Ajay Arora Managing Director – D’ Decor Strategies of Business Growth & New Opportunities in Indian Domestic Market for Furnishing Fabrics Ajay Arora Managing Director – D’ Decor

Home textile market and opportunity Urban home furnishing retail market is estimated to be Rs 9,300 Cr. (US$ 2.3 Billion). The market is expected to reach Rs 20,000 Cr (US$ 5 Billion) by 2012. Institutional home furnishing market in India is estimated to be Rs 530 Cr (US$ 132 Million) and is expected to reach Rs 1,000Cr (US$ 250 Million) by 2012. Bed and Bath contribute to two third of the market (Rs 6,200Cr.). Curtain and upholstery market is currently estimated to be Rs 3,100 Cr. 2.5 million houses to be constructed by 2012 70 – 90 crore square meters of commercial and residential space needs to be built by 2030 to support urbanization Hospitality industry projected to grow at 9% YOY GDP is projected to grow at 8 % between 2009 – 2018, stabilizing at 7% thereafter upto 2030. Source: Travel & Tourism Competitiveness Report 2009 MGI – India’s urban awakening. A T Kearney

Opportunities in India’s Urbanization 59 Crore people will live in cities by 2030, nearly twice the population on US today India will have more than 68 cities with population of more than 1 million, by 2030 Source: MGI – India’s urban awakening

Urban India will drive a near fourfold increase in average National Income Source: MGI – India’s urban awakening

More than 100 million households will join the Indian middle class Source: MGI – India’s urban awakening

All large states will have more than 50% of GDP coming from cities Source: MGI – India’s urban awakening

Some of India’s largest metro regions would become the size of many countries today Source: MGI – India’s urban awakening

Lets look at challenges in Indian market for furnishing fabrics

Key challenges - Industry Only 6% of the home furnishing market is currently organized. Low entry barriers Lack of regulations TUF supports disorganized sectors Disorganized sector Mass market and bottom of pyramid customer segments expect high value at low price points, however all segments are growing Domestic market – price and value sensitive Customer taste and preferences vary from north to south and east to west which calls for high innovation and product development. This increase complexity Require very high innovation and product development

Key challenges – Industry (contd..) Market still developing and value conscious Economies of scale required in value products Need global scale to be strong locally Sub standard material and stock lot imports Under invoicing reduces import cost Imports come at lower prices Mass manufacturing of ready made’s thus not possible Lack of Standardization in construction 88% furniture market is made to order from unorganized sector Small market of furniture manufactures

Key challenges – Macro Economic Factors Underdeveloped infrastructure Low investment in technology Difficult to create effective distribution network in large country High imitation in design by unorganized sector IP and copy right laws not enforced Intellectual property law not being enforced Real estate cost is a key element of cost and can change profitability equation Cost of Real estate is high Company needs to spend about 10% of sales for first five years and between 5% to 7% thereafter Cost of making a brand is very high

Strategic Positioning Operational effectiveness Can bring enormous benefits, however from competitive standpoint the best practices are easily emulated Competition produces absolute improvement in operational effectiveness, but relative improvement for no one Strategic Positioning Strategic positioning attempts to achieve sustainable competitive advantage by preserving what is distinctive about the company VS Source: What is strategy – M. Porter

Strategic positioning - Three key principles Strategy is the creation of a unique and valuable position, involving a different set of activities. Strategic position emerges from three distinct sources: Serving few needs of many customers Serving broad needs of few customers Serving broad needs of many customers in narrow market Strategy requires you to make trade offs in competition – to choose what not to do Some competitive activities are incompatible; thus gains in one area can be achieved only at the expense of another area Strategy involves creating ‘fit’ among a company’s activities Fit has to do with the ways a company’s activities interact and reinforce one another Source: What is strategy – M. Porter

Evaluate current strengths Strategic thinking Product capacity People capability Finance Evaluate current strengths Select Prioritize Focus on Few Organic Inorganic – Strategic partnerships, JV’s etc Expand

Need a multidimensional strategic approach Value Chain

Need a multidimensional strategic approach - Geography Market penetration strategy is key – Market vary in terms of taste, preferences, spending power and choice Target Tier I cities to start, followed by Tier II and Tier III Another approach could be zone wise penetration i.e North, South, East, West Select your target customer segment and income group

Need a multidimensional strategic approach - Product Product Options in furnishing Curtains & Upholstery Fabric Raw Materials Cotton MMF Silk Jute Wool Product Spec Rolls Cut-lengths Ready-mades Contract Segment Office Hospitality Healthcare Others Technology Dyeing Yarn / Piece Printing Weaving Jacquard Dobby Processing / Finishing Fire retardant Stain protective Antimicrobial Thermally adaptive Curtains & Upholstery Non-fabric Curtains Trimming Hardware / Fittings Blinds ( Source: Datamonitor, A.T. Kearney estimates, SBI – US, International Furniture Association, Ministry of Textiles (India) 1

Need a multidimensional strategic approach – Value Chain Evaluate portion of value captured at each level in the Value Chain, as Return on Capital varies significantly Manufacturing Distribution Brand Retail Product Value - Illustration Value Rs Operating Margin Manufacturing 100 15% Distribution 120 10% Retail 180

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