Riding the hide
Though a young company, Hidesign is an Indian leader in luxury leather goods. Ashok Som (ESSEC) presents Dilip Kapur’s entrepreneurial path and sheds some light on India’s luxury market.
While less celebrated than its software sister, the Indian leather industry, given its contribution to employment and exports, is a notable sector within the Indian economy.
Some of the goods produced by that industry feed into the luxury market. And India’s luxury market, like China’s, is growing. A 2006 Ledbury Research study cited by the case has the number of wealthy Indian households (income greater than $230,000) reaching 140,000 in 2010, up from 20,000 in 2002. In 2006, the Indian luxury products market was valued at $377 million.
Within the luxury leather goods niche, Hidesign has taken little more than twenty years to establish itself as an Indian luxury leader. Professor Som’s case (see reference below) looks at Hidesign’s past and the challenges it faces as it attempts to become a major global luxury player.
Hidesign
Hidesign’s founder, Dilip Kapur, was born in 1948 and raised in Auroville, an international township associated with Sri Aurobindo and located next to Pondicherry on India’s southeastern coast . That Indian childhood was followed by a quintessentially American Yankee education, first at Phillips Andover Academy and then at Princeton University. During his Ph.D. studies at the Social Science Foundation at Denver University, Kapur worked at a handbag company and was thus introduced to the manufacture of leather goods.
He returned to Auroville in 1978 and put some of the acquired social science skills to work by serving on the planning and development council. As a hobby, he continued making leather bags. The hobby led him to discover and apply a traditional Indian tanning method involving the soaking of hides in vegetable extracts which produced a more rugged finish than traditional leather. Foreign tourists traveling in India liked the bags and soon foreign buyers were placing orders. By 1986, Kapur had several hundred people working in the Pondicherry area producing these vegetable-tanned bags.
It was in 1990 that Kapur created a bag factory in Pondicherry and turned to business full-time. The tanning of the hides, key to the distinctiveness of Hidesign’s products, took place in two wholly-owned establishments located near Chennai (another coastal city, 165 km north of Pondicherry). One other differentiating feature of Hidesign’s bags was the use of solid-brass fittings, unlike many other bags which opted for plated-metal fittings. During its first decade of existence, 80% of Hidesign’s customers were foreigners and the company used foreign distributors to reach them.
The 21st century marked a turn toward India and toward exclusive stores. It was in 2000 that Hidesign began opening its exclusive boutiques across India. Over the next nine years it succeeded in creating forty-six stores, all but two of which are operated by the company itself. The store expansion was accompanied by brand diversification. In 2005, Hidesign created a new brand of bags and accessories for its stores, Salsa, aimed at the 16-25 age group and priced much lower than the premium bags which sold for $125-$250 in overseas markets. Meanwhile, those premium bags were still being offered at high-scale Indian retailers (e.g. Shopper’s Stop, The Bombay Store and Westside). In this way, sales which had previously tilted overseas now were generated mostly domestically (80% of sales in 2007).
While it was growing domestically, the company was also pursuing the exclusive-store strategy overseas. In 2004, stores were successfully created in the US (Carmel, California) and in Russia (Moscow’s Mega Mall). However, a 2004 joint venture in Dubai failed initially and Hidesign turned to a more experienced retail firm thus succeeding in opening two stores with two others planned for the UAE. China is currently served by a store in Shanghai and one in the Hong Kong airport.
In 2007 LVMH, the French luxury giant, took a 20% stake in Hidesign. The case raises the discussion question of the value and dangers of this alliance. What might LVMH’s interest in the alliance be? The case pinpoints the role of Japan. That market provides a third of LVMH’s leather good sales and the French firm is facing competition from Coach, the American firm which is offering lower prices. Hidesign bags might constitute a tool in the competition against Coach. Also, LVMH is tapping the Indian labor market and has set up a shoe sole facility in Pondicherry.
As for Hidesign, it is availing itself of LVMH’ cash and expertise. That cash could be used to widen the global appeal of Hidesign’s products enabling the company to achieve its goal of becoming a multinational luxury group. And in the meantime, Hidesign employees are receving training at LVMH’s offices, thus gaining insight into what it might take to succeed in the global luxury market.
The case closes with Hidesign’s most recent alliance project. This involves India’s leading retail chain company, Future Group. The plan here is to create a new brand, Holii, aimed at the mid-to-mass market segments, with products costing a third less than Hidesign’s existing wares. What with all these brand, distribution and geographical diversifications, Dilip Kapur appears as anything but hidebound.
Reference:
ECCH: 310-033-1
“Hidesign: The Kid in the Luxe Block”
Professor Ashok Som
ESSEC (Paris-Singapore)
Published May 2010
