Industry Overview

● Indian domestic textile industry expected to reach 223 Billion US Dollar from 150 Billion
US Dollar in Nov 2017.
● This is because of urbanization, favorable demographics and increasing preference for
branded goods.
● India has an abundant amount of cotton, wool, silk and jute. In fact, India is the largest
producer of cotton in the world.
● India’s export in textile and apparel is currently at 39.2 Billion USD as of Financial year
2018 and projected to increase to above 31 Billion by 19.
● Cloth production however decreased from 66.9 Billion square metres in FY 2018 to 58.1
Billion square metres in 2019.

COMPETITIVE ADVANTAGE

● Increased penetration of organized retail

● Growth in building and construction expected to increase demand
● Abundant availability of raw material
● Skilled manpower
● Receiving huge investments in form of FDI for creation of textile parks
● Free trade with ASEAN Countries and proposed agreement with European Union
IMPORTANT FACTS

· India’s textiles industry contributed seven per cent of the industry output in value terms) of
India in 2017-18.

· It contributed two per cent to the GDP of India and employs more than 45 million people in
2017-18.

· The apparel sector contributed 15 per cent to the export earnings of India in 2017-18

· Cotton production in India is estimated to have reached 36.1 million bales in FY19

· Cotton and fibres are major segments in this category. Production of man-made fibre has also
been on an upward trend.

· During FY18, production of fibre in India stood at 1.319 million tonnes and reached 1.204 million
tonnes in FY19.

TECHNICAL TEXTILES- THE NEW TECHNOLOGICAL ADVANCEMENT

· The major service offerings of the technical textile industry include thermal protection and
blood-absorbing materials, seatbelts and adhesive tapes.

· India is expected to be a key growth market for the technical textile sector due to cost-
effectiveness, durability and versatility of technical textiles.

· The targeted market size would be achieved by targeting non-woven technical textiles.
Healthcare and infrastructure sectors are major drivers of the technical textile industry.

· The Government of India has assigned 207 Harmonized System Nomenclature (HSN) to promote
India’s technical textile industry and further increase its market size to Rs 2 lakh crore (US$ 27.72
billion) by 2020-21.

· The technical textile industry is expected to expand at a CAGR of 12.20 per cent during FY18–
23 to US$ 32 billion in FY23. In FY18 it reached Rs 116,000 crore (US$ 18 billion) and is forecasted
to grow at the rate of 20 per cent year-on-year supported by various flagship schemes by the
government to promote full potential and expected to reach Rs 200,823 crore (US$ 29.96 billion)
by 2020-21.

POLICY SUPPORT
· Investment was made to promote modernisation and up-gradation of the textile industry by
providing credit at reduced rates. A subsidy of Rs 1,400 crore (US$ 216.25 million) was released
under this scheme in 2017.

· New draft for National textile policy ensures to employ 35 million by attracting foreign
investments. It also focuses on establishing a modern apparel garment manufacturing centre in
every North Eastern state for which Government has invested an amount of US$ 3.27 million.

· Foreign direct investment (FDI) of up to 100 per cent is allowed in the textile sector through the
automatic route.

· The Union Ministry of Textiles, Government of India, along with Energy Efficiency Services Ltd
(EESL), has launched a technology upgradation scheme called SAATHI (Sustainable and
Accelerated Adoption of Efficient Textile Technologies to Help Small Industries) for reviving the
powerloom sector of India.

· The Cabinet Committee on Economic Affairs (CCEA), Government of India has approved a new
skill development scheme named 'Scheme for Capacity Building in Textile Sector (SCBTS)' with an
outlay of Rs 1,300 crore (US$ 202.9 million) from 2017-18 to 2019-20.

· The Textile Ministry of India earmarked Rs 690 crore (US$ 106.58 million) for setting up 21 ready
made garment manufacturing units in seven states for development and modernisation of Indian
Textile Sector.

· The Government of India has taken several measures including Amended Technology Up-
gradation Fund Scheme (ATUFS). The scheme is estimated to create employment for 3.5 million
people and enable investments worth Rs 950.00 billion (US$ 14.17 billion) by 2022.

· In December 2017, Rs 1,300 crore (US$ 201.71 million) were approved for providing
employment oriented training to 10 lakh people in various segments including one lakh in
traditional sectors, by March 2020, under the Scheme for Capacity Building in Textile Sector
(SCBTS).

· Integrated Wool Development Programme (IWDP) approved by Government of India to provide

support to the wool sector starting from wool rearer to end consumer which aims to enhance
the quality and increase the production during 2017-18 and 2019-20.

Introduction to Allen Solly

Aditya Birla Fashion and Retail Ltd. (ABFRL) is No.1 Fashion Lifestyle entity of India and was
formed after the consolidation of the branded apparel businesses of Aditya Birla Group’s Nuvo
and Future Group – namely, Madura FNL and Pantaloons FRL respectively, in May 2015. ABFRL
has been growing at a rate in excess of 20% over the last 5 years and hosts India's largest fashion
network with over 8,000 points of sale spread across 400 plus cities and towns.

Aditya Birla Fashion and Retail Ltd. (ABFRL) is No.1 Fashion style entity of India and was
fashioned when the consolidation of the branded attire businesses of Aditya Birla cluster’s Nuvo
and Future Group – namely, Madura FNL and Pantaloons FRL severally, in could 2015. ABFRL has
been growing at a rate in excess of 2 hundredth over the last five years and hosts India's largest
fashion network with over eight thousand points of sale spread across 400 plus cities and towns.

Allen Solly in India

Allen Solly is one of India’s largest and fastest growing branded apparel companies and a
premium lifestyle player in retail sector. After consolidation its position as the leader in the Work
Casual Segment with its own Mainline Brand Allen Solly, it introduced multiple sub brands in the
Women Wear, Juniors, Denim wear and Sport segments.
Vision, Mission and Target Market
Allen Solly’s Main target consumers were the young professionals who were highly sensitive to
the latest fashion trends.
Allen Solly offers fashion at affordable prices by following up to date fashion trends.
VISION OF ABFRL – “To be a premium global conglomerate with a clear focus on each of the
businesses. “
MISSION OF ABFRL – “To deliver superior value to our customers, shareholders, employees and
society at large.”

Allen Solly’s Internal Analysis

Allen Solly Brand Analysis

Parent company Madura Fashion & Lifestyle (Aditya Birla

group)
Category Apparel and accessories
Sector Lifestyle and Retail
Tagline/ slogan Friday Dressing; Why so serious
Usp Stylish Office Wear
 Allen Solly STP

Segment Young fashion-conscious Women and Men

Target Group Men (Urban) Upper class and upper middle
class
Positioning Lighten up the workplace

Swot Analysis of Allen Solly

Strengths –
● The brand has a presence in more than 50 countries
● Experienced & In-house design and product teams are available with Allen Solly
● Premium fashion and international fashion also available
● Casuals for office work in bold colors, innovative fabric and young fits
● Strong Management Team
Weaknesses –
● Global penetration is limited as compared to a few other international brands
● Presence of Indian and International brands offer more offering to customers therefore
high brand switching
Opportunities –
● Digital initiatives & plans to work significantly on it over the next few years
● Allen Solly can diversify into emerging markets & also consider expanding into other
countries or sectors.
Threats
● New Technology coming in might pose threat
● Similar Patterns and variety available at lesser price with other brands pose a threat
● Local Market may offer similar patterns at a lesser price although discounting on the
qualities
Competition Landscape
Below are the top 3 Allen Solly Competitors:
1) Raymond Limited
2) Arrow
3) Belmonte
New Ideas of Allen Solly
● They were the first one to spot the need of casual work wear for young professionals
● They entered the market with a block buster concept of Friday Dressing
● They Used Unconventional shades of Beige and Tan and used fabrics like Khaki in shirts
and Trousers, which became an instant hit.
● Allen Solly Introduced the idea of relaxed formals for Indian Consumers.
Vertical Integration in Allen Solly
While competitors like H&M and The Gap have resorted to purchasing clothing from outside
suppliers, Allen Solly has been able to design, manufacture and retail parts of its supply chain to
create very quick production and distribution channel that has allowed them to make and sell
many more collections a year than its competitors. The flexibility that Allen Solly’s vertical
integration has provided the brand has given it a step up on competitors due to how fast it can
turn out new product and go with the flow of consumer trends.
Allen Solly’s supply chain is the secret behind Allen Solly’s retail success. As a brand, their speed
and responsiveness to the latest fashion trends are key to Allen Solly’s competitive advantage.
The distribution network of ABG is strong because of its product line. From retail to pharma the
group has experience of many sectors. Hence Allen Solly had a ready-made a structure base of
the distribution network. As the brand of working professionals, Allen Solly has focused Metros
and Tier 1 cities for their targeted customer considering their requirements and purchasing
power. The brand has wide visibility over Indian and globe as well. The most important visibility
of the brand is at the Pantaloons Outlets which are owned by ABRL Group.
Allen Solly is very vertically integrated and highly capital intensive by working through the whole
value chain. Vertical integration has allowed the company to successfully develop a strong
merchandising strategy which becomes a distinctive feature of Allen Solly’s business model.
As Allen Solly designs and manufactures most of the products that its customers buy, so it
engages in backward integration and as it is involved in distribution of its products also, so it
engages in forward integration also.

Allen Solly is majorly retail (Exclusive Brand Outlet – EBO) led business with 35% of the revenue
share coming from it and is also the primary consumer interface for the brand. Wholesale
channels (Trade, Department Stores, Exports, B2B ecommerce) play the key role of driving the
brands profitability. It has become essential for the brand to have balanced and aggressive
growth in both the retail and wholesale channels.
Here is the summary of Allen Solly’s sales channel distribution –
 ● Retail – EBO (Exclusive Brand Outlets)
● Departmental Stores (Lifestyle, Shopper stop, Central, Pantaloons etc.)
● Trade & MBO (Multi Brand Outlets) – Buy & Sell Model
● Value Channel (Factory Outlets)
● E – Commerce

Supply Chain in the Apparel industry

Vertical integration in the backward direction helps industries to acquire various parts of the
supply chain in the apparel industry.
The Textile and Apparel Supply Chain comprises multiple raw material sectors, ginning facilities,
spinning and extrusion processes, processing sector, weaving and knitting factories and garment
(both stitched and unstitched) manufacturing that supply an extensive distribution channel.
A typical supply chain in the apparel industry looks like below figure :

Allen Solly is heavily backward integrated, they use their own manufacturing capacities
belonging to Madurai garments to manufacture their own yarn and fabric. This is later
processed to create a complete garment.

Types of Industries in Apparel industry

 ● Independent : These industries are not vertically integrated and have most of their
designing in house. However, they have the longest lead times and launch the minimum
number of collections in the year.
● Interdependent : An interdependent firm is similar to a vertically integrated firm, however
they do not own their own production facility. The lead times are lesser than the
independent firms , but the retail ownership and control is very less.
● Integrated : These kinds of firm have both backward and forward integration. They have
in house designing and production that gives them the flexibility to modify and change
order size and designs very easily. Also having high forward integration and control over
the retail outlets and POS.

Allen Solly is the firm of the third type. Due to the integrated structure type the lead time for
these companies is very less (~5 weeks). The coordination between the various stages of the
value chain is very high that allows the company to respond to the fast changes in the fashion
industry.

Factors considered by Allen solly before vertical integration

The company decided to go for the vertical integration based on trade offs between various kinds
of costs it would incur for being vertically integrated. Some of the costs that are considered are

● Setup Costs
● Transaction costs
● Transaction Risks
● Measuring coordination effectiveness

Setup Costs : VI requires high setup costs that needs large amount of capital for setting up your
own production facility or distribution network.

Transaction costs : Costs associated with transactions for example sales and legal are reduced if
a company is vertically integrated.

Transaction Risks : Risks are also reduced as any external factor can be better controlled, resulting
in less cost variation in the process and more controlled quality of the garment.

Measuring sales effectiveness : The setup to develop metrics to measure the effectiveness of the
sales incurs additional costs.

For VI firms the setup and measurement costs increases, however the transaction costs and risks
are reduced.

Advantages of Vertical Integration at Allen Solly

When two businesses or organizations at different levels of production merge, vertical
integration occurs. Its primary goal is actually to boost the overall efficiency and to cut down
costs all throughout the supply chain, therefore improving profitability and competitiveness. Due
to the increasing advancements and sophistication of technology within the management system
of this sector, lots of commercial organizations are continuing to gain closer relationships with
some other members of the supply channel as Allen Solly.

1. It allows the company to invest in assets that are highly specialized.

Vertical integration can give you a great advantage over your competitors, allowing you to invest
and develop the products that you are currently offering. By being able to acquire highly
specialized assets, you will be able to differentiate your business from the rest of your industry,
with a highly competitive advantage. As such, you can raise your share within the market and see
increased profits.
Allen Solly’s Color LAb is an epic example of manufacturing excellence where they provide choice
of 670 colours.

2. It gives you more control over business.

One great benefit that is sought by companies that are getting into vertical integration is more
control over the value chain. When retailers decide to develop or acquire a manufacturing
business, they would gain more control over the production aspect of their distribution
processes. In the same manner, when manufacturing companies perform retailing or
distribution, they would have more control over how they present their products and how much
they would sell them on the market.

3. It allows for positive differentiation.

This business strategy can give an organization important access to more production inputs,
process and retail channels, and distribution resources. Each of these elements can offer great
opportunities to the company to distinguish itself from competition with the use of effective
marketing tactics. For a retail business, it can adopt more quickly to the changing consumer needs
by owning a production or manufacturing firm that can create its products. For manufacturers,
they could sell through the web and take advantage of online advertising techniques to drive
traffic to their sites and build market credibility.

4. It requires lower costs of transaction.

This can be realized through inter transactions that can be made between subsidiaries that
typically have a central communication and management system that is inexpensive to employ.

5. It offers more cost control.

Typically, vertical integration can offer a significant ability to control costs in the distribution of
products, particularly the traditional one, where every step in the movement of goods involves
mark-ups, so the reseller can earn more profit. Through direct selling to end-buyers,
manufacturers can get rid of the middleman, which means a step or more removed in the process
along the way. A single entity that manages the distribution process will also have more ability
to optimize the utilization of resources and avoid wasted costs. Not only these, but lower
transportation costs will also be common.

6. It ensures a high level of certainty when it comes to quality.

Since subsidiaries are employing a quality control system, it is more likely that they can produce
high-standard products.

7. It provides more competitive advantages.

Some businesses get into vertical integration with the sole purpose to increase their advantages
over their competitors and block them from gaining access to important markets and scarce
resources. For example, a retailer might purchase a manufacturing firm to gain access to
resources, patents and proprietary technology that are only available in the firm’s local area. For
manufacturers, they may enter retailing and distribution to get direct access to customers in a
highly competitive market, before its competitors do.
Disadvantages of Vertical Integration

1. It can have capacity-balancing problems.

A good example of this situation is when a business needs to establish excess upstream capacity
to ensure its downstream operations will get sufficient supply under any demand condition. This
might even result in retaliation of the business’s former suppliers, potentially endangering its
main production.

2. It can bring about more difficulties.

Take note that vertical mergers will have less economies of scale, as most of their production
processes are at different levels. Moreover, there is still scope for monopoly power or even
monoposony power. For example, tied pubs could charge higher prices to consumers, while
having less choices on beer.

3. It can result in decreased flexibility.

The main contributors to this problem are the upstream and downstream investments the
business is making.

4. It can create some barriers to market entry.

Manufacturing businesses that have control over access to crucial raw materials and components
that are quite scarce due to vertical integration would often create some barriers to market entry.
They have the ability to limit competition and would establish a strong position in the market to
protect their customer base. However, they might face anti-trust regulators who think that they
are influencing market concentration.

5. It can cause confusion within the business.

Retail and product development are distinct businesses, and doing both could require more work
to be done. Also, a lot of entrepreneurs who are often trying to think of too many things would
confuse, distract and harm their bottom line.

6.Higher initial investment.

For a great vertical integration to happen, a company should have an extremely large amount of
capital to invest. After all, they might have to purchase new facilities, hire a large number of new
employees and control their new facilities, making this strategy nearly impossible for smaller
companies to employ.

Conclusion:

Allen Solly, a part of Madura Fashion & Lifestyle portfolio, is a brand that transformed the
dressing of the corporate Indian with the introduction of ‘Friday dressing’, a casualized approach
to formal dressing. The brand reimagined their brand positioning and endeavored to implement
the same across its different customer touch points. Vertical Integration has made it the leading
brand in this sector and now the company is expanding to women and kids apparel as well.