Several international brands have set up their own subsidiaries in India or sealed distribution and licensing agreements with local partners in the last months. We have recently reported on the likes of Asics to Callaway, Berghaus and Quiksilver, and we are informed of many more companies studying their entry into this rather intricate market. Several large apparel and footwear brands are teaming up with large retail-oriented companies, focusing on distribution through their own and franchised stores. However, our study of the Indian market has unveiled the development of another form of distribution, particularly for equipment, involving local manufacturers and targeting India's myriad of independent retailers.
Several large Indian sports manufacturers have in fact built up more sophisticated and comprehensive wholesale networks for their own brands as well as those of international partners for several reasons. As their foreign order books have been under pressure due to the declining or stagnating economies in the West, they have been turning to the fast-growing and more promising Indian market, adapting themselves to its rapidly changing distribution landscape.
The added value of working through this new breed of manufacturers/distributors cannot be under-estimated. Besides their after-sale service capabilities, they allow foreign suppliers to cope with the tremendous complexity of the Indian sports equipment market, which is still largely in the hands of thousands of small independent retailers. As outlined in detail in a our market research report, which is now almost completed, many small Indian retailers work on consignment, place haphazard orders and make irregular payments. Some act as wholesalers for tiny nearby stores while taking care of small institutional orders. This pattern of distribution is extremely costly and is aggravated by an array of national and regional import duties and many other taxes, plus logistical headaches that make it almost inevitable for distributors to buy large quantities of stock well in advance, mobilizing space and capital.
A prime example of the reorganization of the Indian sports equipment industry is the Freewill Group, a manufacturer of balls and footwear in Jalandhar, Punjab. Owned by the Kharabanda family, this company markets Nivia, one of the few Indian brands that are recognized by consumers in India. Sold to about 1,200 Indian customers, its balls are regarded as part of the near-obligatory assortment of sports stores in the country and its footwear, mostly intended for racquet sports and football, is increasingly competing with international brands. Aivin, a secondary brand, was launched last year to cater to the lower-end market.
Furthermore, the Freewill Group has set up a distribution arm for international brands. It started 14 months ago with Joola, the tennis table brand, and Tecnifibre, the French tennis and squash brand. While Joola tables are imported from Germany, Freewill Group makes Joola footwear at its own plants. This distribution business is to be expanded this year with Prince, which was previously distributed by Planet Sports, India's leading sports retailer and wholesaler.
For the time being the Freewill Group will focus on these brands, but others could be added in the second half of this year, in racquet sports or swimming. Another target for investment is apparel, which will be launched by the Freewill Group next year. It then intends to make apparel under the Nivia, Joola, Tecnifibre and Prince brands. The company is hiring about 200 extra employees for this purpose, which will lift the tally to about 1,000 workers.
Freewill Group expects to reach a turnover of about €18.5 million for the full financial year ending March 31, which is an increase of 30 percent compared with the previous year. About 60 percent of sales should be generated by Nivia and other brands distributed by the company, while the remaining 30 percent should come from OEM manufacturing and sales of sports infrastructure, particularly flooring for indoor sports courts.
Along the same lines, Soccer International started by manufacturing balls in Jalandhar, with a capacity reaching more than 2.5 million units and some of the most automated production units in the country. But in the last decade Soccer International also moved decidedly into wholesaling, with its own brands as well as imported products.
Owned by members of the Gupta family, the company reached a turnover equivalent to about €15 million in 2010, which was an increase of 30 percent compared with the previous year. Exports, which make up about 40 percent of Soccer International's sales, increased marginally. The growth in turnover came chiefly from the domestic market, which now accounts for 60 percent of the company's sales.
Part of this briskly expanding Indian turnover comes from Vector X, a brand launched by Soccer International for affordable balls and footwear, sold directly to about 300 Indian sports stores. Another share comes from Viva Fitness, its own brand of home fitness equipment. While many Vector X products are made by Soccer International, it imports Viva Fitness from Taiwan and China.
The company's wholesale arm has been expanded with several international brands distributed in India. These include Pro Kennex tennis products, Adidas and Yasaka table tennis ranges, and Body Sculpture and Pulse Fitness equipment. Slazenger was added in October 2010, for tennis balls only. The next step might be to open multi-brand stores, combining the offer of all these brands and perhaps more.
Another striking example is Stag International in Meerut, Uttar Pradesh, which has long been established as a major supplier of table tennis tables. Stag reached sales equivalent to about €6.5 million last year, with only about €1.5 million generated by the Indian market. However, the balance should shift radically this year since Stag set up last July a domestic wholesale distribution arm, Stag Distribution.
Stag Distribution obtained quickly afterwards exclusive deals for Victor badminton products, as well as three brands of fitness equipment – Tunturi and Bremshey, owned by the Dutch Accell group, and Milon from Germany. This high-end brand focuses on the commercial fitness market, but at least one Indian billionaire has ordered a set for personal use, complete with personalized cushion covers.
The contract with the Accell group calls for the opening in the next three years of 20 exclusive Tunturi stores, some of them in partnership with existing retailers, and with the financial support of Accell. Through its relationship with Accell, which otherwise focuses on cycling, Stag Distribution also intends to start selling Ghost bicycles in India later this year. It also has plans to introduce a golf brand in India. Ultimately, Stag would like to distribute about 30 foreign sports brand in the country by 2015 in these and other sectors including tennis, swimming and football.
Stag's new distribution arm is expected to generate sales equivalent to about €5 million in 2011, while the Stag brand alone should reach a turnover of about €10 million, with only a small increase in exports to €6 million and much higher growth in India.
To lead this growth spurt, Stag International has recruited Rajiv Chadha, who formerly headed marketing for Ericsson in India and then Verisign's operations in the country. He joined Stag as chief executive in August. The company is otherwise led by members of the Kohli family, which owns Stag.
To deal with its distribution activities in India, Stag has also invested heavily in logistics, with the planned construction of five new warehouses and an ERP system that should be fully operational this month. Furthermore, Stag hired new salespeople for its own sales in India and each of its imported brands. The production staff has been expanded to deal with fast-growing orders and with the planned launch of complementary apparel ranges.
Full details on these companies and many more will be included in our Indian market research report, due to be published in April.
