Samsonite India's Sales Growth Aided By Higher Frequency Of Trips, Says CEO

Samsonite International SA.'s India sales spiked despite a high base as consumers travelled more often than ever, defying the slump in discretionary spending.

Net sales grew 38.4% year-on-year in the first six months of 2023, which according to the maker of American Tourister bags is no longer due to "revenge travel", as witnessed after the Covid-19 restrictions were lifted, but because consumers developed a new habit of travelling.

More trips and the willingness of consumers to pay high prices make the luggage giant more optimistic about its growth prospects for the rest of the year, unlike other retail categories such as electronics or apparel, which continue to reel under a persistent slowdown in discretionary spending.

The growth comes on a strong base of the first half of 2022, when its net sales grew 109% to $99 million, higher than China's $76 million. India outpaced China to become the second-largest market globally for Samsonite in 2022. Net sales in China grew 99.6% year-on-year in the first half of 2023 on a low base but have declined as compared with 2019 levels.

However, Samsonite India grew 79.3% between January and June this year over the corresponding period of 2019, according to company disclosures.

"We have seen two-and-a-half years of fantastic growth," Jai Krishnan, chief executive officer, Samsonite India told BQ Prime. "When you are deprived of something, it is only then that you realise how much you love it ... and that's what happened to the initial travel boom we saw last year. However, the revenge travel is now over, and travel overall seems to have settled at a new normal level, which is much higher than what the country has ever seen."

In India, Samsonite has three brands catering to different price points. Its eponymous brand is in the luxury segment, followed by American Tourister in the value-to-premium segment and Kamiliant in the mass-priced segment. American Tourister is the company’s largest-selling brand by volume in the country, accounting for about 55% of sales.

The company anticipated the travel boom, and "that's why we had the courage to invest", Krishnan said.

Samsonite India's manufacturing facility in Nashik has seen two rounds of capacity expansion since the onset of the pandemic—one in 2020, followed by another earlier this year—with a cumulative investment of roughly Rs 250 crore. "We expanded our capacity in 2020 for the first time since 1997," said Krishnan. "When we were making two lakh pieces a month in 2019, we thought more than doubling our capacities to five lakh would take us till 2025."

With utilisation at full tilt, however, Samsonite announced the second phase of expansion in January this year entailing investments worth Rs 160 crore to ramp up its monthly capacity to 7.5 lakh units. It is expected to be operational by July 2024 and will be catering to both domestic and export markets.

Currently, exports account for 10% of Samsonite India’s manufacturing output. "We can easily double our exports share because India is a natural location for companies following a China-plus-one strategy," the CEO said.

The luggage manufacturer is also weighing different locations to set up one more warehouse, as it intends to add another 4-lakh square feet in capacities to its existing 5 lakh square feet. For now, it has tied up with a third-party player for additional space. 

Apart from expanding capacities, Samsonite is also set to step up its retail presence and is investing on renovating existing stores. Currently, there are 460 stores of American Tourister, and the company plans to open 40 more by Diwali this year. For Samsonite, there are plans to open 20 more stores to take the total count to 100. "We have also invested a lot of money last year, and refurbished 95% of Samsonite stores," said Krishnan.

Samsonite India also intends to bolster its marketing spend to capitalise on the continued recovery in travel, he said. "So far this year, we have already invested more than Rs 100 crore towards marketing campaigns, and the second half is expected to see more investment." In 2023, the company intends to spend 6-7% of sales on marketing, up from 5% last year.

About a quarter of the Rs 50,000 crore luggage sector in the country is dominated by organised players like VIP Industries Ltd., Samsonite and Safari Industries Ltd. The share of organised market has risen from 20% in 2019, or pre-pandemic.

"In the first half of 2023, Samsonite India reported revenues of $126 million (Rs 1,030 crore assuming an average conversion rate of Rs 82.1 per U.S. dollar), while VIP reported revenues of Rs 1,080 crore over the same comparable period, leaving marginal difference between the two players," said Jinesh Joshi, research analyst, Prabhudas Lilladher Pvt.

Samsonite enjoys a share of 38–40% in the organised market. Its share is on the rise, while its near rival VIP's market share is declining, he said.

Safari, too, has been consistently gaining share, as its products are priced much cheaper than those of the other two players, posing a credible threat to the industry. But Krishnan isn't overtly worried about the competition, as Samsonite continues to gain from the shift to branded over unbranded.

A Crisil Ltd. report pointed out that the country's luggage industry revenue is set to rise 15% year-on-year this fiscal, despite a high-base effect of 40% growth last fiscal, owing to rising penetration of hard luggage made by the organised sector, and continuing growth in tourism and corporate travel.

Operating margins are expected to expand by 150–200 basis points. But for higher marketing expenditure by the organised players, the margin improvement would have been much sharper, as prices of key raw materials—polypropylene, polycarbonate, and polyamide—declined almost 20%, the report stated. The key raw material prices are largely crude price driven and comprise 40–45% of the cost for luggage makers.

The luggage industry's fortunes hinge on travel trends. "Luggage, as a retail category, is unexciting. No one talks or thinks about it unless there is a trip planned. When travel is on one’s mind, only then they tend to buy luggage, and today not everyone waits for their baggage to wear out like in the past," said Krishnan. "That being said, India has only started seeing the boom… We are just scratching the surface as travellers... So, miles to go."