Chennai: Archies Greetings and Gifts is on a transformation roll. The Rs 80.47 crore company, known for its greeting cards, now wants to be identified as a retailing major. With 40 owned stores (60 more are planned) and an array of products like gift items, perfumes, music cassettes and CDs under its fold, the company is confident that it will carve a niche of its own in the retail market.
On the anvil are school children's accessories like crayons, pencils, sharpeners, erasers and geometry boxes; these products will be initially introduced in the Delhi market. In line with the new business model the company intends to have a new name - Archies Ltd. It is also revamping its distribution channel by opening more branch offices and creating efficient clearing and forwarding networks.
"The revamp exercise will help us to push all the products in our portfolio. Earlier, distributors adopted the pick-and-choose attitude, resulting in us holding a large inventory," says Archies' e7xecutive director Pramod Arora. The company has also set up an exclusive distribution network for its school children accessories.
In the meantime, competition in the form of e-greeting cards and the short-messaging service (SMS) has been greeting the company for the past two years, dragging its sales southwards. The much-talked-about multi-media messaging service (MMS) is also expected to dent its greeting cards sales.
But Arora is of the view that the downtrend has bottomed out. After Laagan, the celebrated Aamir Khan movie that made ripples at the Oscars, Archies has won the merchandising rights for the Hindi mega-budget movie Devdas. "The star cast that includes Aishwarya Rai, Madhuri Dixit and Shah Rukh Khan and their lavish costumes give us a great opportunity to cash on with products like posters and cards, though the movie is all about love failure," Arora chuckles.
Arora recently talked to domain-b. Excerpts from the interview:
The company is moving towards a different business model - and a new name. Why do you want to change your stripes at this moment?
Retailing forms an important part of our business. At present the company owns 40 stores, and plans are afoot to add more. There are around 500 franchisees spread across the country. Today the company, apart from manufacturing and selling greeting cards, derives a major portion of its revenues from trading - gifts, perfumes and other articles contribute 21 per cent, 14 per cent and 4 per cent, respectively. For instance, last year we sold perfumes worth Rs 11.5 crore. The increasing share of traded items in the total revenue is one of the reasons for changing our distribution model. Once we decide on the enterprise resource planning (ERP) software we will map our retail plan in detail. The company's name should also reflect the revised business model and product portfolio; hence the board has decided to change the company's name to Archies Ltd.
Last fiscal the company's total sales went up to Rs 80.47 crore, while the net profit went down by Rs 1.61 crore to Rs 7.53 crore. Its raw material costs went down by Rs 4.67 crore. The purchase of trading items shows an increase of Rs 8.48 crore, and the other expenditure head shows a growth of Rs 7.67 crore. Does this mean your greeting cards sales are going down vis-à-vis your other products?
Last year we sold 55 million cards and the company gets 51 per cent of its total revenue from cards and stationary sales. It is true that our cards sales have come down, but if you base our estimates on the sales logged during Valentine's Day, you will find that the decline in cards sales has bottomed out. It should be remembered that there is no alternative to physical cards. The SMS and e-cards are trashed immediately as they occupy the mailbox space, while physical cards are preserved for a much longer period. A person has to send a card to receive one, and this message will be emphasised in our revised campaign. While the traded items increased, the margins on that got reduced. About the increase in other expenditure, we set up a separate distribution line for our new products and also spent Rs 1 crore on advertisements. We hope to increase our turnover this fiscal by 15 per cent.
ITC has entered this business with its Expressions brand. Do you feel threatened? Further, ITC is tying up with joints like Qwiky's coffee, a favourite choice of today's youth, which is the target market. On the other hand you are opening large new stores spending lots of money. Why don't you look at such tie-ups instead of shelling out money for owning retail outlets?
It is nice to learn that a company of ITC's stature has entered this segment. This will ultimately increase the market size of greeting cards. Our stores are large-format ones; the one we opened in Chennai recently is 2,000 sq ft. This enables us to showcase our entire range. We need at least 500 sq ft space to display our products, which is difficult to get inside other stores or joints.
Talking about the declining cards sales, is not the huge retailer margin, at 45-to-50 per cent, an impediment in expanding the market? What is your debtors' and inventory turnover ratio?
All over the world the retailer margin for this product is in the range that you have mentioned; it is a low-value product for the retailer. Hence margins are necessarily high. We have cards at varying price-points: between Rs 3 and Rs 135. Price becomes important only in the case of seasonal cards, like New Year or Diwali, and not for the cards sold on other occasions. Our debtors' position has come down to 92 days from 109 days, but the inventory turnover ratio has gone up by 16 per cent to 140 days.
What is the revenue you garner from selling to institutions and corporates?
Institutional sales and contract manufacturing are fairly successful. We have been doing that for HelpAge for nearly 10 years, and last year we tried it with CRY. Institutional sales contributed 7 per cent to our cards business last year and we hope to increase that to 10 per cent. While this segment gives volumes, margins are very thin.
How does the regional language cards market fare?
We started with Marathi and Hindi before we launched Bengali cards, and we have started getting feedbacks from these markets. We were about to launch our Gujarathi cards, but the social and political climate was not favourable then, so we have postponed our plans. The regional cards market is not very big.
How big is your creative team? And what is your royalty payout to foreign companies with whom you have business tie-ups?
We have a 70-member creative team. They work on cards as well and other products, like stationary and gift items. Our royalty payout will not be more than 1 per cent of our total turnover.
How is your online subsidiary, Archies Online, doing?
The online business was started hoping to transact e-commerce transactions, and we invested Rs 60 lakh in it. A couple of years ago there were lots of hype. But, admittedly, online sales are not very encouraging.