Walmart-owned Flipkart has picked up about 27% stake in Arvind Fashions Ltd’s subsidiary Arvind Youth Brands for Rs 260 crore, according to sources and a regulatory filing by the denim maker, as the homegrown ecommerce company looks to strengthen its mid-market fashion portfolio.
The newly formed subsidiary will own its Flying Machine brand, which has been retailing on Flipkart Group platforms, including fashion portal Myntra, for over six years.
“Through this investment, we look forward to partnering with the team at Arvind Youth Brands to continue to grow the market for its portfolio of products,” Kalyan Krishnamurthy, Chief Executive Officer of Flipkart Group said, adding that Flying Machine is a well-known brand across India.
Flying Machine clocked Rs 365 crore in sales in fiscal year 2019 on a standalone basis, accounting for 36% of Arvind Fashions’ revenue, the retailer said.
“The Flying Machine is a Rs 500 crore brand, and the idea with this partnership is to double this in the next four years,” J Suresh, CEO of Arvind Fashions Ltd told ET.
The retailer of well-known brands such as Calvin Klein, Tommy Hilfiger and Gap said on Thursday sales slumped 35% in the fourth quarter ending March 31. The company has also pruned its portfolio of brands and exited some, including Gant, Nautica and Ed Hardy in a bid to cut losses.
It reported a consolidated net loss of Rs 208 crore for the quarter ended March 31, compared to a net profit of Rs 21.30 crore a year earlier.
Analysts said Flipkart, combined with Myntra, has been strategically strengthening its fashion portfolio, where it has a significant lead over Amazon. They said India’s fashion and apparel sector will continue to bleed given poor consumer sentiment around discretionary spending, and fewer occasions to step out due to the fear of the virus outbreak.
“More brands in fashion will look for these kinds of deals, either with Flipkart or Amazon, as they can’t ignore the online channel anymore and it is difficult for them to build this on their own,” said Satish Meena, senior analyst at Forrester Research.
Fashion was one of the worst-hit segments amid the lockdown. Offline retailers continue to grapple with low footfalls in high-street shopping destinations and malls.
India’s fashion and apparel sector has recovered only 35% of sales compared to January levels, according to data shared by Redseer Consulting.
Online sales recovered faster but was only able to bring back 65% of pre-Covid-19 sales. India’s overall fashion sales in January stood at $7 billion, or $85 billion annualized.
Flipkart and Myntra will be the preferred online partner for the Flying Machine brand, Suresh said, while offline will continue to grow through its exclusive brand stores, department stores and multi-brand stores.
Myntra, Flipkart’s fully owned subsidiary, has been working closely with brands to help utilise their stores for online sales, at a time when footfalls are at an all-time low.
In August 2019, Flipkart partnered with Authentic Brands to licence and distribute fashion brand Nautica in India. In May last year, Swedish retailer Hennes & Mauritz (H&M) entered into a partnership with Myntra to sell its merchandise online.
“Flying Machine is a mid-price brand and we expect that this move will give a boost to online sales of mid-price brands in general …and further push the accelerated digitization of fashion category,” said Mrigank Gutgutia, director at Redseer Consulting and Research.
Sector specialists also expect premium and luxury brands in the country to enter into such online partnerships in future — a trend already under way in China.
In February, the board of directors of both Arvind Fashions and Arvind Lifestyle Brands had approved the sale as a “going concern” on a slump sale basis.
The company had said that separating Flying Machine’s business would help the management in evaluating the performance of the denim brand independently, attract more customers and enable it to raise further funds.
Sales of fashion brands such as H&M fell nearly 70% in March as the outbreak gained in virulence in the the country. Non-essential retail has opened in a structured manner with reduced staff hours and restricted customer entry at physical stores. About 75% of Arvind Fashions’ stores are currently operational.
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