How badly have you been hit on account of the current scenario? How are sales looking as lockdown begins to ease in certain parts of the country and how many stores are operational now?
We are related to the travel industry. We make luggage and we are in the category which is the worst affected. In fact, in Q1, which is our largest quarter, we have not even done 10% of the sales that we did last year. It is a very bleak situation for us. However, the good point is that we have a very strong balance sheet and even now we are not in any debt at all. We have made adequate provision that we have lined up credit limits which will last us for one year if required and at the moment, there is hardly any activity. I cannot give you any figures and the second quarter is also going to be quite slow. But we hope things will pick up in the last two quarters of the year.
What about fixed overheads? You would have reduced them by about 35% this quarter. Is that an area where it is possible to further reduce costs and for the longer term the outlook as well?
Well yes because we operate from very small units and our fixed costs are mainly in terms of employees and retail shops which we own and the rents for that. While we cannot reduce the rents for the very large warehouses, definitely in retail shops we have done quite a bit and if required we will do more.
It is a very sensitive area because there are closing down costs as well and I would say that our landlords have been very cooperative because they also realise that there is not much of a choice. They also do not have any alternatives so it is better to reduce the rents. We have closed down many retail shops. Of course, the retail shops contribute only about 10% to 12% of our overall sales. Most of our sales comes from outside other third party dealers where we do not have fixed overheads. So we can cut down further overheads on employees and it is a slightly painful process and we are dismantling all our infrastructure.
When you cut down overheads, we were dismantling all the overheads, all the infrastructure you have made over the years. So we have to strike a good balance but so far people have been responsive and we are hoping that we will manage with what we have done so far. If we have to do a little bit of marginal things, we will do it. But hopefully I think things will revive.
I understand that most handbags are imported. Will you be looking at starting manufacturing within India itself and scaling up that business further?
Yes, that is absolutely required. We are increasing our own luggage manufacturing but we had not even reached 50% of our soft luggage sales and our own production was not even 50% of our sales. Now that the sales level itself has gone down, it is going to remain like that for a year or 18 months. We will double our efforts in the manufacturing side and start making the handbags also.
In fact, I also hope that we can make enough handbags and we can start exporting them because we have a low cost manufacturing facility. So far we have not been doing it. So it is a new line of product which we have to start but it is quite similar to making luggages. Handbags are like small items of luggage, like backpacks and all are the smallest items we make in luggage. So handbags should be a good diversification.
Currently the dealers and distributors will be sitting on inventories. Are you offering any sort of distribution or dealer scheme?
We are reacting tactically wherever required but as yet, the demand is not so much but it will start now. In the second quarter, there was a new phenomenon in the last five, six years that we used to get a lot of NRIs coming back to India. The monsoon quarter used to be very weak but because of this new phenomenon and also people travelling abroad. it was not as weak as it used to be 10 years ago.
But this time, that is also not happening. Basically, the retail in the cities has not opened up so much, especially in the travel business. There is not much sense in offering schemes but whenever required we will be doing that.
During Covid time, we have seen a lot of companies deviating from their core businesses. Paint companies are making hand sanitizers and you have forayed into manufacturing PPE kits as well as masks. Will you be looking to take this business forward?
We have stitching machines and that is what soft luggage entails, dealing with fabric and stitching machines and that is what masks also entail. But we have to see how it goes because all the readymade garment manufacturers are doing this and there are thousands of readymade garment manufacturers in the country. While there is a lot of demand, we have to see whether it works out in the long run. But we are thinking of diversifying into other areas if required.