Most Business Leaders Lack Courage, Don't Know What To Do Now: Adarsh Gupta, Liberty Enterprises
This is the time when the business leaders will have to maintain their mental balance, and will have to come out of this with a solution, believes Adarsh Gupta of Liberty Enterprises
The retail and footwear sectors are one of the largest employment generators, and the leather and footwear sector alone employs over 45 lakh people directly, consisting of weaker sections of the society, with women consisting 30 per cent of the workforce. Due to the lockdown, this has come to a complete standstill. Adarsh Gupta, Entrepreneur & Managing Partner, Liberty Enterprises, in an interaction with Annurag Batra, Chairman & Editor-in-Chief, BW Businessworld, talks about the Covid-19 impact on the MSME sector, the Centre’s initiatives and entrepreneurial leadership. Gupta recently wrote a letter to the Prime Minister and the Ministry of Labour and Employment, proposing a financial assistance scheme to this sector.
What was going in your mind when you wrote the letter to the Prime Minister and the Ministry of Labour and Employment?
As far as the thought-process is concerned, I believe in a higher quality of thinking. With the current crisis, my friends feel, if my father was alive then he would have bailed out everyone associated with him, as he was known for his skills. We have never seen such a crisis before. Liberty is 65 years old now and we have witnessed a number of crises before in this journey. One of them was when the Haryana CM was angry with us and we had to shut down our plants for almost a month. But now not just our plant but the world has shutdown. The government is fighting hard with the Coronavirus and the economy challenges.
On 28 March, the government via the Ministry of Labour issued a notification that they are willing to use the EPFO fund to pay the Provident Fund of the employees’ and the employers’ contribution for the next 3 months. So this thought gave me an idea that the purpose of the fund is probably to secure the future of the employees. So I felt these funds can be used in a better manner because few thousands of rupees will not bailout this industry from the current scenario. I researched on this and when my thoughts were clear, on 21 April, I was ready with the complete solution, which I forwarded to the Prime Minister and the Ministry of Labour. I got a chance to meet him immediately.
AB: Gupta in his letter proposed that EPFO should give 50% of the contribution that has come from a company as a loan, and for the next 5 months there should be a moratorium on payments, post that there should be a 10.5% interest, and if it was done the way he has suggested, it would put Rs 10 lakh crore back into circulation. So, it was a practical suggestion.
In such times leadership matters! Tell me what kind of leadership you have seen in the past 30-40 days at the government level, entrepreneur level and community level? What is the kind of leadership that is ideally needed in these challenging times?
In the past one month, we all have become scared. The current situation has scared not just the leaders of the people, but the business leaders too. The Prime Minister of India is not a business leader but a leader of the people. With his courage, he has been taking bold steps since he became the Prime Minister of India. I feel the more educated you are, the more your entrepreneur skills die and you start fearing because you have grown up in an environment which protects you. Your parents do not allow you to go out and allow you to start taking risks right from your childhood. They protect you and probably parent you in such a way which does not encourage entrepreneurship.
I would say that today most of the business leaders do not know what to do because they lack courage, which is required now. For example, I am used to working remotely. I remember whenever I go out of Delhi for a holiday or for any social engagements, I used to carry my files and computer. The business leaders work in the office and not from home. Hence, they are not available 24*7. So there is a huge difference and here technology plays its role and most of the people are trying to work from home. Now people have the challenge that they have to stay home and work amidst the lockdown, hence they don’t know how to do their business properly. Therefore, I feel we have to come out of this fear. The bottomline is people are scared and when you are scared, your mind can’t function well. Maintaining your mental balance, you will have to think of coming out of this with a solution!
Yours is a low margin domain, it is labour intensive whereas the other industries have also been hit at a high margin, high profits. Low margin will have low profits so what are they so afraid of?
In this situation, everyone wants to conserve cash. When a consumer wants to save cash, the luxury items or other expensive items will suffer definitely. Most of the brands, which are operating on a hefty margin, there is a brand premium attached to it. So if the brand premium is 5-10%, it is considered reasonable, but if it is 25-50% or even more then it is not reasonable. Wherever the margins are high and the similar products are available without brands are available at half the price or even lesser I think most of the people will switch to those that are available at competitive prices.
Why are the industries and businesses with high profit margins still worried? Why can’t they think out-of-the-box strategies and what is preventing them to reinvent their businesses?
Actually it is not so easy. The business model, they currently have, has high margins and high cost. So the operating costs are high, especially for those who are operating in the organised sector; from manufacturing to marketing and then retailing. The cost of retail today has gone up to 30% of the total cost. When you are operating in a shopping mall, your retailing is 30%, while when you are operating in an unorganised environment then the cost might be 5%. So there is clearly 25% extra overhead cost, which the consumer would not like to pay. As far as manufacturing is concerned, the products manufactured by the organised sector has definitely got a higher cost because they comply with all statutory requirements and their compliance state is high and they employ expensive people paying a handsome salary, whereas in the MSME sector, especially in the footwear and other sectors, the salary paid to overall employees are 25-50% lower. Therefore, this sector offers value for many products, while some other sectors don’t offer value for many products. They charge a hefty premium for their brand and for their distribution network. Take for example, the masks available in the market or sanitisers available in the market have suddenly become expensive. This kind of high margins have become the mantra for most of the business houses.
AB: This is showcasing greed as this is not how it should work. This is not only business but they are saving human lives. There should be reasonable margins in business. I hope they hear your views and advice and able to pay back on margins. The government did the right thing by trying to tap the price of such things so that they are available to all but there is a long way to go.
How is the response of e-commerce players and the consumer sentiment in these times? Has your company seen a surge in demand with regard to e-commerce players?
In the current period, e-commerce is not allowed to sell other than essential goods, so therefore we are not selling anything on any e-commerce platform right now. Going ahead, most of the parts that sell in bulk on the platform are those products where there is arbitrage of price prevailing in the market at retail and they offer that same 25% markup as a discount to consumers. Those with a higher margin, which can be controlled by e-commerce, will continue to run on e-commerce. For example, foreign brands versus Indian brands! All foreign brands of sports shoes or others have huge mark up of 4 times.
If the Coronavirus lasts till October, then what will be the loss overall to your business? And when do you think you will be back to the numbers, you were doing pre-Covid-19?
As far as quantity is concerned, I expect 10% loss all across footwear and apparel categories. And as far as value is concerned, I expect 25% loss all across footwear and apparel categories. I think by the next financial year, which is 2021-22, we will be back to a regular sales.