29 Sep 2018 18:18 IST

Hidesign’s positioning challenge in India

If the premium leather goods maker wants to expand market share, what should its strategy be?

In 1978, when Dilip Kapur, founder and president of Hidesign, started making leather goods as a hobby, little did he dream that he was taking the first step toward building a company that would go on to become one of the first brands from India to succeed in the global fashion marketplace. Forty years on, while his global ambitions are still intact, Kapur thinks India is where the real action will be when it comes to the future of Hidesign. But the Indian market poses its own set of challenges.

“We are at the top of the pyramid. The growth of the industry is 15 per cent and Hidesign is growing faster than this. We want to grow at 25 per cent. Where does the growth come from? Expansion into areas such as malls is not always profitable. Should we go up or down the pyramid? There are limiting factors…. If we go upward, we face established global brands such as Michael Kors, Coach, and so on, vying for a market that is smaller and very tough. If we go downwards into a larger market with less expensive products, how do we maintain our positioning?”

Hidesign manufactures and markets leather products such as handbags, briefcases, laptop bags, travel bags, wallets, and accessories. More recently it has added shoes and sunglasses to its portfolio. As of 2018, it has five manufacturing facilities – one in Sikkim, another at Baddi in Himachal Pradesh, two in Puducherry, and one tannery in Chennai.

Distinct image, global presence

Over the years, Hidesign had developed a distinct brand image for itself and established a global presence – due, in large part, to the quality of its products. The company has consistently emphasised being eco-friendly and used the centuries-old skill of tanning with natural seeds and barks. It carved a niche for itself as an eco-friendly leather goods brand and impressed customers with the beauty of its handcrafted products with brass fittings. Hidesign, as part of its global growth strategy, has established a presence in over 23 countries and is often hailed as India’s first global luxury brand.

Kapur, who still leads the design team at Hidesign, is passionate about the brand. “Rupees and dollars don’t interest me but bags do…making them, crafting them,” he said. “We are unique… we make leather bags that I love… I love naturalness and we are original. We do not make anything like anybody else. When everything around you is a copy, something original stands out.”

Revenue growth

Hidesign’s revenue in India has grown from ₹11.3 crore in the year ended March 31, 2010, to ₹160 crore in the year ended March 31, 2018. Indian consumers made up 75-80 per cent of Hidesign’s customer base. Though it started out as a men’s brand, women (aged 25-30 years) came to be recognised as a key target segment for Hidesign. Women account for 65 per cent of the footfall in Hidesign stores and 80 per cent in e-commerce, accounting for 55 per cent of the sales. This is also a segment that is not easy to satisfy; competition in the men’s segment is less.

While Hidesign has a robust internationalisation strategy, Kapur said that to grow at a faster rate in international markets, it would have to do things that could result in diluting the brand, such as compete on price. Moreover, Kapur says: “… you have to invest lot of time, money and energy, build the brand country by country… and be counted as a major brand in each country which takes a lot of work. All this, while the basic market is growing at only 3-5 per cent.”

Distribution channels

On the other hand, India in itself is a big market and, with lifestyle changes and the opening up of the economy, the market has become particularly attractive. “Nobody knows how big the market is. A huge chunk of it is unorganised. The organised market is estimated to be ₹3,000 crore,” said Kapur. Since 2012, airport retailing is a key part of Hidesign’s strategy in India.

Says Kapur: “With the growth of the Indian economy, people’s aspirations are also growing. We want to be where there are aspirations. That is why we are opening exclusive brand outlets at airports. We consider airports critical to the development of the brand internationally. We exclusively focus on the well-informed, career-oriented and cosmopolitan consumer. At the same time, we do not want to miss the opportunity to be in the malls where this type of customer shops in India.” Transit retail accounted for around 12 per cent of Hidesign’s revenue in fiscal 2018.

 

In India, Hidesign sells its products through exclusive brand outlets (EBOs), multi-brand outlets (MBOs), corporate sales, and e-commerce (see Table 1 for a breakup of revenues across different channels). As of March 2018, its 84 EBOs accounted for 65 per cent of its revenues. Kapur plans to add 20 new EBOs (10 in airports and another 10 in malls) by end 2018.

Shift in shopping patterns

In India, Hidesign bags are priced, on an average, between ₹6,500 and ₹7,000. “We’ve become more accessible to a larger population, which means we may have been luxurious ten years ago but not today,” said Kapur. Its Icons collection is priced 20 per cent higher than its average prices, and the Jose collection 20-30 per cent higher than average prices.

At the top end of the pyramid, Hidesign has the Atelier collection (₹20,000-30,000), where it contended for the market against rivals such as Michael Kors, Coach, DKNY, and Furla. All this at a time when the market was flooded with cheap synthetic bags from China priced at around ₹600.

The company also came up with an India-inspired leather bag brand in 2009 in a JV with the country’s largest retailer, but to prevent dilution of the Hidesign brand, it named it Holii. These bags were priced 30 per cent lower than the average Hidesign bags. In 2018, Holii added a synthetic bags label called St. Holii to expand into the MBOs.

A key concern for Kapur is how to grow Hidesign at 25 per cent in India. As of 2018, Hidesign is trying to work with a leading e-commerce giant to come up with leather bags, a sub-brand of Hidesign that would be priced 30 per cent lower than its average prices. E-commerce channels have gained in significance for businesses in India. While EBOs still account for 65 per cent of Hidesign’s growth, the growth in e-commerce channels has been a whopping 93 per cent (see Table 2 for data on Hidesign’s rise in revenue across channels). Kapur realised that the way people shopped had changed and there was indeed a demand for products on e-commerce platforms where many shoppers expected to find lower priced offerings.

No compromise

“Our partner wanted us to come up with a lower-priced Hidesign sub-brand that is actually synthetic. But we are not going to compromise on our integrity, our values. We are not ready to pretend something is leather when it is not,” said Kapur. The decision on opting for a less expensive leather sub-brand was not an easy one for Kapur, but he is thinking of introducing this sub-brand starting with e-commerce and eventually moving to all other channels.

In his pursuit of growth in India, Kapur knows that if he moves to the top of the pyramid there would be limitations: “If you go upward you gain a lot in terms of the rub off on the rest of your collection. You get much higher price points, with high profit margins there. What will you lose? The fight for each customer there is much tougher. There’s a much smaller market you’re fighting for, with players who are strongly established… much bigger companies than us. And the marketing support this strategy requires is of a different level.”

On the other hand, going down the pyramid is not entirely devoid of risks. “You go downward, you gain market turnover much faster… Maybe you also gain an entry point into Hidesign. But will it come at the cost of diluting the Hidesign brand for the regular customers? Then the key question is how do you maintain your positioning and expand the market at a rate faster than 15 per cent?”

Consider yourself part of the senior management team at Hidesign and address the following issues:

1) What are your recommendations to make the brand grow at 25 per cent in India?

2) If Hidesign decides to expand its market share by entering the lower-priced market, what should its positioning strategy be? Should it make synthetic leather bags?

3) Should Hidesign have a flanking brand strategy, with different brands for various markets, or attack different markets with the same Hidesign brand?

(Purkayastha is Dean, Case Research Centre, at ICFAI Business School Hyderabad, and Rao is Director – Branding and Communication at the ICFAI Group. This case was compiled from published sources, and is intended to be used as a basis for class discussion rather than to illustrate either effective or ineffective handling of a management situation.)

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