The most compelling attraction at Vaibhav Global Limited, our customers tell us, is outstanding value for stylist quality products. This makes us a preferred one-stop shopping destination for style and quality at smart prices across the US and the UK, our chosen markets.
In a business where the product price is fixed, it is essential that we enhance our operating efficiencies to remain at the top of our game. Towards this extent, we embraced a number of initiatives during the year under report. In a significant initiative, we laid the foundation of progressive cost optimization by commissioning our environmentally-sustainable and tax-efficient SEZ production facility in a Gold Standard green building in Jaipur - ahead of schedule and at lower-than-estimated costs.
This facility made it possible for us to scale our capacity by a substantial 100% to a cumulative 7 million units per annum. The facility also augmented our competitiveness through a strategic SEZ location that provides attractive tax and excise duty benefits.
During the year under report, we also commissioned a new, cost-effective call center in Mexico to support our existing US-based retail operations. This establishment delivered operating costs to lower and satisfaction levels higher than our Kansas equivalent, strengthening our overheads management. The Company initiated a process of diverting some of the post-sales customer service calls to Mexico from Kansas and Austin with similar or better service levels, reducing operating costs in this area.
The Company strengthened its business during the year under review through the launch of a new Hybris (SAP Company engaged in enterprise multi-channel e-commerce and product content management software) in May 2015. The website is in the process of stabilising and will service enhanced throughput. The Company also initiated the development of apps for various platforms and devices for LC, USA, and TJC, UK, recently, which are expected to be launched during the current financial year translating into enhanced customer service and delight.
The Company’s recently-upgraded customer engagement platforms proceeded towards optimization. Even as this took longer than expected, I am optimistic that with quality application delivery capabilities, our US and UK platforms will deliver enhanced customer experience and attract larger traffic throughput. We believe that the enhanced customer experience will catalyze traffic to our retail channels and generate higher revenues.
Though our 2015-16 revenues and net profit declined 7% and 61% respectively, I must point to our gross margins, a vital indicator of the health of our business, which grew a robust 210 basis points to 63% during the year under report. Some of the principal reasons for this development comprised an increase in average product prices and engagement cessation in the third-party sale of rough stones (B2B), a low-margin business segment.
Our business model was validated on Black Friday (November 28, 2015), a red letter day at Liquidation Channel, USA (US TV sales platform), as we crossed USD 1 million in sales for the first time. Some proprietary brands, launched over the last few months, performed well in the holiday season over generic sales. We constantly fine-tuned offerings following customer feedback; we withdrew underperforming lines; we expect to sustain the improved momentum.
What is creditable is that in FY16, we added 2.23 lac customers (total 18.65 lac customers). Repeat customer buying activity was 17 times (18, previous year). The average annual purchase per customer was 24.5 pieces (25.9 pieces, previous year). Our customer retention was 45% in the US and 53% in the UK, which compare favorably with larger peers.
During the year under report, we launched the ‘Budget Pay’ EMI scheme and easy returns policy, which elicited a positive customer response and translated into superior realizations. Budget Pay EMI purchases, covering USD 20-plus products, and an easy returns policy in the US has resulted in a higher working capital outlay. We may need to deploy some additional capital when Budget Pay is launched on the website. We feel that the returns policy will prevent customers from switching allegiance and attract new ones.
What gives me confidence is that the other major players in the US market have grown on a large base.
We are distinctively placed; we are differentiated in the US and UK through our discount electronic retailer positioning, which is relevant considering that discounters have traditionally thrived in most environments.
Besides, our costs as a percentage of sales are lower than major players without compromising service or reach initiatives. Our retention rate of around 50% continues to be one of the highest in the industry. The average purchase frequency of 25-26 products per year is robust, validating our product quality. Based on these realities, we expect to drive our topline and EBITDA across the foreseeable future.
Before I close, I would like to reiterate that Vaibhav Global is now operating on expanded capacities. We are focused on leveraging our fixed-cost investments to and create a strong, globally-competitive franchise in the fashion and related segments.
With my best wishes,
Chairman and Managing Director