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- Profit by Pakistan Today

Pakistan’s first fashion billionaire?

What’s next for Khaadi? An IPO in the works? But does Shamoon Sultan founding CEO of Pakistan’s largest
retail clothing brand have it in him to take his business to the next level and in turn become Pakistan's rst
fashion billionaire?
By Farooq Tirmizi - September 25, 2017

The year 2017 is the first time the Pakistani clothing market hit Rs1 trillion in consumer spending (according to an
analysis conducted by Profit based on data from the Household Integrated Economic Surveys, published by the
Pakistan Bureau of Statistics). It is also the year the biggest brand in the industry – Khaadi – learnt about both the
benefits and the costs of being the market leader, with a very public labour dispute and a string of negative stories
published about it in the print media.

In the nearly two decades it has existed, Khaadi has gone from being a small store on the corner of a narrow
street in Karachi’s Zamzama commercial area to become the industry-defining brand in Pakistan’s retail fashion
sector. On the way, it has created, expanded, and conquered market that was virtually nonexistent prior to
Khaadi’s launch in December 1999. Yet even as it stands as the clear champion of a rapidly growing market,
Khaadi’s future has never been more precarious. In the next year or two, the actions of Khaadi’s management,
particularly founder and CEO Shamoon Sultan, will determine whether it becomes a true national (and possibly
global) corporate icon, or whether it will wither and fade away into obscurity.

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This article examines the journey Khaadi has taken so far, the market conditions and socio-economic context that
allowed it to succeed as much as it has, and the opportunities and challenges the company faces in the years
ahead. Our analysis is based on publicly available data, as well as published interviews of Shamoon Sultan, going
as far back as 2003. The Khaadi management, in particular Mr Sultan, refused repeated requests by Profit, over
several months, for an interview.

The wealth of family resources

In successfully starting his business, one of Shamoon Sultan’s biggest assets was his family: his father is a wealthy
businessman in Karachi and owns NutriCo Pakistan (Pvt) Limited [formerly Unibrands (Pvt) Limited], the sole
distributor and marketer of Morinaga, a Japanese infant milk formula manufacturer. Founded in 1917 and
introduced in 1979 to the Pakistani consumers, Morinaga is one of the most popular infant milk brands in Pakistan
today. Having enjoyed a presence in Pakistan for over 38 years, Morinaga Milk Industry Co. Limited and NutriCo
Pakistan have recently announced a joint venture with ICI Pakistan Limited to manufacture Morinaga products in
Pakistan subject to regulatory approvals. The joint venture is estimated to entail an investment of up to PKR 4.8
Billion with an expected launch in 2018. (Note: A previous version of this article erroneously mentioned that
Shamoon’s father owned Millac foods (Pvt) limited. Profit regrets the error)

As Shamoon pointed out in an interview with Newsline in 2003, his family did not have very many creative people
and so one may have expected him to follow the long line of scions of wealthy Karachi-based families to a business
degree at the Institute of Business Administration (IBA) followed by joining the family business. But in Shamoon’s
case, the “not many” turned out to be just enough, since he is the nephew of legendary Chicago-trained architects
Arshad and Shahid Abdulla.

In 1990, the two brothers, along with several other prominent citizens of Karachi, set-up the Indus Valley School
(IVS) of Art and Architecture in Karachi by moving the iconic 100-year-old Nusserwanjee building from its old site

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in Kharadar, part of the historic older part of the city, to the new campus being built in Clifton, then still a newer
neighbourhood closer to the beach.

Three years later, in 1993, a young Shamoon, enrolled as a student at IVS, a decision that would change his life
forever. His teachers from that era remember him as a bright student who was somewhat of a slacker, though he
began working hard towards the end of his time at IVS and did particularly well on his thesis, landing a job with
Noorjehan Bilgrami as a result.

Indus Valley was a critical time in Shamoon’s life, and he remembers it with fondness and remains even now an
actively involved alum. This is perhaps not surprising. IVS gave him his two great loves: Khaadi, and his wife
Saira. He acquired a passion for weaving cloth during his time as a student at IVS, and it was a trip to India during
his time at IVS that first planted the seeds of the idea for Khaadi in his mind. And he met Saira at IVS, where she
was also a student, two years his junior.

Shamoon worked at Bilgrami’s company for a year before realizing that her style of work was clearly not for him.
“Noorjehan works on a different level from that of Khaadi – she has a very select clientele. When I was working
with her, I realised that this was not the direction I wanted to follow,” he told Newsline in 2003.

In early 1998, Shamoon decided to set off on his own and use his family’s considerable resources to bear to set up
his own business. He was determined to create a retail brand for hand-woven khaddar clothing. He started off with
Rs3 million in the capital, granted to him by his family. He acquired handlooms and set them up at a factory his
family owned in the SITE industrial area in Karachi and set up a shop in Karachi’s Zamzama commercial district,
also on a property owned by his family. His early operating costs were reduced by the fact that his father did not
charge him rent on the first Zamzama shop. He then hired his first designer: Saira.

From there began a journey of expansion, the likes of which Pakistan’s nascent retail sector had not yet seen.
Shamoon and Saira initially underestimated the speed with which consumers would buy their products, selling out
in a matter of days and having to close down their shop until they could restock it.

Expanding locally, and globally

While Khaadi clearly started as a passion project focused on selling khaddar clothing, it did not stay that way for
long. Shamoon and Saira may have an artistic passion for the products they create, but they are clearly
commercially focused as well, launching women’s clothing lines, pret, and lawn. The company sells both
readymade garments and unstitched fabric.

The company began expanding its presence, first within Karachi, then on to Lahore and Islamabad, followed by
eight other cities across Pakistan. By 2010, Khaadi felt confident enough to make its first foray into international
retail, setting up in Dubai, followed quickly by a store in Abu Dhabi. In 2013, Khaadi began opening stores in the
UK.

Khaadi currently has a total of 54 stores, of which 42 are spread across urban Pakistan, eight stores in the United
Arab Emirates, and four in the United Kingdom.

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While the company does not publish its financials, sources familiar with its financials who spoke to Profit on the
condition of anonymity stated that it had revenues of close to Rs16 billion in the financial year 2016, of which Rs14
billion or so was in Pakistan and another Rs2 billion was from its foreign locations. That number makes it the
largest fashion brand in Pakistan, having overtaken the export-oriented Gul Ahmed Textile Mills’ domestic brand,
Ideas.

While the company operates across many business lines, over 90% of its revenue comes from just two of them:
pret and unstitched cloth. In each of the remaining business lines, even people inside the company acknowledge
that they face stiff competition. In particular, their high-end women’s clothing line – Khaadi Khaas – is widely seen
by consumers as being bested by Sana Safinaz. And in men’s wear, Junaid Jamshed remains the leading brand.

Nonetheless, what distinguishes Khaadi from its competitors is not just the quality of its products, but the buying
experience itself. Khaadi currently operates the largest fashion store in Pakistan, the 22,000 square-foot flagship
store in Dolmen City Mall Clifton, in Karachi. And it plans to acquire the flagship space in virtually every single new
Class A mall that is being built in Pakistan’s new mall-building boom. Its success has inspired some not-so-subtle
copycats, including Kapray and Beechtree, which lay out their stores almost exactly like Khaadi.

But Khaadi is also not the kind of retail dinosaur that invests in bricks and mortar without giving thought to its
online presence. Through its website, Khaadi boasts one of the largest e-commerce presence in the country,
beaten in terms of online revenue only by specialized e-commerce businesses like Daraz.pk.

Yet even as it invests in the physical and technology infrastructure to sell its products, Khaadi’s management
remains cognizant of the fact that it is first and foremost a fashion company, and hence managing its talent
pipeline is critical. It helps that Shamoon and Saira have remained actively involved at IVS, and have cultivated
relationships with the faculty at IVS – now widely recognized as one of the top two art and design schools in the
country. Faculty at the institution help the couple identify some of the most promising students before any of their
competitors have had a chance to see their work, giving Khaadi an inside edge at getting access to some of the
most widely sought-after talent in the country.

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The evolution and expansion of Pakistani fashion

While Khaadi has been remarkably successful, its success needs to be placed in a broader context: the rise of the
Pakistani middle class, specifically the rise of the working woman, who has enabled families to rapidly expand their
household incomes and move out of subsistence living and towards a truly consumption-oriented economic
existence.

Pakistan’s female labour force participation rates have increased dramatically, from 16.2% in 2001 to 23.4% in
2015, the latest year for which data is available from the Labour Force Survey conducted by the Pakistan Bureau of
Statistics. As a result, household incomes have risen to Rs34,707 ($333) per month, according to data from the
2016 Household Integrated Economic Survey. That represents an annualized increase of 9.3% per year over the
past 15 years (5.7% in US dollar terms).

As a result of rapidly rising incomes, Pakistani consumers are no longer spending the majority of their incomes on
food, and have more capacity to spend on other items, including clothing. In the fiscal year ending June 30, 2017,

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Profit estimates that the average Pakistani household spent Rs3,462 per month on clothing and shoes, which
represents 9.3% of their incomes. That is up from just 5.4% of a much smaller income in 2002.

Spending on clothing has risen much faster than spending on other categories, rising by an average of 13.5% per
year for the past 15 years. It is becoming increasingly clear that Pakistanis are now beginning to buy clothes not
just because they need to, but also occasionally because they want to.

The rapid rise in spending on clothing also appears to be causing a shift in patterns of what types of clothes
Pakistanis buy. In 2002, according to PBS data, more than 68% of total spending on clothes went to buying
unstitched cloth and other accessories and only 13% of spending went to readymade clothes. In 2016, the
proportion of consumer spending going to readymade clothes was 33%, with unstitched cloth and accessories
going down to 50% of total spending.

Readymade garments are, by far, the fastest growing segment of consumer spending on clothing and footwear,
growing at an astonishing 24.2% per year (20.1% in US dollar terms) over the past 15 years to reach a market
size of Rs356 billion ($3.4 billion) in the fiscal year 2017, according to Profit’s analysis of PBS data. The overall
clothing market, as noted at the beginning of this article, has reached Rs1.1 trillion ($10.3 billion) during that
same period.

IPO rumours, and the next stage of growth

Being the most successful player in this large, and rapidly growing, sector of the Pakistani economy makes Khaadi
an extremely desirable company from the perspective of investors, who have been salivating at the prospect of its
initial public offering (IPO) on the Pakistan Stock Exchange (PSX) since at least 2011, when rumours of a potential
listing first started doing the rounds. But is Khaadi ready for the scrutiny that comes from being the top player in a
highly visible industry? Is it ready for the kind of professionalized culture that international investors would expect
and demand of a publicly listed company?

The short answer? Not yet.

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The two sides of Shamoon Sultan

In many ways, Shamoon is exactly the kind of CEO one would want to see at a publicly listed company: a
charismatic founder, still passionate about his company and its brand, but also humble enough to recognize that
the brand and company should be built to outlast him. Unlike other Pakistani fashion CEOs who are keener to seek
the limelight, and frequently create eponymous brand names, Shamoon is very private, and seeks to promote his
brand before himself.

“One day I will die but the label has to live on,” he told Maliha Rahman at Dawn in 2016. “People don’t need to
know about me; they need to know about my brand.”

And he remains actively involved in the management of the company, personally taking on the project of opening
the new flagship store at Dolmen Mall in Karachi. That level of passion, and focus on the brand rather than the
personality of the founder, is exactly the kind of trait that long term investors would look for in a CEO.

But there are other aspects to Shamoon’s management style that are less than flattering. In his bid to emulate
Zara, for instance, Shamoon has begun handing down near-impossible deadlines to Khaadi’s factory workers in
Karachi, resulting in reports of poor working conditions at their factories, including allegations that the company
restricts the number of times its employees can use the bathroom or even drink water, and that it is actively
seeking to ban unions at its factories.

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Matters came to a head in May when allegations began to surface on social media that Khaadi had fired 32 workers
for trying to form a union. Khaadi issued the most unconvincing of denials, claiming that technically, it never fired
anyone since the workers were employed by a vendor and not Khaadi. However, an investigative report from The
Express Tribune indicated that the factory that is technically a vendor may, in fact, be a Khaadi-owned entity going
by another name, TexMark.

Khaadi’s reaction to these allegations was less than encouraging: first the non-denial denial, followed by defiant
statements and press conferences, followed by an announcement that it had accepted the demands of labour
rights activists and the fired employees, followed by what appears to be non-compliance with the demands that it
had earlier accepted.

This is shoddy management at best and reflect an attitude on the part of Shamoon that he thinks that if he just
rides out the storm, it will all go away. But here is where the Khaadi management is wrong: they can either be the
number one retail brand in Pakistan, or they can be an obscure company ignored by the media and the public, but
they cannot be both. With leadership comes scrutiny, and the sooner Shamoon can realise that, the better it will be
for his own net worth.

Then there are the allegations from several employees who spoke to Profit on the condition of anonymity that the
supposedly professional management structure is somewhat of a façade. As one employee put it, “most of the
heads of departments are either family or friends of the founders,” which does not serve to create the impression
that this is a professionally-run company. Perhaps more distressing to some employees is the fact that the head of
human resources is Saira’s cousin, and not seen as a neutral arbiter by most employees of the company.

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In short, Khaadi may have grown too fast for its founders to notice that they are not really the insurgent startup
anymore and need to start putting in place management structures more becoming of the industry leader that it is.

Doing so is quite obviously in Shamoon and Saira’s best interest. According to sources inside the company, the
CEO is targeting taking its revenues to Rs50 billion over the next few years, which would mean that the company –
and thus its founders and existing shareholders – would likely see their collective net worth rise above $1 billion,
provided the company can be seen to have resolved all of its outstanding issues with respect to labour relations
and management structure.

If they fail to resolve these issues, the founders may find themselves in a downward spiral, where bad press
results in a difficulty in recruiting good talent, which results in an even more frazzled top management, and even
more impossible deadlines, and even more stories about bad working conditions, and so on. If Khaadi gets trapped
in this vicious cycle, it will find that Rs50 billion revenue target a pipe dream, and the much-anticipated IPO may
never even happen.

How this plays out will depend on which Shamoon decides to take control: the one who wants a brand that outlasts
himself, or the one who bungles his relationship with his labourers? The former will become Pakistan’s first fashion
billionaire. The latter will sink into oblivion.

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Farooq Tirmizi
Managing Editor, Profit Magazine. He can be reached at farooq.tirmizi@pakistantoday.com.pk

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