Taking the road less travelled, Yashovardhan Gupta has been successful in creating a big business by acquiring licensing rights of some renowned leather accessories brands. Today, his brainchild Torero Corporation designs, manufactures and markets brands like Cross, Police, Cosmopolitan, etc., across 40 nations in Europe, US and the Middle East. Indeed, his idea turned out to be a stroke of genius!
Niladri S. Nath | February 2017 Issue | The Dollar Business
We are just a few minutes into our conversation with Yashovardhan Gupta, CEO, Torero Corporation when he quips, “If you are good at doing something, don’t continue doing it for others. You need to move up the value chain. I realised that within two years of joining our family leather accessories manufacturing business, Metropoli Fashions.” And Gupta knows what he is talking about. He saw his family business failing, came up with a new concept, and made Torero Corporation a success by going up the value chain in the under-leveraged leather industry.
Gupta, an alumnus of IBS Business School (Hyderabad), recalling his childhood, shares that he saw his father Rajesh Gupta, who migrated from Kanpur to Kolkata in 1985, facing imminent bankruptcy when an American importer refused to make payment citing quality issues with the company's product. Gupta, however, feels it was just another excuse for non-payment. In fact, it was the quality-conscious European market that lapped up the same product a few years later and helped the family restart the manufacturing business in 1992. “We got the opportunity to manufacture for some of the biggest brands in the world including Hugo Boss from Germany, Giorgio Armani from Italy, Burberry from UK, among others,” shares Gupta.
Metropoli Fashion, however, still wasn’t growing the way the company's management had expected it to due to various reasons. As per Gupta, West Bengal wasn’t industry-friendly and there was no government support or incentive. Then, there was a scarcity of land to expand the business. And to top them all, manufacturers’ margins were constantly under pressure due to changing business dynamics. “When you compete with 10 other manufacturers, trying to get a contract from a brand, your margin becomes the first victim. Also, there were a lot of inefficiencies in the system. We had to find an opportunity to disrupt the status quo,” explains Gupta.
Yashovardhan Gupta, Director & CEO,
Torero Corporation Pvt. Ltd.
By then Gupta had also realised that forward integration in the supply chain was something unheard of in the Indian leather goods and accessories industry, and as such presented an opportunity.
“Globally, Italian luxury and sports eyewear manufacturer Luxottica holds manufacturing and distribution licences for brands like Ray-Ban, Oakley, Prada, etc. A similar business model has been replicated by the textile and branded apparel manufacturer Arvind Group in India, in association with global apparel brands like Arrow, Tommy Hilfiger, etc. Both Luxottica and Arvind Group pay royalty to brands that they manufacture and sell through such licence agreements. And this was what we wanted to replicate in the leather goods and accessories industry,” he shares.
Based on this unique business model, Gupta founded Torero Corporation in 2011, a company that today designs, manufactures and sells global leather goods and accessories brands all over the world, both through e-commerce platforms like Amazon and brick-and-mortar retail chains like Harrods.
So far, so good. But why name the company ‘Torero Corporation’, a name which doesn't sounds like an Indian name from any angle? "In 2013 we acquired Torero, an 80-year-old Spanish brand. It was our first ever overseas brand acquisition. Pedro Monteiro Gago, the owner of a renowned Spanish leather accessories brand Marroquineria, helped us acquire the company. At that point in time, Torero was up for sale and Gago advised us to purchase the company, and that’s how the name came up,” explains Gupta.
“In the beginning, nobody, including my father, believed that the idea was executable in our industry. But, I was convinced that this was the only way ahead,” shares Gupta. According to him, the initial challenges had more to do with a chronic resistance to change and a lack of confidence, rather than a lack of technology or skillset. However, the biggest obstacle of them all was to acquire global rights. Talking about those tough times, Gupta says, “I personally wrote more than 2,000 emails to various brand owners and held meetings with many of them to get them on board.” Luckily, that is when he managed to acquire Torero.
And soon after he acquired Torero, Gupta brought on board his school friend Varun Nayar as the Chief Operating Officer. The duo then started to focus on setting up an organisational structure. Meanwhile, Gupta also realised that to be successful in the line of business that he had chosen, he had to pay attention to design and development of new products. Hence, soon he hired an accomplished Italian designer Giovanna Villani, who had previously worked for brands like Folli Follie, Missoni, Moschino, etc., as the Global Creative Director of Torero Corporation alongwith a team of 12 experienced designers – three from Italy and nine from India.
Inspired by the ethos and success of Spanish clothing and accessories retailer Zara, Torero Corporation developed a full-fledged design studio in Kolkata, equipped with an advanced software that promptly analyses the latest fashion trends and predicts the popular trends.
To hedge his risks, Gupta decided to have diversified sourcing and manufacturing bases. Apart from manufacturing in-house, he gets products manufactured at his father’s production facilities. “We also buy products from Spain to keep the product mix international. However, going forward, we plan to source more products from other leading and certified manufacturing facilities in and around Kolkata,” says Gupta.
Torero has now also started sourcing quality raw materials, such as finished leather, synthetic leather and calf leather, from Spain and Italy. “We import 20-30% of our raw materials. And the rest we source from within the country, particularly from Bengal, Punjab and Chennai. We also buy leather from Tata International in Dewas, Madhya Pradesh,” shares Gupta. The company believes in keeping raw materials requirement order-ready to reduce the turnaround time.
He continues, “We carry out quality checks on finished products at our warehouse and have complete control over the quality-control and shipment processes. This gives us a more scalable and nimble business model. It also gives us the ability to leverage the infrastructure of some efficient manufacturers,” elucidates an energetic Gupta, who usually works 12 to 14 hours a day.
“Between 2011 and 2013, I literally lived in airports and aircraft,” recalls Gupta. It took 19 trips to Rhode Island and a few trips to Europe to acquire the rights of Cross, the official pen supplier to the White House. “There is a standard process to get orders from a brand. But, in this case, I was telling them to shut down their leather division and transfer operations to India. It required a number of rounds of discussions with the Chairman of the company, but in the end I managed to convince him,” shares Gupta with a sense of achievement.
The Chairman was on board, but an even bigger challenge lay ahead. Gupta still had to convince shareholders of Cross, and the company was listed on Nasdaq. Despite initial doubts on the idea of outsourcing the entire division to India, his entrepreneurial zeal won and Torero became the exclusive worldwide licensee of Cross’s leather accessories business in 2013. Winning over Cross boosted Gupta’s confidence. And, since then, there has been no looking back!
Today the brand has expanded its footprint, both in terms of customers and distributors, in various regions across the world such as Congo, Sierra Leonne, Nigeria, South Africa, Australia, New Zealand, Vietnam and Laos, among others. It also supplies several global brands to stores like Harrods and Sports Direct. Even in India, Cross's leather accessories are being sold at 300 point of sales (POS) and is ahead of many of its counterparts like Tommy Hilfiger and Hidesign.
Gupta has tasted blood, and he now wants to acquire licenses for more brands. “The rationale behind acquiring licenses for more brands is to mitigate the risk of dependency on one brand. In addition, if you already have a set distribution network selling a particular brand, you can leverage that to sell and distribute more brands,” explains Gupta. In fact, in 2016, the company also acquired licenses for powerful global brands Cosmopolitan and Police. “I must tell you that none of our brands compete with each other. Cross is classic in nature, Police is street smart and urbane, while Cosmopolitan is very young and sexy, and Torero is quite casual,” clarifies Gupta.
"Torero corp. plans to export to 100 countries by the year 2020"
Finding A Niche
Picking up a brand is a deliberate and well-thought-out process. While selecting brands, Gupta always tries to strike a balance between his core expertise and the brand’s niche. “We have realised that we are neither suitable for über luxury brands, such as Prada or Louis Vuitton nor for mass brands. We fit in well with the bridge-to-luxury brands such as Tommy Hilfiger. We always look for undervalued brands with a strong proposition and apply the advance waterfall model to design their road to recovery,” says Gupta.
The company carries out frequent focus groups and market research to understand consumer demand pattern. And once the research reflects a positive demand trend for a particular brand, the company starts working towards acquiring licence for that brand. “Negotiations usually take around two years because one has to convince the brand-owners about the manufacturing quality and arrive at a consensus on the royalty. But now that we are a seasoned player, a licensee of various global brands, many companies as well as retailers have started believing our abilities,” adds Gupta.
During the discussion phase, Gupta and his team present a detailed week-by-week roadmap to reinvigorate the brand. “Such kind of licensing arrangement is like a marriage, where both the parties have to have the same vision,” says Gupta. Under such a licensing agreement, the right holder has to pay 10-15% of the revenue as royalty to the brand annually. In addition, the licensee has to pledge a minimum guarantee.
Designers at work at Torero Corporation's design studio in Kolkata.
The studio is equipped with advanced software that can predict fashion trends.
“When a brand offers you global rights, its expectations are quite high. Hence, the minimum guarantee becomes a key concern for us. The business becomes profitable only when you reach sales numbers beyond that target,” Gupta explains. Though perpetual in nature, the license is renewable after 10 years. “In such an arrangement, you can derive the real value only after 6-7 years,” he adds. Interestingly, the company has adopted inside sales technique wherein it reaches out to retailers across globe through the phone or the Internet instead of paying them personal visits.
The Magic Number
Torero Corporation today exports to almost 40 countries and has 300 independent retailers and distributors in its network. The company is already supplying to US, UK, Japan, Russia, Israel, Saudi Arabia, Spain, France and Germany, among others, and plans to soon take the number of countries in its list to 100. “Our biggest strength is our global distribution network which is why our business hasn’t been affected by demonetisation much,” says Gupta.
Such a diversified business model also helps the company withstand global economic volatility. “Europe is currently witnessing a slowdown, with consumption going down 10% y-o-y in 2016. Some retailers in Belgium have even witnessed 40% decrease in walk ins. So, in such an environment, we are diverting our energy to other markets such as US,” he explains.
Inside views of Torero Corporation's manufacturing facility in Kolkata. Torero Corporation through
its in-house design studio and a manufacturing facility in Kolkata caters to the development,
design and distribution needs of some big global leather goods and accessories brands.
For Torero Corporation, despite its several international forays, India remains an important market. Leather accessories as a category, as per Gupta, is almost non-existent and extremely under-leveraged in India. To develop the market, the company in the recent past has introduced several high-fashion brands in India at a discounted rate.
“We want Indian customers to experience our high-quality leather products. Discount is a medium-term strategy to acquire customers. We will increase the price once the market stabilises,” he says. In India, Torero already has an exclusive agreement with Shoppers Stop, where all its brands, including Cross and Police, occupy a prominent shelf space across its stores in the country. “We have plans to scale up our domestic retail presence to 900 POS within three years and would be launching 10 exclusive brand outlets for Cross and Police this year,” says Gupta. What's more? Between January and March 2017, the company plans to launch 7-8 new brands in India.
Torero Corporation has grown by leaps and bounds over the last few years. In its very first year of operations – FY2012 – the company managed to clock a turnover of Rs.2 crore. And there has been no looking back since then. “We have grown fast. We are expecting Rs.40 crore in revenues in FY2017. And for FY2018, we aim to reach a Rs.100-crore turnover,” says Gupta, who takes pride in his achievement at a time when India's leather industry is witnessing a slump.
By 2020, Torero wants to cross Rs.1,000-crore mark in tunover. “Till now, we have stayed away from venture capital, but we will weigh the option if required,” says Gupta. He feels that Torero could have done better. Despite admitting to the fact that the overall business environment has changed for the better, Gupta feels that there are some challenges which continue to affect the business. For instance, in some countries import duties are as high as 30% on finished leather products. “We usually opt for delivered duty paid (DDP) model, which becomes a problem. For instance, when our products enter US, we have to pay import duty upfront. And it’s only once those products are sold, the retailers pay us,” explains Gupta.
Import duties on various components, such as synthetic leather and a lack of availability of quality raw materials are also some of his concerns. “We’ll be more than happy to source from India. However, we lack high-quality manufacturers who can consistently fulfil our requirements. The government needs to incentivise the sector either through duty sops or reduced corporate tax rates,” he adds.
Gupta is of the opinion that India should properly re-negotiate its existing double taxation avoidance agreements to give exporters the much-needed relief. He also wants the government to make provision for VAT refund on value-added exports. "The duty drawback policy is not adequately incentivising high-value exports. And as a result, manufacturers naturally don’t want to get into high-value exports. Drawback limits need to be revisited,” he suggests.
A PROMISING FUTURE
Gupta is confident of winning the Red Dot Design Award 2017, a prestigious award for design innovations. Torero has already won the award two times in a row, in 2015 and 2016, for designing a wallet with a tracking device and a origami collapsible handbag for Cross.
Meanwhile, Gupta is also competing with a few Chinese and Italian companies on the global brand licensing turf. And he is confident that the integrated business model of Torero Corporation, equipped with the high-level design and manufacturing capabilities, will definitely give him an edge over competition.
Despite some hiccups, there is absolutely no doubt that Torero Corporation has been a fascinating story. And, if one goes by the confidence that Gupta has in the business model, there’s no reason why the future can’t be as enthralling.