IRF Rising Star Challenge 2011
Re-Launch of BATA: A Case Study on Restructuring the Overall Business Strategy
By Pawan Kumar Sharma*, Swet Kumar Singh* and Soumak Chakraborty*
Under Guidance of Prof. Shamindra Nath Sanyal**
* Students, MBA-III Semester, Future Innoversity (Future Learning Initiative), Kolkata Campus ** Associate Professor and Academic Coordinator, Future Innoversity (Future Learning Initiative), Kolkata Campus, Kolkata, e-mail:
[email protected].
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Re-Launch of BATA: A Case Study on Restructuring the Overall Business Strategy
Abstract The study holds attention about the turnaround story of Bata India Ltd. Bata India was earlier known for its high quality products at reasonable price mainly designed for functional utility. But in recent years due to various reasons like choice of wrong market segment, continuous union-related disturbances in manufacturing units and changing in customer perception in very dynamic and complex market system, Bata started losing its ground.
This case study proposed certain strategies that can be utilized in the restructuring of the overall business strategy of Bata. This study also discussed different strategies that Bata has already adopted as a part of revamping the business to combat the mounting pressure from the local and international competitors in the Indian retail footwear industry.
Key Words: Footwear, retail, strategy, Bata, turnaround.
1. Background: The Indian Leather Industry
Leather industry is a significant driver of economic growth in India with a direct employment of 2, 50,000 (with 50% of them being Women) and export earnings of US$14 billion. The Indian leather industry enjoys abundant availability of raw materials, availability of low cost skilled labor and supporting institutions. More than 4000 units are engaged in manufacturing, of which 95% are small and medium enterprises (SME). India’s share in the global footwear imports is ~1.4% and future growth is expected from the SME’s venturing into value added products. The footwear sector is now de-licensed
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and de-reserved, paving the way for expansion of capacities on modern lines with stateof-the-art machinery. To further assist this process, the Government has permitted 100% Foreign Direct Investment through the automatic route for the footwear sector1. Major competitors in the export markets for leather footwear are China (14%), Spain (6%), and Italy (21%). 55% of India’s leather export comes from US and UK, and Dubai in recent years had emerged as a trading destination to Africa and other markets1. Global recession had a major impact on the industry, in terms of revenue fall and markets. Some saw a dip over 30% in their revenue. SME focusing on exports and producing only semi-finished leather witnessed low demand, increasing margin pressures and high inventories.
Indian domestic leather goods market is estimated to be worth Rs 16,300 crore and is expected to grow at a CAGR of 20%. Domestic footwear market is estimated to be over Rs 15,000 crore in value terms and has grown at the rate of 8.8% over the last couple of years. Men’s footwear accounts for almost half of the total market, with women’s shoes constituting 40 percent and children’s footwear making up the rest. The domestic market is essentially price driven, with branded footwear constituting less than 42% of the total market size.
The major production centers in India are Kanpur in U.P., Chennai, Ranipet, and Ambur in Tamil Nadu, Mumbai in Maharahstra, Jalandhar in Punjab, Agra, Delhi, Karnal, Ludhiana, Sonepat, Faridabad, Pune, Kolkata, Calicut and Ernakulam. About 1.10 million are engaged in the footwear manufacturing industry1.
About 37.8% of Footwear retail is the organized segment, which qualifies it as the second most organized retail category in India after watches. While the average investment on the footwear by urban consumers is Rs. 240/annum, consumers in rural areas spend only Rs 100/annum. The annual domestic consumption of footwear is approximately 1.1 billion pairs per annum, and top 20 cities contribute about 450 million pairs/annum.
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India is the second largest footwear manufacturer in the world, next only to China. Nearly 58 % of the industry, which is mainly labor intensive and concentrated in the small and cottage industry sectors, remains generic1. However, as part of its effort of playing a lead role in the global trade, the Indian leather industry is now focusing on essential deliverables of innovative design, state-of-the-art production technology and strict adherence to delivery schedules.
In India, the major players in footwear are Bata, Liberty, Khadim, Nike, ADIDAS, Puma, Woodland, Reebok, Relaxo and Action apart from many SME’s across different states. Indian footwear sector has witnessed tremendous growth during the past few years, Moreover, with the increasing government initiatives, entrance of international players, and rise in investments, the footwear market in the country is expected to surge at a CAGR of nearly 9% during 2011-20142. The key attributes of Indian footwear segment are
The Indian footwear retail market is expected to grow at a CAGR of over 20% for the period spanning from 2008 to 2011.
Footwear is expected to comprise from over 38% in 2006-07 to about 60% of the total leather exports by 2011.
Presently, the Indian footwear market is dominated by Men’s footwear market that accounts for nearly 58% of the total Indian footwear retail market.
The ladies footwear segment still remains the most untapped as nearly 80-90 percent purchases happen in the unorganized market.
As footwear retailing in India remain focused on men’s shoes, there exists a plethora of opportunities in the exclusive ladies’ and children’s footwear segment.
The Indian footwear market is dominated by casual footwear market that makes up for nearly two-third of the total footwear retail market.
The Indian footwear market scores over other footwear markets as it gives benefits like low cost of production, abundant raw material, and has huge domestic consumption market.
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2. Customer Segments Retail footwear segment in Indian is very price sensitive and has been steadily growing over the year. Major part of the demand is met by the unorganized sector and still there is a shortfall of 300 million pairs. Branded shoe market only account for 20% of the entire market. While international brands largely dominate the higher end of the spectrum, the lower end of the market is dominated by domestic as well as unorganized players. While men's footwear is the biggest target category (contributing almost 48%), children's (11%) and women's lifestyle footwear (41%) is not behind in the race2.
Table 1: Segment wise classification of price ranges in the men’s footwear segments3 Segments Mass market Economy market Sports market Premium leathers Luxury
Price Ranges in Rs 185 – 700 700- 1000 1000 – 3000 3000- 5000 10000- 50000
% of growth 60% (Liberty Bata) 30% (Bata Liberty) 7% (Nike Adidas) 5% (Charles and Keith) 1% (Gucci Louis Vuitton)
Table 2: Segment wise classification of women footwear segment3 Segments Traditional footwear Designer Footwear Formals Casual Wear Sports Shoes
Price Ranges in Rs 699 – 999 599 – 799 299 – 699 499 – 799 500- 699
% of growth 5% 10% 40% 25% 20%
The children’s footwear segment is one of the fastest growing segments in India. The Indian kid’s footwear segment is highly fragmented and dominated by the unorganized sector. The branded children’s footwear segment has a big card to play as India has the world’s largest child population. The overall kid’s retail segment has a robust margin of
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20 – 25 % which is huge potential opportunities for organized branded retail footwear players.
Target Markets
The Figure 1 shows the hierarchy of markets that the existing footwear companies in India traditionally target.
PUMA, NIKE ADIDAS, REEBOK
UPPER CLASS
BATA, ACTION, LIBERTY, NIKE, ADIDAS, REEBOK BATA, ACTION, LIBERTY, KHADIM, NIKE, ADIDAS, RELAXO BATA, ACTION, RELAXO
UPPER MIDDLE CLASS MIDDLE CLASS LOWE MIDDLE CLASS
Figure 1: Traditional target markets of footwear companies in India.
3. Company-wise Classification (based on Porter’s Five –Forces Model) Michael Porter’s fives forces model is an excellent model to use to analyze a particular environment of an industry. Therefore, for the footwear industry, we would use Porter’s model to help us find out about:
Competitive rivalry A starting point to analyzing the industry is to look at competitive rivalry. Mostly numbers of competitors are stable, especially because of high entry barriers. This adds to the
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rivalry among existing firm. Manufacturers watch each other carefully and make appropriate countermove to match the competitors move. Power of suppliers Suppliers are also essential for the success of an organization. Raw materials are needed to complete the finish product of the organization. Shoes are made of leather, rubber etc. These materials are commodities, where the manufacturing process adds the value and as a result suppliers have limited bargaining power over buyers. Power of buyers Customers can exert influence and control over an industry in certain circumstances. Bata was largest player in industry with 9-10% volume share and 60% market share in organized segment. It had a market share of 70% in canvas shoe segment and 60% in leather shoe segment. Their dominant market share give them power over buyer. Threat of substitutes Are there alternative products that customers can purchase over the product that offer the same benefit for the same or less price? Consumer switch from one product to another if alternatives are available in same quality and performance range and have competing price or lesser price. Apart from the existing players in the Indian footwear market, since the Government has permitted 100% Foreign Direct Investment through the automatic route for the footwear sector, the competition is going to be very intense where the customers have number of options before them. Threat of new entrant The threat of new entrants will be very high in Indian footwear sector because of three reasons a) Barriers to entry are absent. b) The Footwear Sector is now de-licensed and de-reserved, paving the way for expansion of capacities on modern lines with state-of-the-art machinery, and 7
c) As discussed earlier, Government has permitted 100% Foreign Direct Investment through the automatic route for the footwear sector,
Table 3: Comparison among the prominent competitors in Indian footwear sector based on Porter’s Five Forces Analysis BASIS OF COMPARISON
NIKE
ADIDAS RELAXO ACTION
BATA
LIBERTY
Barriers to Entry
Absent
Absent
Absent
Absent
Absent
Absent
Bargaining Power of Buyers
Low
Low
High
High
High
High
Bargaining Power of Supplier
Low
Low
Low
Low
Low
Low
Threats of Substitutes
High
High
High
High
High
High
Competitive Rivalry
High
High
High
High
High
High
4. Bata India Limited Bata India is the largest retailer and leading manufacturer of footwear in India and is a part of the Bata Shoe Organization.
Incorporated as Bata Shoe Company Private Limited in 1931, the company was set up initially as a small operation in Konnagar (near Kolkata) in 1932. In January 1934, the foundation stone for the first building of Bata’s operation - now called the Bata. In the years that followed, the overall site was doubled in area. This township is popularly known as Batanagar. It was also the first manufacturing facility in the Indian shoe industry to receive the ISO: 9001 certification.
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The Company went public in 1973 when it changed its name to Bata India Limited. Today, Bata India has established itself as India’s largest footwear retailer. Its retail network of over 1200 stores gives it a reach / coverage that no other footwear company can match. The stores are present in good locations and can be found in all the metros, mini-metros and towns
The company manufactures footwear for men, women and children. The Company manufactures shoes of various qualities such as leather, rubber, canvas and PVC shoes. Bata Group has worldwide presence across 5 continents, serving 1 million customers per day and operating 4,600 retail stores globally.
Today the company is the largest shoe company in India in terms of sales and revenues. The company currently sells over 45 million pairs of shoes every year. It commands around 35 percent of market share in India. Company’s 98 percent revenue comes from domestic operation. It owns ~1200 stores spread across 400 cities in India. Currently the company owns brands like Hush Puppies, Dr Scholls, Weinbrenner, North Star, Power, Marie Claire, Bubble gummers, Ambassador, Comfit and Wind India. Currently it has five factories located at Batanagar (West Bengal), Bataganj (Bihar), Faridabad (Haryana), Peenya (Karnataka) and Hosur (Tamil Nadu).
The company has also launched a range of safety shoes for industrial use in the domestic market with a price tag of Rs.500-Rs. 3,000. The company is planning to sell these shoes directly to industrial houses and not through its retail stores. Presently, the products are going through manufacturing process at its Batanagar unit in West Bengal.
But footwear is a very price sensitive market in India and sudden swings in raw material prices will be detrimental to profitability.
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Table 4: Peer Comparison with stocks associated with retail consumption4
But the path was not very smooth sailing for Bata. Reasons are
a) Wrong target market selection
Bata had traditionally been targeting the middle stratum of the consumers in India, in general and the lower middle and middle classes, in particular. Due to the changing market dynamics the competition started undercutting their prices and Bata was thinking of shifting its focus towards the premium end of the market as well.
In the early 1990s, Bata decided to enter into the high-end segments of the Indian shoe market as a part of its new target market and subsequently launched quite a few brands in this segment with higher price tags. This strategy did not suit Bata. This segment was not in a position to accept Bata, because first, this segment was not sizeable for a company like Bata. Second, the segment did not realize Bata’s distinctive competence. The segment constituted a small 5-10% of the footwear market in India. It could not provide the volumes that Bata used to receive from the existing markets and high volume was very essential for Bata for showing a healthy bottom line. Overall, the adoption of the segment misdirected Bata’s entire strategy. Actually, Bata was squeezed at both ends like the top end of the market suddenly became the main focus of the company and it forgot its bread-and-butter shoes that had given the company its identity that resulted in decreasing in Bata’s market share by the small regional players. 10
At the lower end, smaller competitors attacked Bata’s mass range in canvas shoes, school shoes and Hawaii chappals segment, which the company had practically vacated on its own by ignoring them entirely. On the other hand, niche players who were at the high end doing the business for several years were better prepared and challenging Bata heavily. It resulted in sliding down of market share of around 15% in the mid-1980s to 10% of the footwear market in mid-1990s. The year 1995 saw the company running a loss of Rs. 42 crores. Although Bata is still continuing with the high-end brands like Hush Puppies, these are being sold in a selective way and through select stores only. After paying for the mistake in a hard way, Bata returned to the mass segment to get back to the original customers at the low end and keep that part of the market as its core focus.
b) Major Labour Problems in Bata India
Historically, Bata was crippled with perennial labor problems with frequent strikes and lockouts at its manufacturing units. The company incurred huge employee expenses (22% of net sales in 1999) whereas, competitors like Liberty Shoes were far more costeffective with remunerations of its 5,000 strong workforce comprising just 5% of its turnover.
Bata’s most disturbing factory at Batanagar was always heavily disturbed by labor strike. In 1992, the factory was closed for four and a half months. In 1995, Bata entered into a 3-year bipartite agreement with the workers, represented by the then 10,000 strong Bata Mazdoor Union (BMU), which also had the West Bengal Government as a signatory.
In 1998, the company for the first time signed another long-term bipartite agreement with the unions without any disruption of work. The company entered into similar long-term agreements with the unions at its manufacturing units at
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Bangalore and Faridabad by apprehending labor problems spilling over to these units.
In February 1999, a lockout, lasted for eight months was declared in Bata’s Faridabad Unit. In October 1999, the unit resumed production when Bata signed a three-year wage agreement.
On March 8, 2000, a lockout was declared at Bata’s Peenya factory in Bangalore, following a strike by its employees’ union. The new leadership of the union had refused to abide by the wage agreement, which was to expire in August 2001. Following the failure of its negotiations with the union, the Bata management decided to go for a lock out.
.
In September 2000, Bata was again headed for a labor dispute when the Bata Mazdoor Union (BMU) asked the West Bengal Government to intervene in a preconceived idea of a downsizing exercise being undertaken by the management. BMU justified this move by alleging that the management has increased outsourcing of products and also due to perceived declining importance of the Batanagar unit.
c) Sustainability of the Position
Initially Bata was positioned as a brand offering footwear products for the family and for the customers belonging to the middle class. But the decision to also tap the premium segment of the market may be categorized as one which becomes diluted and casts doubts about the sustainability of Bata’s desired position in the market. Brand: The Bata brand has lost its earlier equity due to its strategy for catering both the segments for which Bata was not at all prepared. Image of Bata: Bata’s image has surely been diluted as a result of it targeting various segments and trying to cater to their needs. Its traditional positioning would also be
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impacted and there would be chances of Bata not being able to provide an experience fit to its customers as per their expectations. Activities: The sort of internal activities which they employed in terms of manufacturing, having different categories of outlets, targeting various segments of the market from upper to the lower level, selling through retail as well as the wholesale channels even CSR activities would not help in any way at conveying a consistent and robust corporate image to its customers. Hence it can be stated that they somehow failed to make any particular trade offs as far as the key activities were concerned. Attaining competitive advantage: The competitive advantage for Bata based on what they are currently planning to do, i.e., trying to offer something for different segments would render them pretty uncompetitive. The various levels of fits, that a firm should strive for, would not be easily achievable for Bata with their current marketing strategies. The traditional Bata positioning strategy is diluted and it can not make any strong impact to the customers in order to achieve competitive advantage.
d) Traditional Value Proposition for the Customers
Bata was providing with its customers their value proposition that may be categorized as follows.
Reasonable quality at low or reasonable price
Footwear for the entire family
Footwear catering to various functional needs e.g. sports, casual footwear, formal-semi formal.
Excellent distribution system that enabled Bata to provide a consistent experience to its target customers at all the outlets to leverage its brand equity
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5. Bata Turnaround Stories: Restructuring the Overall Business Strategy 5.1 Proposed Strategy Mapping for Bata Restructuring
Bata would urgently need to make some prominent changes in the way it operates especially in the face that the value the company provides to its customers and reorganize its operations for achieving the goals laid down in the strategy.
Customer: The competitive advantage for Bata based on what they are currently planning to do i.e. trying to offer something for both segments like middle-class and premium would render them vulnerable. The customer delivered value will also be substantial as Bata would now be offering value for money along with the trust which is essential to revamp. In terms of access, functionality and selection options it would again be fulfilling its promises of being a family store. The service levels would be strictly monitored and hence an experience fit need to be provided to the customers and the customers, in turn, will be willing to pay premium because of brand Bata and hence the competition undercutting Bata on price would no longer be that big a threat. Bata may still focus on its premium brands but there needs to be a separate entity that will monitor it meticulously.
Financial: In terms of financial aspects in order to have better returns ensured for the stakeholders, Bata should be banking on its focus on the middle and upper middle class segment through its Bata brand, apart from the middle class segment to enable to it to be a major force and have higher profits through enhanced market share. Also the fact that the renewed brand image will enable Bata to earn premium at the upper middle end of the market will aid the achievement of the financial goals.
Brands: Considering the fact that the Bata brand has traditionally been targeting the middle class customers, it would be appropriate for Bata to use its Bata brand name only with its traditional product offerings. Since Bata is known for its functional footwear offering utility and reliability etc., to make its name established in fashion footwear, it
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would highlight its repositioning or, they can come out with a different brand like Bata Lifestyle or Bata Trendy. The reason behind is that prospective buyers in this segment will not really be able to associate style or fashion with a brand like Bata. A separate entity may increase their degree of association with Bata and fashionable footwear and it will help to challenge the supremacy of local, more responsive and trendy stores famous for women footwear. In Kolkata city, Bata earlier tried to experiment with the store called “Bata-for Her” meant exclusively for the female customers. That venture was not successful as some twenty years back in Kolkata, that concept was time ahead. But nowadays, number of working woman is increasing exponentially and the younger generations are looking for the trendy shoes/chappals. This strategy can also be taken up in other metro and class I cities as well. However, Bata may continue to carry brands like Hush Puppies, Power and Weinbrenner for which they have exclusive distribution rights and also focus on their successful brands like Bubble gummers. Power brand cricket bats and other cricket playing articles were once-upon-a-time very famous. Bata can open up new retail stores that can start positioning Power cricket kit. Internal Operations: So far the internal aspects of the firm are concerned Bata will need to restructure its operations management processes, customer management processes, Research & Development and regulatory and social processes and stress on customer relationship management, the Mantra of the current marketing system. Changes in the operations management processes will allow Bata to realign systems to have low cost to an extent, through economies of scale attained through specialist regions. Through customer management processes it will need to focus on marketing itself as an outlet meeting all basic needs of the families in its target market segment. Bata should focus heavily on customer relationship management as it becomes a widely-implemented strategy for managing a company’s interactions with customers, clients and prospects. Bata should undertake customer relationship management by involving technology usage to organize and synchronize business processes through automation—principally sales activities and also those for marketing, customer service with necessary technical support. Time has come for Bata to find, attract, and win new customers-majorly in the middle class segments, nurture and retain the existing ones,
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welcome former customers back into the fold, and reduce the costs of marketing and customer service. For innovation and R&D, Bata can rely on its international research centers and with their aid bring newer designs and further enhance its brand image especially for the premium segment. With regards to regulatory & social processes, Bata can also enhance its care for its employees by introducing more special schemes including incentives and smooth promotion process and even help its franchises by providing them with some of the employees. Bata should, at this juncture, help the franchises to resolve their attrition related issues, and also enable itself to maintain a proper organizational culture even at the franchise stores through the trained employees.
Learning Systems: Retailing in India is in the phase of huge return on investment and a very lucrative career as well. Organized retailers are regularly giving their store employees very structured training so that they would be able to better handle the dynamically changing environment and thrive through increased coordination. In order to attain its goals as per the new strategy Bata will need to emphasize into training its human resource, especially those at the outlets to provide consistent quality service to its customers so that customers can associate the same experience with whichever Bata outlet they visit. As part of its revamped strategy, Bata would need to develop its information system in order to allow better sales forecasting and trend analysis. It will also be helpful to the Bata management and also to meet the increasing necessity of internal coordination. Effective implementation of customer relationship management will also help to get closer to its customers by interacting with them from time to with more focus on customer intimacy. Table 5 shows the comparative analysis of Bata retail with some of its peers in terms of sales, earning per share (EPS), P/E ratio with respect to no. of stores. Higher ROE shows a silver lining of transaction, but simultaneously, less operating profit (EBIT) reveals a cause of concern.
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Table 5: Peer Comparison5
5.2 Re-structuring of Bata: The Siver Linings
a) Investment Details of Bata
Continuous process of restructuring adopted in all areas of operation: There has been an improvement in internal controls and corporate governance, manufacturing,
changes
in
sourcing,
credit
management,
working
capital
management, retail restructuring, labor union & management relationship, retail expansion programs and de-risking the business of the company to restructure the operation process of Bata. Repositioning brand Bata with operational efficiency, stylish layout and trendy shoe design: Bata has introduced soothing music, colorful ambience, contemporary styling and well-trained and efficient staff at exclusive Bata stores as part of their latest strategies to provide the best retail environment to its customers. The large and international layout of these stores help in better exhibition and display of the several footwear concepts from Bata's new shoe collection. Bata has adopted the strategy of repositioning brands with stylish layout and trendy shoe design. The company has already introduced and expanded high-margin premium brands such as Hush Puppies, Marie Clarie and Weinbrenner. Bata's popularity continues to grow with the trendy Marie Claire range and its latest designs to enhance a woman's femininity, sensuality and individuality.
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Introducing new-age customer service: Bata remained their focus on customer service with launch of new initiatives like Home Delivery service, e-commerce enabled website and a dedicated call centre for customer queries and suggestions. Extensive training of store staff, customer response and research management systems, and customer relationship management will remain focal areas for the Company. Opening large Format Stores in Tier 2 & Tier 3 cities: It plans to open 50-60 large format stores in tier-2 and tier-3 cities annually of at least an area of 3000 sq. ft to increase its market penetration from the current store of ~1200 in CY10. It is also closing down unviable old stores. Making shoes for Industrial uses and Armed Forces to add value: The Company has recently launched shoes in the range of Rs. 500-3000 for industrial uses in the domestic market. It is also planning to become an approved supplier of armed forces of which demand is 1.2 million pairs a year. Research & development activities and energy conservation: Bata continued its local Research & Development activities during the year in the key areas of product, process, material development, footwear moulds, leather and tannery technology with emphasis on creating a pollution-free work environment. Total expenditure incurred on Research & Development was Rs. 50.1 million during FY-10. Performance management through Quarterly Performance Review: Bata initiated a quarterly performance review process for all the Retail Managers and District Managers. This process very clearly defines their objectives and achievements. This review takes place in retail chain office by the immediate supervisor before HR representative and feedback of the last quarter is given to the assesses and also their target for the next quarter is set. The overall process has been extremely helpful in setting up a process of continuous performance measurement and performance enhancement.
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Executive Development plan: For the second consecutive year, Bata pursued its aim of nurturing and developing new talent for various responsibilities by successfully training its executive trainees. 13 executive trainees have been hired from various retail management schools who have gone through 9 months Executive Development Plan (EDP) which was initiated in the year 2009. Total 13 executive trainees, who successfully completed their training, have been placed as District Managers across chains in retail operations in 2010. Many more executives have been hired during 2010 for retail operation, merchandising and whole sale, etc.
Table 6: Last five years’ sales-profit analysis of Bata
b) Changing Customer Perception
Bata commands a very strong position as a low-cost, functional brand at the entry level and as a school-wear brand. However, it is trying to throw out this image in favour of a trendier, premium standing, targeted at the vast youth market that is more open to investing more for better quality.
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Changing consumer perception, however, is a challenging and time-consuming task. It requires an innovative repositioning strategy and investments in promotion and advertising. The footwear market is crowded with domestic and international brands such as Metro, Woodlands, Puma, ADIDAS, Nike and Reebok; most of which already established themselves as big brands in the youth market segment. With international brands looking to Indian markets to augment their revenues, competition in the branded footwear market is likely to shoot up. The capital expenditure incurred by Bata during the FY-10 amounted to Rs. 580.4 million as against Rs. 436.1 million in 2009. The increase in capital expenditure was predominantly due to opening a number of new stores and modernization of old stores. Capital expenditure has also been incurred for installation of machinery and moulds to modernize the factories and to produce latest trendy design footwear. In the March '11 quarter, the company received Rs 109.35 crore in consideration for disposing its stake in its real estate joint venture. This one-time income resulted in a sixfold jump in net profits6. The company still stands to receive constructed space at no cost, but revenue from real estate ventures is not likely to flow in. Bata is a turnaround story, utilising its securities premium account to completely write off accumulated losses in 2007. In FY-07 (Jan – Dec '07) the company posted a revenue growth of 12%, a significant jump from the flat revenues in the years before that6. Since then, however, revenue growth has sped up at that level, even as the company shut more unviable stores and revitalized others. Revenues have clocked a three-year compounded annual sales growth of 13% to Rs 1,258 crore in FY-10. Operating and net margins during this period have hovered at around 12 and 7%, respectively.
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Figure 2: Bata India Stock Development6
c) Investment Argument of Bata Post turnaround focus on growth: Bata started restructuring its operations in year 2004 wherein it launched VRS scheme, closed unviable stores, launched franchisee scheme and revamped product portfolio. Profit after tax is increased at CAGR of 50% in 2005-10 whereas sales grew at 10% during the same period. During 2010 and Q1CY11 it registered a sales growth of 15%/20% yoy4. It is evident that focus has now shifted towards accelerating growth by leveraging its strong brand in footwear market. Bata opened 108 new stores in 2010, which is significantly more than its usual store addition of 40-50 per year4. Formidable market position in footwear market: Indian footwear market is around Rs. 13, 000 Cr market growing at ~10% per annum, out of which ~55% market is unorganized. Bata enjoys value market share of around 25% out of organized market and 12% of the total market whereas it has just around 5% volume share. India's per capita consumption of footwear is 1 pair/year, which offers lot of opportunities for a strong brand like Bata, which is present across market spectrum catering to all kinds of consumers4. Balance sheet strength to expand presence: Bata has a debt free balance sheet and will have cash of around Rs. 250 Cr in 2011 to fund its expansion plans.
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It has internal accruals of ~ Rs. 80 Cr every year, which is sufficient to open more than 120 new stores every year4. Thus, free cash generation and healthy balance sheet will lead to increasing payout from the company. The Earning per Share (EPS) (Basic and Diluted) of Bata has increased substantially by 41.87% (from Rs. 10.46 in 2009 to Rs. 14.84 in 2010). Bata is out of bank borrowings since April 2010 as against Rs. 146.5 million at the end of 2009, despite the entire capital expenditure and VRS funded through internal accruals. Strong promising notes: The year 2011 has begun on a very promising note for the company with highest sales growth in the first quarter as a result of its continued expansion through 29 new stores and great response from customers to its ever improving product range. These 29 new Bata stores are opened across India with a surface selling area of 4000 sq. ft. The company also continued expansion of its Hush Puppies brand with 4 new stores in this Quarter. The wholesale business also continued to grow with opening of new customers in unrepresented towns which resulted in additional business. The Branding, Institutional, safety and exports division are also growing by more than 40%5 (Microsec). Figure 3: Bata Shareholding5
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Table 7: Bata India- Financial and Valuations4
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Figure 4: Bata Stock Scan5
The above report shows that Bata has been maintaining better stock position consistently that the average SENSEX data across the last one year.
d) Key Strategies Adopted for Growth
Positioning in fashion footwear segment with huge range of trendy footwear.
Positioning it as a family brand
Key Mantra: customer service and satisfaction
Planning the franchise route and online sales to push up its sales.
Introducing almost four designs/day.
Strong focus on financial control
Reduce unviable stores, thereby cutting unnecessary costs
Expanding its retail outlets with better and colorful design with more floor space of at least 4000 sq. ft
Thorough analysis of the catchment areas.
Throw out its image as a low-cost functional footwear brand that appeals to the middle-aged.
Focus on product design and contemporary and trendy look
Launch of new industrial and customized sectors
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Increasing institutional business to hospitals, military forces, factory workers, sports clubs and airlines.
e) Awards and Recognition7
Bata India Limited was awarded CNBC Awaaz Consumer Awards 2010 for "India's Most Preferred Exclusive Brand Retail Outlet" in July 2010. Mr. Marcelo Villagran, Managing Director was felicitated by Mr. Pranab Mukherjee, Hon'ble Finance Minister of India in a ceremony held in Mumbai.
'Brand Equity' recognized Bata in the 'TOP 50 Most Trusted Brands' in August 2010.Bata is the only lifestyle retailer in the top 50 brands.
Bata India Limited was listed amongst India's Largest Corporations by Fortune India Magazine in December 2010.
Bata Industrials received Directorate General Mines Safety Certification for its PUSole Safety Footwear range.
Bata India Limited received Images Fashion Award for the “Most Admired Retail Partner of the Year” in January 2010.
Bata India Limited was awarded "Retailer of Year (Footwear / Non Apparel)"by the Asia Retail Congress. Mr. Marcelo Villagran, Managing Director received the award in a glittering ceremony at Mumbai on 8th February 2011.
Bata India Limited received the "Most Admired Footwear Brand" of the year award by Images Fashion Forum in Mumbai on 18th February 2011.
Amity University awarded Bata India Limited "Corporate Excellence Award for the Best Retail Chain" during the international business summit on 23rd February 2011.
Bata India Limited was recognized as the Most Trusted Brand at 18th position by the Brand Trust Report. This ranking is post survey of 16,000 brands; only 300 top brands were felicitated by The Trust Advisory.
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6. Reference
1) Council for Leather Exports Report on Footwear Sector, retrieved from http://www.leatherindia.org/footwear.asp 2) RNCOS Data, “Indian Footwear Market to Grow at 9% CAGR”, retrieved from www.rncos.com/Report/IM310.htm.
3)
Bhaskar,
S.
(2010),
Browne
and
Mohan
Report,
retrieved
from
http://www.browneandmohan.com/file3.pdf.
4) Tarway, Rakesh (2011), “Bata India”, retrieved from www.motilaloswal.com.
5) Vyas, Naveen (2011), “The rise of India’s leading footwear retailer”, Microsec Research, retrieved from http://breport.myiris.com/MR1/BATINDIA_20110322.pdf.
6) Acharya, Bhavana (2011), “Bata India: Book Profits”, The Hindu Business Line, retrieved
from
www.thehindubusinessline.com/features/investment-world/stock-
insight/article2134849.ece. 7) 78th Annual Report of Bata covering the operating and financial performance for the year
ended
December
31,
2010,
The
Economic
Times,
retrieved
from
economictimes.indiatimes.com/bata-india-ltd/directorsreport/companyid-13974.cms.
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