rack outlet - a view from a different angle

- Ties are usually worn mainly by company executives in higher echelons of management and business persons - if you omit those who wear it on the only occasion they wear a suit - their wedding day! This class of customers shops at premium Indian markets and overseas. Rents in premium markets are very high. Throughput from sales of mens' accessories, from these outlets, may not even give returns to cover rent.

- In the Singapore airport's T2, for example, King Power pays S$ 40,000 per month as rent or 30% of sales whichever is higher(Source: The Moodie Report).This is for a store size of about 250 square feet (about 25 square meters). The case is not very different in India on PPP basis.Rent in premium airports in India is not less than Rs. 800 per square foot. The rent for a 300 square foot store is around Rs.240,000/month. Other costs being about Rs.100,000/m the total cost per month for a premium outlet will be around Rs.340,000/month. Assuming a gross margin of 70%, the store will break-even at a sales of around Rs.500,000/month. This is a very unrealistic sales figure for any store of this size.An Indian airport will take many years to get Changi's level of passenger traffic.

- Even in a few established markets, where ties and cuff links are natural daily business attire, Tie Rack does not seem too be doing well. Tie Rack Canada is closing down its stores (Source:Ottawa Business Journal Staff Tue, Jan 6, 2009). In New Zealand too, Tie Rack is under liquidation.

- Accessory brands like Kipling closed its network in India in less than two years of operations.

- Other brands, which have recently entered India, have not found the going as per expectations. India does not have enough markets which can sustain an alien attire and lifestyle.

- It appears that Tie Rack's India partner,Genesis Colours Pvt Ltd, may have got the licence only for non-airport locations. This is since Singapore's King Power seems to have the licence for both Singapore and India Duty free outlets. This will reduce the market scope of the main India licensee - Genesis Colours.

Has Tie Rack estimated the market incorrectly?

A backgrounder on Tie Rack:
Tie Rack, which is headquartered in London and operates about 300 stores in 26 countries.It has a very strong presence in travel locations like airports and railway stations. Tie Rack merchandise consists mainly of ties, cuff links and other fashion accessories for men and scarves, bags, kaftans and jewellery for women.

Tie Rack was founded in August 1981 by Roy Bishko. The first store opened in London at 91 Oxford Street; it was converted from a heel bar owned by Bishko from which he had trialled selling ties.The first airport store opened at Glasgow Airport in 1984 and the current flagship store is located at 295 Oxford Street opposite John Lewis. There are now over 330 stores in 24 countries.In 1999, the chain store was bought by Frangi SpA Group.

Genesis Colors Pvt. Ltd., the Indian fashion conglomerate and holding company for major fashion brands, retails international luxury labels such as Jimmy Choo, Canali, Aigner, Kenzo, Paul Smith and Just Cavalli in India through its luxury wing –Genesis Luxury Fashion (P) Ltd. It plans to open 50 to 70 luxury retail stores for its brands across the country in the next 3-4 years. Genesis Colors was established in 2001.

Of course, all the above is only my viewpoint. It has only academic value. Tie Rack has already thrown in its hat. Only time will tell whether it also throws in its towel.

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