Growth and profitability are two crucial and defining aspects for any business to succeed. They are like two different terrains that in the long run complement one another and business owners want a slice of both pies. But can both be experienced at the same time?
In an exclusive discussion at India Fashion Forum 2023, top fashion retail players provide key insights on their business models, and from their accumulated experiences explain whether they prioritize growth or profit throughout their operations.
Excerpts from the expert panel discussion…
From aspirational startups to experienced businesses looking to scale, everyone wants to grow while making a profit! But achieving this balanced model of operation might not always be as easy as it seems, and in certain cases, even well-established businesses go for a toss in the process of trying to achieve both growth and profit.
Simply put, profit is an indispensable part of any functional business. Without making sufficient profits, a company cannot grow in size. But at the same time, if a business fails to grow consistently, then making profits will become an impossible task.
Anupam Bansal, Director Retail Sales at Liberty Shoes kickstarted the panel discussion saying, “Being a listed company is our strength and we value both profit and growth equally, without putting one over the other. Sustenance and consistency are both important to keep growing. The business has to be stable enough to sustain itself.”
Bansal said picking between growth and profit at Liberty Shoes is never a choice as
the team values the co-existence of both. They aim to make a profit as they grow so that there is a steady return on all investments across all verticals.
“After a point, all investments need to have an ROI. Without profit, it is impossible to deliver any ROI,” he stated.
Indian Terrain CEO, Charath Narasimhan shared his views saying, listed or not, a company always has stakeholders and investors that its answerable to. “Answerability makes us work more efficiently because we are aware that we need to generate ROI on their investments with us.”
As per him, the top factor that investors look for is consistency – it’s not growth or profitability. “All businesses in the real world put profitability at the center of all that they do. But in retail, if you are not growing consistently, profits won’t come, they will get stagnant in some time because costs will escalate,” he explained.
Elaborating on how Indian Terrain has had to take tough decisions in the past to cut down on the gestation period and conserve profits, he speaks about a ‘Harvest and Invest Policy’ they have adopted. “The policy identifies our strengths so we can wisely invest in them. This can then become an area where we generate the most revenue, which can be further harvested for the company’s long-term growth.”
Arunkumar Nath, Group CFO & Sr VP of Finance (Fashion & Lifestyle) at Reliance added to the discussion saying, “Growth up to a certain point is mandatory and after that it is a choice. But profitability from the initial stage itself is a mandate.”
His business ethos is that growth and profit are not mutually exclusive and every business needs to figure out their own way to consistently grow while making good profits. “If you are not profitable when you are at Rs 100 crore then you will never be profitable at
Rs 50,000 crore. You should make the same percentage of profits at any scale that you operate at. You have to get better on profitability as you grow.”
Sharing similar views on the subject, Raghav Agarwal, Director V-Bazaar (Fashion and Home Merchandise) Retail adds, “Unless there is no profit at Rs 100 crore, there is no point chasing growth because there will be no profit at Rs 500 crore. Profitability needs to be fixed at every stage to grow scale by scale.”
Co-Founder & CEO of Latin Quarters, Rahul Bhalla says, “For us being profitable from the start has helped. Fashion as a business is risky, and we have to challenge ourselves to keep experimenting.”
Advising young businesses on how to grow while keeping up with the market competition, he says, “Only react to what you have to react to, learn from consumer behavior rather than feeling part of the rat race.”
Director, Hummel (India and South East Asia), Soumava Naskar talks about how the company employed cost-cutting to keep growing, saying, “We were born during COVID, so we decided not to burn money. We used custom bound warehouses to get shipments and made it stay there so as to not pay customs duty. Instead, we focused on the South East Asia market.”
Deepak Aggarwal, Founder and CEO of Kazo says the brand started focusing on profitability much after they came into the market. “What we did differently to persist in the market was to just create a brand that gives customers a good experience. Profitability was never the course we took. We only wanted to deliver a brand that matched international standards but was fundamentally Indian in its roots.”
He says once they had established themselves, they then decided to shut down some stores, open some new ones and turned around their business model to chase profitability. “Before that, it was pure focus on CX and the right business model on our way to growth,” he concludes.