VIP Industries: Thinking out of the box 

The hustle and bustle of a railway station platform, the aroma of chai, Tinkle and Chacha Chaudhary comics at an old A.H. Wheeler bookstall, and the ubiquitous large grey VIP suitcase with the owner’s initials—that’s the memory of family vacations in the 1970s and 1980s. And another enduring image of pre-liberalisation India is that of a government babu wearing a safari suit and carrying a VIP briefcase to work.

Solid, dependable, and unflatteringly stodgy—these are the epithets most Indians born in the last century identify luggage maker VIP Industries with. Cut to the present: The Mumbai-based company still makes suitcases, but it has also diversified into soft luggage, backpacks, and handbags in bright colours as it targets the youth in an effort to keep up with the competition. It’s even roped in young superstar Alia Bhatt to endorse its Caprese handbags.

The expansion of its portfolio seems to be working. VIP Industries has managed to thwart competition from Samsonite, the market leader in all other countries the brand is present in. According to industry experts, VIP’s market share in India is around 52%, ahead of Samsonite at 35%, and Safari at 10%. With its dominant share of the market, VIP Industries finds a place on Fortune India’s Next 500 list again this year: It is ranked 165 with revenue of Rs 1,275.88 crore and profit of Rs 83.86 crore in FY17. In FY18, its revenue grew to Rs 1,425.65 crore, and profit stood at Rs 126.75 crore.

Chairman and managing director Dilip Piramal, 68, admits the company had to break the mould. “We were very good in the briefcases segment, what we call short-haul or daily-use products. But then, briefcases went out of fashion, and we didn’t get our act together for many years,” he says.

VIP started out in 1971 with a capital of Rs 1 crore, making inexpensive PVC footwear and suitcases. Piramal took over the company in 1973 and transformed it into a luggage maker. He later broke away from his late older brother, Ashok, and younger brother, Ajay. Today, Ashok’s family manages an independent entity which is into textiles, auto parts, and real estate; and billionaire Ajay heads his own conglomerate called the Piramal Group.

In the 1970s, VIP made briefcases priced at Rs 50-100 for office-goers. They were called VIP to give them an aspirational tag, and owning one meant you had arrived. For many, a VIP suitcase was also synonymous with being tough. Piramal recalls a customer from Punjab writing to him in the 1980s, when militancy was at its peak in the state. The man was at a bus stop, when he heard gunfire. “The customer used his VIP briefcase to shield himself,” Piramal recalls, before excitedly reaching for his own briefcase. “This is a 1992 product. I have been bringing it to work every day since then,” he says, beaming as he shows off the Alfa briefcase and its still-intact powder coating. Launched in 1989, the popular Alfa had some of VIP’s patented innovations, such as a non-reversible lock, which ensured that the briefcase did not open upside down.

But the company faced headwinds in the 1980s and 1990s due to rising manufacturing costs, excise duties, and changing trends. Soon, briefcases were passé. And then liberalisation brought with it its own set of problems. Many multinationals—including Samsonite—entered India, exposing customers to global trends and forcing Indian firms to upgrade to stay competitive. To add to it, VIP also had to deal with competition from several cheaper, unbranded alternatives at the lower end of the market.

VIP decided to fight it out; first by undergoing a brand revamp in 2005, and then by diversifying its offerings and targeting the youth. In 2010, Piramal brought in Radhika, his younger daughter, who had just returned from Harvard with an MBA. After taking over as managing director, Radhika formulated the fresh strategy of rebranding old VIP brands as well as launching newer and younger brands. Besides revamping briefcase and suitcase brands such as Alfa, and VIP, she reintroduced the company’s soft luggage brand, Skybags, in 2011, but this time for backpacks; and in 2013, she launched Caprese. The fuddy-duddy briefcase and suitcase brand, Aristocrat, was revamped as a soft luggage and backpack brand for the frequent traveller; and premium luggage brand Carlton, which VIP had acquired in 2004, turned its focus towards highend customers. VIP products also made their appearance at multi-brand retail chains.

While it still makes briefcases, VIP’s portfolio consists of a wide variety of hard and soft luggage, backpacks, and handbags, ranging from Rs 800 to Rs 12,000. And besides Bhatt, it has actors Varun Dhawan (for Skybags) and Hrithik Roshan (for VIP) endorsing its products. Over the past five years, VIP has made a conscious shift towards more youthful and trendy designs. It has moved away from the mundane greys, blacks, and blues of yesteryears to fuchsias, tangerines, and teals to add zest to soft luggage, lightweight suitcases, backpacks, and handbags. And this has paid rich dividends: “In the last three-four years, with Skybags, we have become the leader in backpacks,” Piramal says.

To help her cater to the luggage needs of a wide section of travellers—from commuters on local trains to well-heeled travellers at first-class airport lounges—Radhika set about strengthening her management team. A key hire was Sudip Ghose from Samsonite. “We have a limited budget for marketing and promotion (5-6% of turnover), so we usually pick two brands for each financial year and spend heavily on promoting them. In addition to the two brands, we will also advertise two segments every year; Caprese handbags, and Skybags and Aristocrat backpacks,” Ghose says.

Last year, Radhika stepped down as managing director and moved to the U.K., and her father took over as chairman and MD. A year down the line, Piramal maintains Radhika’s involvement in the business hasn’t ebbed much, thanks to the wonders of communicating via the Internet. While Radhika remains vice-chairperson and executive director, 45-year-old Ghose, who shares her focus on youth-centric brands, has been elevated as CEO.The shift towards newer segments, especially backpacks, is paying off. VIP, which says it has sold some 60 million pieces of luggage since 1971, saw its profit after tax (PAT or net profit) grow at a compound annual growth rate (CAGR) of 32% in the past five years, effectively quadrupling in that period. It now wants to repeat the performance in the next five years. VIP says it sold three million backpacks in FY18 and is poised for sales growth of 40% this year. Ghose says in FY14, Skybags (backpacks and luggage) saw 85% of its sales come from luggage bags; now, luggage bags contribute 60% of Skybags’ sales. By FY20, Ghose wants to bring it down to just 40%, focussing on backpacks, gym bags, and sling bags. “For FY18, we focussed our marketing spends on VIP and Skybags. This year, the two brands in focus are Aristocrat and Carlton Edge,” Ghose says, adding that Aristocrat has seen 70% sales growth year-on-year.

This is a part of the company’s larger strategy to boost volumes and widen the gap between VIP and its competition. “We have been very strong in the Rs 3,000-5,000 price point. The areas where we weren’t leaders were the segments below Rs 3,000, where unbranded luggage ate into the market share, and above Rs 5,000, where higher-priced products from other companies had a strong presence. With Aristocrat, which offers products at lower prices, and Carlton Edge, we can target both these areas,” Ghose says.

VIP has set itself another target: Growing exports, which contribute less than 5% of revenue, to 25% in four years, with an eye on the U.S. and European markets. Of course, its focus remains on India, especially given the way its stock has performed in recent years. VIP’s share price rose more than 600% between January 2014 and June 2018, outpacing the little over 70% rise in the BSE Sensex during this period.

Although investors and analysts are impressed with the firm’s performance, some say that quadrupling profits may be a tall ask. “If you calculate the CAGR for net profit from 2010 onwards, the growth isn’t a staggering figure. It is only in the last couple of years that they saw a huge pick-up, partly aided by GST (goods and services tax). So quadrupling PAT may be difficult, but volume growth is likely to be in double digits,” says an analyst on the condition of anonymity. Dhaval Dama, analyst at Equirus Securities, adds: “If somebody has to bet on VIP Industries, it would be because of their domestic business, not their international business. Brands like Samsonite and Tumi are far stronger in the international market.”

Market expert Prakash Diwan believes while quadrupling profits may be difficult, profitable volume growth can be achieved through economies of scale. “Achieving this target may not be impossible, but we have to remember that competitors like Samsonite and Safari are not going to be sitting around doing nothing. The biggest challenge for VIP will be increased competitive intensity and improving distribution,” Diwan says, pointing out that Safari’s growth could be faster than VIP’s, because of its smaller base.

But VIP seems in no mood to slow down. The company is hoping to bring back some of its manufacturing capacity from China, since it is becoming “more expensive to manufacture in”, Piramal says. In 10 years, he wants to export to China. As more Indians travel and more global brands such as Tumi and local competitors like Da Milano begin to make their presence felt, VIP could face several hurdles. But Piramal says there is enough room in the market for all players to grow. His Alfa briefcase sits firmly on the table beside him, a reflection of his unwavering confidence.

(This article was originally published in the June 15 - September 14 2018 special issue.)