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We have transformed the whole value chain with technology: Manish Kapoor, Pepe Jeans

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Manish Kapoor, managing director of Pepe Jeans in India, talks about the company’s three-decade journey and the digital transformation of its stores, manufacturing process and the whole supply chain

New Delhi: Pepe Jeans was one of the earliest apparel companies to enter India way back in 1989. The Spain-headquartered brand has changed its business model in India many times – from a distribution to a completely owned global subsidiary. Manish Kapoor, managing director of Pepe Jeans in India, talks about the company’s three-decade journey and the digital transformation of its stores, manufacturing process and the whole supply chain. Edited excerpts:

Pepe had entered India a few years ahead of the famous 1991 economic reforms and you have grown to be one of the biggest denim sellers in India. Could you tell us about your journey?

If we look at Pepe Jeans journey in India, we effectively say that we are running our fourth life. We entered India in 1989 and we were a popular European brand. We came into the country and made the same mistakes that a lot of foreign brands make while launching a European product in India like having European pricing that didn’t work.

In 1992, a gentleman called Chetan Shah, who was an employee of Pepe said that we have to do this differently in India and it needs a different formula. We took up a licence for Pepe in India and started doing product and positioning that was right for India. If you look at it, American brands brought functionality to fashion while European brands brought fashion to denim. And that’s what clicked for Pepe. We became a very, very prominent player in the whole denim fashion space.

Again, there was a change of strategy for Pepe in India in 2011-12, when we said that while we are successful, our positioning between what we are in Europe and India is different. We need to change that and get closer to what we stand for the consumer as a brand globally. So, we took up 100% equity in the Indian business and started our third innings from there till 2018.

We evolved that positioning and it worked well. The business grew almost twofold during that time.

Then around 2019, when I took charge as the CEO, we realised that while we were doing well in India, we were missing out on the whole digital aspect of the business and evolving as per the evolution of the consumer.

So, we said we need to evolve again and take a fourth life. We embarked on a digital evolution wherein we said that while we are relevant for the consumer of today, we need to be relevant for the consumer of tomorrow also.

If we look at the last three-and-half years, we have made huge changes in terms of the way we work and made a lot of investments in technology.

From less than 10% of our revenues coming from digital platforms, one-fourth of our business today comes from digital channels. We have grown almost 30% year-on-year for the last three years despite Covid-19. Last year, we closed at 40% growth against pre-Covid levels.

India is an exciting market and I feel that we will keep growing in this country at a compounded annual growth rate (CAGR) of 25-28% for the next five years.

You made an interesting point about digital evolution. What are the things you have done?

When it comes to digital transformation, people think about it only from a consumer-facing perspective. So, while the consumer-facing side is important, you also have to evolve or transform the whole value chain—right from the time you are designing your product.

We have launched our own webstore While we sell on various e-commerce marketplaces, it enabled us to control our business in terms of promotions and discounting. We now have four regional warehouses just servicing the online orders…we do omnichannel from our stores.

The most important thing we have done is we have evolved the whole value chain. So, we now design digitally. About 30% of the line doesn’t get into sampling, we just make it on digital platforms and decide whether it will work. The idea is to increase this to at least 70-80%.

We have also taken the whole HR system onto the cloud.

We work with 56 vendors across the country. We have a system wherein we’re able to see what is happening on our product in each of those factories on a single dashboard. So, we have done the whole transformation through the value chain.

Is it paying off? Are you able to save money and time in that process?

Right now, it’s an investment. But we see the efficiencies and the growth coming in. We clearly see that this is an investment that we need to make for the future. If I were to draw up a PNL (Profit and loss statement), it might not look good in year one. But if you were to look at it in year two or year three, that’s where it starts yielding results.

You are creating the sheer value for the company in the long run. We are neither in the business of valuations nor in the business of selling it off tomorrow. We are building something for the future—a sustainable proposition that must last.

So, what is the target? When is it finally going to translate into profits?

If I look at pure numbers, we did some Rs 1,200-odd crores of consumer revenue last year. We should be doing Rs 2,000-odd crores in the next three years maximum or probably in two years and that’s the short-term goal.

If you look at the India story, there is a huge runway for brands like ours. The market size itself is so huge that all of us can keep growing.

You mentioned that initially, Pepe did things the European way and then you changed to doing the Indian way of business to grow in this country…

Today, it is a hybrid wherein we say that we bring in the European heritage, we bring in the European sense but we Indianise it. For example, some T-shirts you will only get in white colour in Europe but in India, you would need them in red, blue, yellow, green and other colours.

In Europe, it is difficult to have access to a consumer’s information. In India, it is easier. I have that information and then I am able to connect better with my consumers. There we’re actually ahead of Europe. So, it is a combination of what is good in India and what we are doing well in Europe.

Has the positioning of the brand also changed or has it remained consistent?

While the positioning has remained consistent, we are evolving from a denim-led brand into a denim-led lifestyle brand.

What is the denim and other product ratio?

From a revenue perspective, we are 56% denim and that more or less has not changed for the last five or seven years. For other categories to keep growing at the same level as denim, that is something phenomenal. About 15% of our revenue has started coming in from ancillary categories.

Your rivals are increasing their store size. Is that something you are doing as well?

We have been increasing the retail spaces effectively for the last 18 months. We have just signed up a 4,000 sq. ft. store on Brigade Road in Bengaluru. Our average store size was 600 sq. ft., 650 square feet back in 2015. It’s become more like 1,000 sq. ft. today. I see it evolving to around 1,500-1,600 sq. ft. over the next three years. I don’t think that will go for 4,000 or 5,000 sq. ft. stores in terms of average sizes. But clearly, it’s going to grow by at least 30% to 35%.

You currently get one-fourth of your revenue from e-commerce.

Yes, from less than 10% in 2019, we generated 26% of revenues last year from online sales.

And although the pandemic has a fillip, we started building on it much before the pandemic. We were able to sustain the pandemic as we had the building blocks ready.

Several global brands are entering India and an increasing number of local brands are getting into denim. Is there enough market for many players to grow?

The way the Indian market is, I think there is enough and more scale. If we look at just the premium denim space, our average selling price is about Rs4800. We typically define our consumers as upper middle class with salaries above Rs12 lakh to Rs13 lakh per annum. That is only 1.5% of the population. If we leave out the rich or the superrich, which will go to premium, super premium or luxury brands, it’s only 1.5%. Now that segment itself is projected to grow to almost 16-17% of the population in the next six years. So, my addressable market itself is going to grow at least four or five times.

And we have seen a lot of premiumization happening in recent years. That is the biggest thing that we have seen over the years. People talk about casualization during the pandemic. There has been a big change in consumers’ habits.

Denim these days is more acceptable as daily wear to offices and even to parties and weddings. What does it mean for you?

Denim has evolved from being a workers’ outfit—that’s how it started. Then it became an expression of rebellion. Today, it has become acceptable. We have seen our sales go up even during the marriage season because it’s acceptable to wear a blazer with denim even to a wedding. Whether in an office or at a wedding, you will see a lot of people wearing denim with a blazer.

What do you think is the future of denim in India?

If you look at the penetration levels, still there is a huge room to grow. There is enough and more play for existing players and any new player that will get into it. Denim is a mindset, so you can’t just do denim as a category extension. Being a brand, you have to actually understand the whole process and then the whole company has to actually breathe denim to understand it. It has to be the DNA.

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