Recently, I was reading an article on Safari Industries in Outlook Business that brought my attention to the Indian luggage industry. The oligopolistic industry consists of 3 players: VIP, Samsonite & Safari with 2 of them publicly listed. Let’s see who Stands where.
The luggage industry segmentation
Before jumping on the company analysis its prudent to get some sense of the industry. Let me start with the types of luggage.
There are primarily 2 kinds of luggage:
- Hard Luggage : Made up of Polycarbonate , ABS or Polypropylene. For Polypropylene, you can think of Old heavy suitcases, Polycarbonate or ABS will be current hard luggage which is sturdy as well as lightweight i.e. modern day hard luggage trolley bags (Images below). Consists of rolling totes, travel bags etc. To add to the above all these three materials are derivative of crude oil.
- Soft Luggage: Made up of Vinyl, Polyester & Cotton. Consists of Backbacks, Duffle Bags, Shoulder bags etc
How is the Indian luggage industry shaping up?
I will delve a little into the CSD segment which is a significant contributor of sales.
CSD stands for Canteen Store Department. It comes under the Ministry of Defence & meant to provide quality goods at low prices for the armed forces & their families.
How does these Canteen Store Department (CSD) work?
- Retailers have to sell the product at the lowest cost. Can’t sell below this price anywhere
- No Rent
- Sales tax is exempted
Although the company has to sacrifice on the MRP front but the cost of distribution is almost Zero making up on the lost MRP.
Chairman of VIP industries Mr. Dilip Piramal in a conference call with analysts talked about the not so bright future of this segment. Because of the misuse of CSD for commercial purposes & government losing out on taxes, they are slowly winding these CSDs down.
Lets look at the top players of this oligopolistic industry?
Organized luggage industry is dominated by VIP with a market share of 50%+, followed by Samsonite & Safari. Safari led with ambitious new management has rapidly increased their market share in the last 5 years.
While the market share of Samsonite is on a decline given their focus on profitability & the growth of Safari is mostly at the lowest of the transition of Unorganized–> Organized.
Let’s look at how these brands stack up?
VIP Industries is the market leader with a market share of over 50%+.
Very strong brands having the mindshare in each category.
The company is spending aggressively to create a brand recall in each category.
To deal with the rising cost in China, the company has set up 3 manufacturing facilities for Soft luggage in Bangladesh and that is running at 100% capacity.
Safari has hit them primarily in the CSD segment but as per the recent management call, it seems VIP is striving hard to get it back.
Samsonite is the 2nd largest player with a market share of 35%.
Its brands are equally strong. But what I found from my research & what the numbers reflect is that Samsonite is more focused on profitability rather than growth. Because of this, their market share has been shrinking.
VIP is making similar bags but at a price tad below them to capture the market share.
Coming to manufacturing, the company manufactures hard luggage at its Nashik facilities.
- The third largest player with a market share of about 14-15%.
- New management under Sudhir Jatia acquired the company from the promoters in 2011. Sudhir Jatia had 22 years of experience in the industry with a few years as the Managing Director of VIP industries, the second largest luggage brand in the World.
- Coming to the brand Safari:
- Other than ‘Safari’, other brands names are unknown.
- Their website doesn’t have the names of brands to make people aware that it belongs to ‘Safari’.
- Even the names of the acquired brand Genie, Genius, Magnum sounds of very low quality.
- Given the low competition in the school bags segment, Safari industries are trying to gain a foothold with the acquired brands ‘Genie’ & ‘Genius’.
- Although, the growth of the company has been exceptional but it has come at the cost of profit. Selling at a discount as well as pushing sales in CSD. Because of the low profitability, the company has raised external capital from Tano Capital & Malabar fund to continue the sales growth.
- However, 2018 can be said a different year where the profitability, as well as other margins, have improved. Given the very little information, the company’s management provides, it very difficult to gauge & understand what the company has been doing. Hopefully, the annual report of 2018 might throw some light.
I went to a few stores as well as searched into e-commerce platforms. This is my take on the 3 brands:
1. VIP & Samsonite dominate the store as well as front space. Safari has minor presence & is even absent in many stores.
2. I came across Safari Magnum Bags. Designs were bland compared to designer Skybags at the same offer price.
3. Even across the e-commerce platforms, its dominated by VIP & Samsonite brands with a very small presence of Safari thorium trolley bags getting some visibility.
Based on the figures in the ‘Financials’ segment, you can find the below:
- Safari leads in terms of sales volume growth.
- All other segments such as EBITDA, PAT & Cash flow is dominated by VIP.
- Samsonite’s financials are available only till FY16 in the database I use, from it it’s quite obvious that the margins are quite good but the growth is getting stagnant.
- Safari has gained a lot in the last 4-5 years but that’s mostly on discounting rather than any branding. My two cents would be that the further growth would be very difficult.
- I would personally think that VIP with its very strong brands & aggressive push would be the one leading the pack.
For luggage business, the biggest proxy to look at the air traffic growth.