Apart from product quality, brand power is everything for success in the retail business says Ajay Arora, Managing Director, D’Decor, the world’s largest maker of home furnishings and fabrics. The firm that holds the brand power practically writes the rules of the game, he adds explaining how the US $250 million company is now making a major play for the Indian retail market for home furnishings. Excerpts from the conversation.
Rishtee Batra: I would like to start with just a couple of general questions. We read that in 1999 you were an US $8 million company in revenues and now you stand at more than US $ 250 million with more than 4000 employees. What were the key drivers of this tremendous growth?
Ajay Arora: Thank you for having me at ISB. It is really a pleasure to come and see real excellence in India in an academic education. After having been exposed to excellence through my own experiences overseas, I think this is a fabulous place to be. As far as the D’Decor story is concerned, and from a textile industry perspective, it is unique what you can achieve by using higher intellectual capital. And I am not saying this because I am at ISB. If you actually play in a space with a blue collar worker’s input as a product, you would not really get a big delta. But if you looked at it from an MBA or an engineer’s perspective, you would be able to really monetise far better. So D’Decor went about chasing design and a complex niche product in the beginning. The manufacturing challenge was not so much about what the cost was, instead it was to see what you could do better that the Europeans or other developing nations were doing better value. We took on that challenge quite seriously because India offered a huge amount of textile skill and a huge advantage on textile raw material. I think we dealt with that challenge successfully and that is why we saw this good growth in the first ten years. Based on the consumer demand and higher expectations built on account of products from the West that are far more sophisticated, sculpted us into shape to be able to deliver a world standard product. And when we decided that India was coming of age, we were naturally ahead of Indian consumer expectations. So the D’Decor story is actually one of a change in the logical sequence of a company going global first and then coming home.
So it is both the fact that you were a bit visionary as compared to others in anticipating what India needed as well as India’s national growth story? The market was opening up and you already were pre-emptively thinking about how to take this forward?
I would like to make one thing very clear. It is that 70 percent of our business is still outside India. We are the largest player in the world in our small little niche of curtain and upholstery fabric and we are still growing both sides of our business. We are not a B2C player internationally and that is because we have discovered the B2C opportunity in India and we would like to use it to its full potential before we decide to dilute our energy on trying to build a brand abroad. So, we are playing abroad based on just our design and manufacturing capacity and our ability to handle complexity and customised products. And in India we are going right through the retail value chain.
What are the challenges that you as a company have faced in the B2C setting and what makes the direct customer interfacing aspect of business more difficult?
I think our B2C journey has been one of the biggest learnings. I am an engineer by education. So branding is a far cry. But as I mentioned earlier, after building our company I was always good at manufacturing plus design. So when you make a differentiated product there is a high scope of putting a name on it and saying I stand for a good-looking product or good design. If you make a product that is absolutely superior because of durability it may or may not matter in certain categories. I think for our particular end-consumer what really matters more is the aesthetic appeal, the fit to the home interiors and of course quality is a given. When we went about the world market we saw that the highest power in the value chain is wielded by the company that is putting its name in the product. That was the learning and observation that just came by being a B2B supplier to brands. And we saw that brands were spoilt for choice and they had the rule book and the pen in their hands. And obviously what they, wrote down every day was something which bettered their life and their bottom line. We kind of learnt that in India we should step in to be the brand that wields the power. So we built the company outside the factory gates. I like to use this phrase always ‘outside the gate of the factory’ which kind of supported the factory and which did justice to the value proposition built on our design and manufacturing capabilities. Now when we went around doing this there was really no brand in our industry. In an industry where there really is no brand, even a very simple thing like putting a recommended retail price on a product, or putting your name on it has a huge amount of dissonance from multi-brand retailers and your customers. The second piece of the challenge is that you are trying to communicate to a consumer. Unless you have your own retail presence, the whole brand experience, the brand promise, the brand communication is, in a certain way hijacked. It is not really under your control. And the channel partner too is driven by profit and not by the value that I am bringing to my customer. That has been a challenge. On the flip side the fantastic learning is that the textbook works, that the whole brand communication really brings the consumer to the sales point asking about the product and trying to discover the brand. And the channel partner finds that extremely exciting and says I need to stock the brand, I need to align with the brand and then things start to fall in place.
The biggest challenge we faced was the size of our industry. When you are trying to go up against an automobile industry or a mobile phone industry where there are four zeroes extra in the size of the industry, the mindshare that you are trying to capture is warranting a huge amount of hammering which is serious money and you have got to be sure that this is going to echo. So when you are spending on brand building you are spending on intangibles. And if you are doing it from a hardware manufacturing background, where you spend money on machines, this is another adventure for you where you spend money on something and you don’t know. Also we are in an industry where there isn’t a high frequency of consumption. So it is not like you go and see an advertisement and you will go and change your home furnishings. You will change your home furnishings based on your own calendar. And therefore we can’t really expect to get instant inflection in sales. One thing I was very sure of was that we should not try to make any conclusions about our brand investment before three years because it takes that much time to just get the name in.
The D’Decor story is actually one of a change in the logical sequence of a company going global first and then coming home.
There have been all these reports that India is opening up, India is spending more money and it is true. But by and large they are spending money on conspicuous goods, things that can signal my status, can signal what kind of a person I am. Now the challenge that I see is brand loyalty. How did your brand build up loyalty amongst customers given that it is a somewhat privately utilised good with limited visibility? It is not until people come into your home that you talk about it. And unlike the Louis Vuittons of the world there is no really identifiable logo per say.
Obviously we are still in the journey so I wouldn’t say that we have met all of these aspirations yet.
The highest power in the value chain is wielded by the company that is putting its name in the product. That was the learning and observation that just came by being a B2B supplier to brands. And we saw that brands were spoilt for choice and they had the rule book and the pen in their hands. And obviously what they wrote down every day was something which bettered their life.
However, and again, I say that the basics apply. Every consumer wants to buy something which he or she knows is built again on quality. It is not an insignificant amount of money for the consumer. We at D’Decor have positioned our brand in a manner that the consumer tends to believe that it is expensive. But we have a pretty good price range and a lot of depth at every point in that range. We decided that we are going to ensure that the consumer gets choice and our biggest communication to the consumer through our ads hopefully, has been that D’Decor is something that helps you make your home more beautiful. We provide you enough options. And this is something that was made by the first communication when it went out. When we started off we were the third largest player in the world. And now we are the largest player in the world. So it is not something that happens out of nowhere suddenly. So we try to get credibility for the consumer to have faith that this is an investment that they should make. In terms of the consumer wearing some of the branded products as a badge, which is what you are saying, and which kind of elevates their social status, I don’t disagree. But D’Decor is not really trying to charge the consumer a super-premium. It is trying to work on a very good value proposition and the discovery at the sales point is what has led to people appreciating the brand and what it does for them.
It is the whole brand communication which really brings the consumer to the sales point asking about the product and trying to discover the brand. And the channel partner finds that extremely exciting and says I need to stock the brand, I need to align with the brand and then things start to fall in place.
You are literally making customers lives more beautiful. Since we are anyway talking about design, what I wanted to know a little bit about, and you have hinted about it, is where did the inspiration for D’Decor come from? How, if at all, do you do consumer research to figure out what will resonate with people and what will not likely resonate?
If Mr Armani came up to you in an Armani store and asked you what should I make for you? It would kill the brand. Instead if you go to Mr Armani and he tells you this is what you should be wearing to look fashionable, it starts a brand. So it is to that thinking that D’Decor subscribes. But it does not get arrogant or restricted by saying it is this look or nothing. It keeps releasing new colours and designs in a very rapid and a very high frequency at close intervals which gives people direction. But it doesn’t withdraw choice. So we are in a certain sense trying to subscribe to fast fashion as a supply chain model and we pride our manufacturing and design capability. And bringing that differentiation to the consumer is only possible if you up the game with a lot of choice.
I have heard that the best business leaders in the world, whether it is in fashion, or someone even like Steve Jobs, believed that people did not know what they wanted. If I had asked people 15 years ago do you want an iPhone they would probably at best come up with a touch screen Blackberry. But how do you give something to somebody who doesn’t even know that he wants or needs?
I won’t say that I don’t subscribe to this view but there are many ways to go about to determine what your offering should be. If you have got a need that you can imagine and you can out-think your consumer, then excellent. If you do consumer research and you can identify a pattern need, then that is excellent too. So I am not averse to going and asking consumers or doing consumer research. We haven’t done any of that for colour or design. We really believe that D’Decor’s international business, which is 70 percent of our company’s business, is actually dependent on us being pertinent and relevant with the right fashion proposition worldwide. And that is happening only because we are wired into the kitchen. We are not even visiting the restaurant so to speak, that is too late. So we are wired into the kitchen. We are with the art studios, with the design houses that are proposing or co-working these propositions.
You have been integrating vertically by expanding into consumer retail with lifestyle and decor stores. And we see this happening in other industries. Essentially what they are doing is, they are trying to grow their base of users. People who thought that sewing was for old women and housewives who are mending, they now know about other things. Or when I look at our own JUL’s Lakme they integrated vertically by saying why do we make just skincare and makeup, why don’t we provide the salons and the bridal makeup services? So the question is, and I see some evidence of this already with your retail stores; what are your plans for forward integration going beyond being a textile manufacturer?
Like I said, we have a movement on outside the gate of the factory. It has been successful in giving us another asset which we call our brand now because there is a promise, there is a trust in the brand. And yet at the final point of engagement we are not 100 percent sure what the consumer’s experience is going to be. Since we only had multi-brand outlets we were not convinced that the consumer was getting the complete brand experience and we were not able to pick up any insightful information. So we decided to pilot a few retail stores and we were surprised that we could set up a store with no advertising. We would have a reasonably good amount of footfalls. We are not in any way trying to replace our multi-brand outlets because we are available at 1000 plus outlets in India. We are just trying to insert 100 D’Decor stores which can be a good for brand experience information exchange and a good convenience point for the consumer who is convinced that he wants to buy D’Decor. And it helps us do things which improve the industry. Because when you are a leader in your space people look upon you for all the improvements. And whatever improvements you want to pilot if you have your own ecosystem you can then learn, play and when it is successful you can scale through your entire channel.
I am not sure if this is accurate but I had read somewhere that when you met your wife you were actually in the business of manufacturing garments?
I was in the apparel business. D’Decor is very much a story where a textile business in apparel has gone towards home furnishings. We still have a small ladies-wear textile family business which is probably 10 percent of our business today. But we have been a family business. I am the third generation textile entrepreneur. Home textiles started in 1995/1996. And then after a huge amount of success in the small little piece of the apparel business that was given to me as my responsibility it fell off the cliff when the fashion wave changed. And I was compelled to find alternate software for the same hardware and to motivate my team. I started home furnishings by compulsion due to a lack of any other alternative.
But I am wondering given that now you have much more knowledge of the market, you are operating in India in the consumer market, given the artistic and perhaps the manufacturing synergies do you think that that is something that you would consider, going back to apparels?
It is interesting that you ask me this question. We have been debating this internally from a long-term strategic choice perspective that with all the things that we have improved and that we are good at we can get a license to play in which other space. And since we understand the supply chain, we understand design, we understand branding and we understand the woman consumer, we are hopeful that we would leverage these skills to another space as a little bit beyond the core if we decide to go.
When you were opening up your retail outlets, just to play the devil’s advocate, did you consider that rather than building an outlet from scratch which means you have to invest in the branding, although you mentioned it was successful even without going overboard, did you consider perhaps acquiring a company that was already doing the right thing in the same space rather than perhaps infusing your D’Decor?
When you are a 15-year old company your own managerial skills go through their own learning curve. Acquiring a company is for companies which have great managerial skill in transforming cultures. I think our story has been only about investing in input excellence for delivering excellence in output. For us to say that we can take on an acquisition and transform it from sub-excellence to par-excellence, would be a very boastful hope that D’Decor hasn’t really had the dream or the courage to try. So tomorrow if I was asked there is a factory out there, can you infuse some excellence into it or transform it and make it viable, I think yes we definitely could take that challenge on. But with retail, we really wanted that our store, from ground up, has the right size, the right display, and the right technology to create something that stands apart. I think we would have too much to lose if we disappointed a consumer’s trust when he came into a D’Decor store. And therefore we wouldn’t want to do it in hindsight.
Don’t under estimate the power of compounding which actually means don’t be in a hurry, don’t forget the hare and the tortoise story, don’t crash yourself in haste. Please try to grow your business in proportion like a circle expands in proportion, expand your capabilities and opportunities in sync.
I agree. Organic growth in retail allows more control and ability to stick to the vision that you have, to be true to the brand.
Exactly! Even just the location of each store has a certain consistency around it. We are not just picking up any store in any city. We had done a few pilots in the initial phase as I said. We have a store in a mall and we have a store on the high street. We have done a slightly larger store, we have done a slightly smaller store. We have done a store where we have a lot of home furnishing stores nearby and we have done a store in a residential catchment area where there was no store. We did a lot of piloting and learning. I don’t know if somebody else’s footprint would match our learnings.
So if you want to have a good party make sure that every guest has a good time and that he wants to come back, make sure that you eat last and be confident that there will be enough food on the table left for you if you make everyone else have a good time.
Do you have any plans of expanding the segments that you serve? As I see it, and please feel free to correct me, when I look at your price points and the different outlets that you have, you seem to be serving the upper middle-class to an upper-class Indian. When you look at it, to some extent you have competitors, whether they are a real threat or not, who are trying to get into home decor, into textiles, whether it is niche companies like Chumbak which is now saying that you can outfit your sofas, or whether it is online retailers like Fabfurnish that are trying to go for the same piece of the pie but are slightly, I would say, a lower segment of consumers. So I just wanted your perspective. Is that a segment, perhaps a lower tier or segment that you may want to consider?
My understanding of India is that people really struggle to get the courage to take a home loan. By the time they get an equation that works for them they are already touching 30 years in age. Most of the consumers that we target are basically woman who are older than 30 years of age going right up to 50 years. When you are over 50 you are not the decision-making woman in your own house. Your daughter or daughter-in-law has taken over that responsibility from you. After having a very strong market share in the top 50 percent of the market, we are very keen to explore profitable opportunities in the bottom 50 percent. We are looking at coming up with different offerings and business models which will allow us to expand into some part of that market.
Do you think that would be under a different brand because it is also a challenge? The Tatas have done it; you have the Jaguar Landrover and you also have the Nano. L’Oreal has your Giorgio Armani cosmetics and they have Maybelline. But it is a challenge. By and large they seem to be operating and they are almost a different facade altogether.
One of the interesting debates that D’Decor is running inside is whether we should have a brand extension or even a separate brand. And as we talk to different experts, their advice is to stick to D’Decor and to just expand our price points. In our own industry I think signature matters a lot as well. So there could be, and I think there is a 25 to 30 year-old age group which is interested in a younger, peppier, signature. We have learnt by observing what our international customers do – they are actually making another brand even when there is signature brand. Of course if that signature is catering to another income group it would get positioned even price-wise slightly different from the first brand. I personally have not made that decision yet but we are in favour of looking at other brand names as well from the D’Decor house. We are challenged in making this decision by only one criterion. It would cost us twice the money today compared to what it would have cost five years ago. The online industry, the Indian government and FMCG are now spending twice the amount of money compared to five years ago. Therefore we have both options on the table and I think we will be making this decision. I have not really fixed my mind on this or the team really has not made up its mind.
Many of our students have dreams of becoming entrepreneurs. Given that your family has built this business from scratch you have done a tremendous job of scaling it up. You have challenges but you also seem to know how to navigate those challenges. Are there any words of advice that you would like to give to the budding entrepreneurs that we have?
My advice is very boring. It is usually about don’t under estimate the power of compounding which actually– means don’t be in a hurry, don’t forget the hare and the tortoise story, don’t crash yourself in haste. Please try to grow your business in proportion like a circle expands in proportion, expand your capabilities and opportunities in sync. If you have capital coming into your business don’t go into 120 percent CAGR because that will cause dilution of control and dilution of customer experience. It is boring because students believe all of this can be overcome very easily by new technology, new business models, by the quantum of engineers and MBAs available in India. So you and I can definitely start up and hire 2000 people on day one. Yes, but can we align them, can we make them function? That is one piece of advice and the other and more important piece of advice is revisit your, ethics class from time to time during your career. Probably the most important thing that you should remember is that business comes to people who keep their promises. So the job that they teach a manager here at ISB I guess, is to ensure that all stakeholders are motivated to bring their best to a business and I would like them to remember that the easiest way to do it is to be honest and considerate of every stakeholder’s interest. So if you want to have a good party make sure that every guest has a good time and that he wants to come back, make sure that you eat last and be confident that there will be enough food on the table left for you if you make everyone else have a good time.
Even though I am a management professor and we teach people how to be managers do you think entrepreneurship can be taught or are they born with a particular skill set? More specifically through formal education systems like an MBA programme can you learn how to become an entrepreneur or can it be something else?
I think entrepreneurship can be practiced by observing what other good entrepreneurs have done but most of it is about doing the right math and having the right gut. Thinking two steps ahead and working hard should be sufficient. Some people have a significant nervousness about risk. That is the only litmus test on whether you should be pursuing entrepreneurship or not more so today than any other time because we live in a world where any entrepreneur or organisation’s outcomes are determined by his efforts, strategy, thinking, hard work, choices but also by the winds in the external environment. And there is a lot of unpredictability. Also the basic nature of business has changed. We live in a highly over-supplied world and to find the right gap or wide space in the market and to find a profitable one is itself challenging. But there are several out there that you can pursue but you should be prepared to see some rollercoaster before you see some highway.
When you think about an MBA experience both in the classroom and outside of the classroom what are the skills you think an entrepreneur must have? What do you think they should be learning while they are here, forget in the classroom but in the larger life experiences what matters?
I think everything that they teach you at an MBA is god’s gift to you. Before you start the journey of trying to run your own business it is god’s gift to you that they decided to teach you that all these things are necessary. The textbook really matters and you should go back to all the things that you have learnt in the basic textbook in terms of strategy, planning, learning good operations, finance, HR, IT because everything matters. If you want I play this trick game with students all the time and I would not like to say this to ISB because we hire a lot of people from ISB. I often ask them to prioritise what really matters out of all the things that they have learnt. There really is no right answer. In my opinion all of them matter. But if I had to pick something that really matter the most I would choose human relationships. Not only HR on the side of your own employees but even your interaction with people really matters. So peoples-kills matters most. I think that is No. 1. Coming up with that very unique idea is not so much of a scalable, repeatable advice that you can give your students that each one of them needs to go home and come up with something that nobody has ever imagined. That will have a very low hit rate if I can put it that way. When you have a low hit rate some people will not come up with great ideas and the ones who do will not see a high degree of success. So I think just dealing with people in the right way, being in touch with people, being able to understand who the people we should be aligning with are, choosing customers and attracting talent, being able to listen to your vendors who are experienced dealing with so much competition, and obviously trying to do some amount of innovation with the help of research institutes etc. It is the interaction with all these stakeholders and everywhere you are dealing with people. So a good understanding of putting yourself in the shoes of other people really matters. Empathy and ethics matter the most.