22574825 Strategic Analysis FabIndia

8/4/2019 22574825 Strategic Analysis FabIndia

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FABINDIA

Group 3: HIGH FLYIERS


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TIMELINE

FabIndia

1960- Incorporation in Delhi

1976- First retail store in GK

1977- Contemporarizes design

1981- Introduction of garments

1992- Liaison with Habitat ends

1994-Second store opens in Delhi

1999- William Bissell becomes MD

2003-Vision Plan I originates2004- Goes online

2005- Vision Plan II is born

2006- Garments make 70% revenue


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FABINDIA UNDER JOHN BISSELL

Founded by American, John Bissell to: Develop market for hand-woven products

Provide rural employment

Incorporated in 1960 in Delhi to export upholstery fabric

By 1965, revenues of Rs. 2 million due to:

AS Khera, supplier of hand-woven rugs etc from Panipat Habitat, major UK buyer of Fabindia Panipat products

1974 saw Fabindias first retail store in Greater Kailash with ad-hocmerchandising

1977-Featured contemporary design to attract consumers anddesigners

Garments were introduced in 1980s after John Bissell got khadishirts made for himself

Habitat was acquired in 1992 and Fabindia could no longer continueselling to it

John Bissell dies in 1998, passing the baton to son William Bissell

who becomes MD in 1999


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FABINDIA UNDER WILLIAM BISSELL

Williams vision included expansion, depending less onexports and setting up retail operations

India saw robust economic growth, change inconsumer patterns and growth of middle class by 2006

2003 saw the birth of Vision Plan I

Planned to grow to revenues of Rs. 1 b from Rs. 360 m in 4years

Achieved it in two years and Vision Plan II came along

It planned to achieve revenues of Rs. 2 b by March 2009


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COMPETITOR ANALYSIS

Organized Retail:

Retail Stores (Shoppers Stop, Pantaloons, Globus, etc.)

Strengths:-

1. Strong Pan-India presence and

awareness

2. Man-power expertise

3. Competitive Pricing

4. Robust supply chains and short

product development life cycles

5. High marketing communications

spend

6. Quality consciousness and

adherence to standards

Weaknesses:-

1. Product diversity lacking

2. Stock as per running trends and

serve to fads-inconsistency

towards churning out quality

offerings in hand crafts

3. Authenticity of handcrafts-No

craftsmark present to validate the

crafts as against the Fabindia

offerings which have the same

imprinted on them


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COMPETITOR ANALYSIS

Government Initiatives ( Cottage Industries Emporium, Khadi

Gram Udyog, State Government Department)

Strengths:-

1. Source of finances is fixed and

subsidies boost these initiatives

over time

2. Tie-ups with foreigngovernments facilitating

permanent trade of national

handicrafts.

Weaknesses:-

1. Ambience-non-attractive to

modern day shoppers are fed on

the excellent ambiences of the

retail formats.2. Standardization defeats

customization hands-down.


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Designer Boutiques: (Ritu Kumars, Ritu Beris, Rohit Bal, Manish

Malhotra, Sabyasachi Mukherjee, etc.)

Strengths:-

1. Product customization

facilities-extremely high

2. Highest level of

customer intimacy-

Relationship marketing

Weaknesses:-

1. Exorbitant prices-not

meant for masses

2. Not a robust supply chain-

not meant to be a pan-

India operation

COMPETITOR ANALYSIS


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Unorganized Sector:-

Mom-and-pop stores and local tailoring units:-

Strengths:-

1. Effective in addressing

high geographical

dispersion

2. Customization facility

available

Weaknesses:-

1. Source of finance-not secure

2. Next-to-nil brand equity

3. Customer loyalty-low

4. Scarcity of skilled manpower-

lack of ability to employ the

same-critical for expansion.

COMPETITOR ANALYSIS


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NGOs & SHGs

Strengths:-

1. Strong commitment towards

local communities

2. Helps in making its clients

self-reliant

3. Encourages womenentrepreneurs and hence a

women can supplement the

males income towards a

family

Weaknesses:

1. Lack of expertise on partof the manpower

2. Lack of ambition to

spread out on a pan-India

or even a regional basis

3. Lack scales of economy

COMPETITOR ANALYSIS


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SWOT ANALYSIS


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STRENGTHS

Quintessential Indianness in fabric through the years

Popular for authenticity of hand-woven fabric

Sourcing system from rural India

Strong supplier relationship

Provision of capital loans (in agreement with banks)

Leniency on order fulfilment & no-return policy

100% use of suppliers capacity

Sustainable employment opportunities to rural skilled poor

Employees are given autonomy and hence inducing accountability

Focus on customer retention instead of generation Large chunk of buyers are repeat purchasers

Product quality improvement done keeping this in mind

Word-of-mouth strong enough not to require any advertising


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Delays in delivery from artisans Opportunity losses due to irregularity Difficult to predict quantity and time ofthaan coming from weaver

Also arises as different stores are encouraged to order different stock

Insignificant spend on marketing communications Losing out on attracting new customers instead of depending only on

repeat purchase

Not enough personnel to push Fabindia to greater growth Unavailability of people experienced in retail sector

Unavailability of people believing in the same mission More formal processes would face resistance from existing employees

Untimely delivery of products Transport, storage and shelf-life issues of organic foods

Suppliers were spread pan-India

WEAKNESSES


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Latent potential of organic foods market Leveraging changing consumer tastes & perceptions Awareness generation of merit in these foods

Utilize multi-brand retail outlets and construction groups Display of Fabindia products in MBOs and department stores

Leverages footfalls of the store, increasing likelihood of sales

Use of Fabindia home furnishings in modular flats of buildings If consumer buys this flat or any other, and is impressed, will use

Fabindia furnishings

Leveraging Web 2.0 tools and techniques Tying up with matrimonial sites for designer fancy wedding wear

Interactive website for designing as per individual requirements Customization level is high

Lead time between fixing of occasion date and event can be used for

delivery

OPPORTUNITIES


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Unorganized local operators

Handloom retail shops/chains in regional pockets

Souvenir shops providing indigenous products at lower prices

Entry of organized brands and companies into retail

High expected growth & entry of business houses in large ways

Competitors access funds from conglomerate partners or markets

Tilt of Indian consumers towards foreign brands

Foreign brands alter lifestyle choices of the target market

Imported or designer home furnishings have greater flaunt value vis-a-vis

Fabindia

Development of government co-operatives

Boost in future to KVIC and state handloom units

Improvement in their ambience and shopping experience

Rising prices of real estate could hamper growth

Opening new stand-alone stores will be tough

Experimenting with formats and markets may not be advisable

THREATS


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BUYING BEHAVIOUR

&THE WAY AHEAD

Note: We opine that Fabindia cannot continue relying on just customer retention to fight off

competition, and must focus on generating new customers also


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ORGANIC FOOD

Increased consciousness about health, nutrition andphysical well-being

Display of price elasticity- Do not mind paying more for

better health

Organic food perceived as healthy, nutritious, non-syntheticand detoxifying

Natural food encouraged by environment savvy consumers

Domestic brands selling organic foods are trusted more ascompared to multinationals selling organic food


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THE WAY AHEAD

Capacity expansion in terms of number of suppliers andquantity produced

Significant investments in supply back-end needed

Skilled agricultural labour and experts are required fordeveloping organic food chain

We suggest investing in mutually beneficial CSR initiatives Educating cultivators on soil building, pest management, crop

rotation and heirloom variety preservation

Provision of organic soil nutrients like plant residue, mulch, greenmanure etc


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APPAREL

Quality and prestigious brands are causingcustomers to drift

Usually garments of different brands are triedwhile shopping

Influencers are primarily of similar age groups

and endorsers

Consumers now identify with western brandswhich are high priced and are influential in

making choices


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THE WAY AHEAD

Capturing attention and engaging customers is critical

Fabindia can safely outclass many established brands inthe same retail space

We propose franchise model and selling in other stores Higher brand awareness and attracts consumers towards

handcrafted apparel

Reduces investment in Tier 1 and metros where real estate

prices are high Consumers can directly compare brands in same segment

Build partnerships with matrimonial sites to promotetraditional design as wedding wear


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FURNITURE AND HOME FURNISHINGS

Consumers tend towards non-branded playersand hence brand consciousness is low

Influencers tend to be the family members,especially the lady in the family

Builder groups can be used as a platform to

display furniture in modular flats

Consumers will hence get a touch-and-feel of theproduct instead of going to the Fabindia store


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FINANCIAL COMPARISONS

Financial aspects of Fabindia have been compared withPantaloons

Though not a direct competitor, it represents the Indian

Retail Industry very well

Financials for its direct competitors such as Anokhi,

Co-optex etc. were not available, restricting comparison

This assessment contrasts the performance of Fabindiawith respect to the biggest retailer of India

Hence, we get a sense of the feasible options available with

Fabindia to raise funds


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The interest coverage ratio of Fabindia is far higher than that of

Pantaloons. Hence, raising funds through debt is not a big

challenge.

17.35

8.41

9.27

10.75

16.54

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

18.00

20.00

2002 2003 2004 2005 2006

FabIndia

Interest Coverage Ratio

3.27

4.13

3.31

2.06

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

2005 2006 2007 2008

Pantaloons

Interest Coverage Ratio


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The interest cost as a percentage of sales for Fabindia is far lesser

than that of Pantaloons. Hence, raising funds through debt is

again not a big challenge.

2.14

1.49

2.25

3.67

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

2005 2006 2007 2008

Pantaloons

Interest Cost as a Percentage of

Sales

0.48

1.09

1.14

0.96

0.69

0.00

0.20

0.40

0.60

0.80

1.00

1.20

2002 2003 2004 2005 2006

FabIndia

Interest Cost as a Percentage of Sales


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The PAT as a percentage of sales of Fabindia is higher than that of

Pantaloons. Though retail industry works at low margins, Fabindias

margins are quite high. Hence, raising funds through debt is not a

big challenge.

3.413.27

3.63

2.71

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

2005 2006 2007 2008

Pantaloons

PAT %

4.79

5.66 5.78

6.306.02

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

2002 2003 2004 2005 2006

FabIndia

PAT %


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RECOMMENDATIONS AT A GLANCE Heavy investments in back-end of value chain

Supply chain development for efficiency and qualitymanagement

Expansion aiding strong regional presence Outlets to counter regional competition

Sourcing from local suppliers for outlet and other regions will beeasier

Growth through harnessing new customers Cannot depend on existing customers to counter competition

Must create new customers in all segments

Tie up with different types of graduate schools for talent Rural management graduates for managing supply chain and

rural initiatives

Management graduates for helping growth in front-end andretail arms


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THANK YOU

Documents

22574825 Strategic Analysis FabIndia