MUMBAI (BLOOMBERG) - A struggling 261-year-old UK toy-store chain is seeking a new lease of life in the hands of billionaire Mukesh Ambani, who's looking to India where about a fifth of the world's babies are born to fuel its revival.
Hamleys, a British retail icon that hasn't made a profit for a number of years, plans to quadruple its outlets in India to more than 500 in three years despite the pandemic, according to Darshan Mehta, chief executive officer of Ambani's Reliance Brands. Besides the main growth market, the company is also adding stores from Europe to South Africa and China, he said in an interview.
Mr Ambani, 63, bought Hamleys in 2019 for US$89 million (S$119 million) in cash to strengthen his retail footprint as part of the ongoing transformation of his oil-and-chemicals conglomerate Reliance Industries into a consumer and technology behemoth. Hamleys' most recent books for 2019 show a loss of almost £9 million (S$16.6 million) on revenue of about £48 million.
The deep pockets of Asia's richest man and India's demographics could help breathe new life into Hamleys, whose share of global toy sales was estimated at 0.6 per cent last year by Euromonitor International, and see it avert the pitfalls faced by rivals such as Toys "R" Us.
With a backer whose net worth is US$75 billion, Hamleys is seeking to tap into what it sees as an inadequately serviced section of India's almost 1.4 billion people, of which about 27 per cent are children under 14. The country accounts for just 1 per cent of the US$90 billion global toy industry, meaning the potential for growth is high, Mehta said.
Hamleys stores are famed for the carnival-like experience, allowing children to race toy cars, enjoy model train sets and play various games. In a country like India, with its densely packed cities and limited entertainment options, such an environment could be a hook to get customers to visit again. Product prices appealing to buyers of modest means as well as the super-rich make Hamleys an "elastic brand," said Mr Mehta.
In Asia, Hamleys is seen as "high class and it's on par with Harrods in some ways," said Marc Alonso, a senior research analyst at Euromonitor. "So it's attracting that customer base, which is why in some places like India and China, it has been seeing some good sales growth in the past few years."
While the pandemic has been hitting parts of India's economy, Mr Mehta sees the toy industry as ``recession proof'' because many families choose the happiness of kids over anything else.
But other chains have struggled before the virus. Toys "R" Us was the biggest victim of the US retail apocalypse when it filed for bankruptcy in 2017, crushed by debt and felled by competition from online sellers such as Amazon.com. Though the American chain is on a recovery path now under a new owner, a protracted pandemic points to an uncertain future for retailers.
Nailing online sales is key to avoiding the fate of other high-end toy chains, according to Reliance. As part of Ambani's e-commerce and technology pivot, his group is building Jiomart, a shopping portal, to take on giants such as Amazon.com and Walmart's Flipkart in the local market. Reliance Industries has roped in Facebook and Google as investors to fuel those ambitions.
With Covid-19 accelerating the group's digital strategy, Mr Mehta expects 30 per cent of Hamleys' sales coming from orders online in five years, versus 20 per cent now. Direct selling over the phone or via WhatsApp would account for 20 per cent in the same period, he said.
Euromonitor's Mr Alonso said that target may be too ambitious because some customers could go to another portal that offers cheaper prices. "You can get the same product much cheaper by going straight to Lego, for example, on their e-commerce site," he said.
The onset of the pandemic just months after Reliance took control compounded Hamleys' financial distress in the UK, where it runs 21 outlets. But Mr Mehta believes the UK operations will "come out very strongly" with non-essential stores reopening this week following the easing of curbs. Another coronavirus wave could temporarily disrupt the business globally - like delayed plans for the US, a market it wants to crack.
The pandemic has limited Hamleys' India target to just about 50 new stores this year before the roll out picks up pace.