Krishnaraj,
I think you haven’t read the Kitex Management Q&A with due care. There are enough pointers there on the Kitex’s approach to the whole US market initiative. From what we could gather this isn’t a wild swing but a slow, gradual calibrated strategy- the man knows the turf, and the players well and has very deep (personal) relationships going with some of the big customers going back decades. You wouldn’t be faulted if you second-guessed the Man would have been approached several times, by several players/stakeholders in the wholesale/retail chain - with several different possibilities.
Just pause a while - Private Label requirements are whose? Never the brand customers - It’s the Walmarts of the World. Can suppliers to private labels also maintain a very healthy relationship with branded customers??
Selected excerpts - that should prompt more of the guys new (not completely familiar) to Kitex story to devour the 4.5 hour interview - in order to try and understand more of the business/and the maniacal Jockey at the helm. Most of the (logical, folks are asking again) questions incl. when will retail in India be a possibility for KItex are already answered. Please complete your due diligence - at least do justice to the Management Q&A - that we put up so painstakingly for you 
Kindly educate us on the US Wholesale Operations set-up? What are the aims and what is the investment size?
There are 3 ways of entering the US market
A. X or Y Brand manufactured by Kitex (manufactured by Kitex is imprinted on the garment)
B. Kitex made private label for someone like Walmart (where Kitex branding is non-existent)
C. License some established brand – that is not present in infant wear – take advantage of the mother brand while providing best quality manufacturing by Kitex (again Kitex manufacturing brand is enhanced). In US market Quality comes first (probably even before Brand) hence huge Branding exercise may not be required. Since customers can return products even after few days of use, quality is critical, and we can leverage Kitex quality while piggy-riding on the mother brand.
Is it right to conclude that these are probably longer -term initiatives and that initially the most significant impact will be on timely deliveries and logistics cost savings? What impact is this likely to see on the margins front? and by when?
We have hired some office space in US. We will import Kitex garments in bulk ourselves, pay the landed duty price (LDP) and offer our products directly to retailers. This activity should get started in next 2 months and will help shave off 0.5% of current logistic costs.
In time we may be able to replace distributors in between and supply directly to Retail ourselves. Distributors today are marking up as much as 30-50% off us while selling to retail.
There looks to be a conflict of interest here. Why wouldn’t this strain your relationships with existing customers (like Carter) who also procure in volumes for themselves (their retail presence) as well as supply to Walmart and other big retailers.
No, we do not think so. US is a very competitive but business-like place. If you can get additional business from Retailers, good for you.
Why can’t a US manufacturer do a good job with more of the automated machines and efficiency drivers like you have spoken of before?
$12/hour is the minimum cost of Labour. For 8 hours this would cost $96, say $100 or Rs 6000 per day. Rs 6000/- per month is the Labour cost in India. Even if someone were to manufacture in US efficiently, who is going to consume products that will need to priced that much higher?
Once you have a trusted supplier relationship going with a global retailer, kindly give us an idea of the level of penetration possible? $150 Mn is just 5% of Carter’s annual sales today.
We have very good relationship with all our Customers. Over the years of association, in many cases it becomes like personal family relationship. Some of them call me at any time of the night, on business. Some of them I have to call every weekend, wherever I am.
We enjoy preferred supplier status today. We can keep growing the relationship with all of them steadily. As mentioned before, though we have offers to scale up very significantly on one or the other relationship, we prefer to go about it in a balanced way – not expose ourselves to undue risks/pressures.
Does any scale-relationship with any one retailer, restrict or impose any limitation on sourcing by other Brands or direct competitors?
Not at all. US way of business is different – they are very fair. Just like they want us to be fair in all our practices as well like not forcing our Labour force and meet all social compliance norms – hygiene, work timings, fair wages, working conditions, etc.
They don’t/won’t interfere in our business at all, there is complete freedom. Gerber or say The Children’s Place don’t ask us about the level of business that we do with others.
How the whole story will play out - only time will tell :).
Disc: I remain invested fully. My views are biased
and may not have all the answers immediately, end of the day everybody is an investor only.
) :
