Sample Footwear Industry Report

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    Reevolv Advisory Services

    Private Limited

    Indian Footwear Industry Report

    This document has been prepared by Shilpa Bhattar and Kaustubh

    Kulkarni. For any queries or detailed information contact us on

    +91 22- 24372746 or email at [email protected]

    A shoe has much more to offer than just to walk, perfectlysums up the Indian Footwear story. Last decade or so has

    witnessed a sea change in the footwear industry, from a basic

    need based industry to a fashion, style, quality and performance

    focused industry.

    The size of the domestic footwear market in India was around

    Rs. xxx Bn in 2010, which has grown from Rs. xxx billion in

    2005 at a CAGR of xxx % p.a. The urban market has been

    growing at a faster pace of xxx % p.a. (20052010) compared to

    the rural market which has been growing at a CAGR of xxx %.

    As per our estimates, the industry will grow at a CAGR of xxx %

    p.a. to reach to Rs. xxx billion in 2015.

    March 2013

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    Table of Contents

    Particulars Page Nos.

    1. Executive Summary 4

    2. Global Footwear Industry Overview 5

    3. Indian Footwear Industry Overview

    3.1. Market Opportunity 7

    3.2. Growth Drivers 10

    4. Business Dynamics

    4.1. Industry Constituents and Structure 12

    4.2. Industry Characteristics 17

    4.3. Business Model 18

    4.4. Cost Structure 21

    4.5. Key Success Factors 22

    4.6. Key Challenges 25

    4.7. SWOT 27

    4.8. Porters Five Forces Model 28

    5. State-wise Distribution of Exclusive Brand Outlets across Brands 30

    6. Player Profiles

    6.1. Action 32

    6.2. Adidas 42

    6.3. Bata 46

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    6.4. Catwalk 51

    6.5. Crocs India 55

    6.6. Khadims 59

    6.7. Lancer 64

    6.8. Liberty 69

    6.9. M & B 73

    6.10. Metro 77

    6.11. Nike 81

    6.12. Paragon 85

    6.13. Pavers England 93

    6.14. Puma 96

    6.15. Red Chief 99

    6.16. Red Tape 102

    6.17. Relaxo 106

    6.18. Reliance Footprint 110

    6.19. SSIPL Retail Limited 114

    6.20. Tresmode 118

    6.21. VKC 122

    6.22. Woodland 154

    7. Select Interviews 157

    8. Annexure 160

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    1. Executive Summary

    A shoe has much more to offer than just to walk, perfectly sums up the Indian Footwear story. Last decade

    or so has witnessed a sea change in the footwear industry, from a basic need based industry to a fashion,

    style, quality and performance focused industry. These changes have been driven by a host changing ofdemographics and economic factors like growing young and working population, increasing disposable

    incomes, increased discretionary spending, growing fashion consciousness, increased media exposure etc

    Around XX% of Indias population lives in rural areas. Though the number is gradually decreasing with

    increasing urbanization, a sizable population still stays in rural India. As per our estimates, an average rural

    consumer spends around Rs. XXX per annum on footwear as compared to an urban consumer which spends

    around Rs. XXX per annum on footwear.

    The retail footwear market can be divided into Men, Women and Childrens market. India is the only country

    where men's footwear is the biggest target category contributing around XX% followed by womens footwear

    contributing almost XX% and children's footwear contributing around XX%. In most of the countries in the

    world, women footwear dominates the footwear retail market whereas in India it is the mens category

    dominating the footwear retail market.

    The size of the domestic footwear market in India was around Rs. XX Bn in 2010, which has grown from Rs.

    XX billion in 2005 at a CAGR of XX% p.a. The urban market has been growing at a faster pace of XXX% p.a.

    (20052010) compared to the rural market which has been growing at a CAGR of XXX%.

    As per our estimates, the industry wil l grow at a CAGR of xxx% p.a. to reach to Rs. XXX bi ll ion in 2015.

    The urban market is est imated to grow at a CAGR of xxx% (2010-2015E) to reach Rs. xxx bill ion in 2015

    from Rs. xxx billion in 2010.

    The footwear market in urban cities (tier 1, 2 and 3 cities) is around Rs. xx billion in 2011 with tier 1 cities

    constituting more than xx% of the total market in Tier 1, 2 and 3 cities.

    Indian footwear retail is mainly an unorganized market with around xx% market share. The size of the

    organised market which was around Rs. xx billion in 2010 increased to ~Rs. xx Bn in 2011, growing at

    a CAGR of xx% every year since 2008.The market is expected to reach Rs. xxx billion by 2015 growing

    at a CAGR of xx% p.a.

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    2. Global Footwear Industry Overview

    Diagram

    Rank Country Pairs Millions World share

    1 China

    2 India

    3 Brazil

    4 Vietnam

    5 Indonesia

    6 Pakistan

    7 Thailand

    8 Mexico

    9 Italy

    10 Turkey

    Rank Country Pairs (millions) World share Per capita (pairs)

    1 China

    2 USA

    3 India

    4 Brazil

    5 Japan

    6 Indonesia

    7 UK

    8 Spain

    9 France

    10 Germany

    Top 10 Footwear production countries (quantity) 2010

    Top 10 Footwear consuming countries (quantity) 2010

    Source: World Footwear Yearbook 2011

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    3. Footwear Industry Overview

    3.1. Market Opportunity

    Total Market

    Fig 2: Footwear Industry Size (20052015E)

    Rs. In bil lion 2005 2010 2015ECAGR%

    (200510)

    CAGR%

    (201015E)

    CAGR%

    (200515E)

    Total

    Urban

    Rural

    Urban Market %

    Rural Market %

    Diagram

    Urban Market Tier 1, 2 and 3 cit ies

    -

    Fig 4: Footwear Industry Size Tier 1, 2 and 3 cit ies

    Urban Market State wise

    Diagram

    Cities No. of Cities Rs. million

    Tier 1 cities

    Tier 2 cities

    Tier 3 cities

    Total

    Fig 3: Share of Urban and Rural Market (20052015)

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    Key StatesUrban Population (2010)

    [in millions]Urban Market Size (2010)

    [Rs. billion]

    Per CapitaExpenditure on

    Footwear Services(Rs.)

    Maharashtra (Mah)

    Uttar Pradesh (UP)

    Delhi

    Tamil Nadu (TN)

    Karnataka (Kar)

    Andhra Pradesh (AP)

    Gujarat (Guj)

    Madhya Pradesh (MP)

    West Bengal (WB)Rajasthan (Raj)

    Haryana (Har)

    Punjab (Pun)

    Kerala (Ker)

    Bihar

    Others

    Total

    3.2. Growth Drivers

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    4. Business Dynamics

    4.1. Industry Constituents and Structure

    4.2. Industry Characteristics

    4.3. Bus iness Model

    Diagram:

    4.4. Cost Structure

    Tanneries (Producing Finished Leather)

    Descript ion As a % of Sales

    Raw Hide (Medium Quality) (Per Sq ft)

    Processing Chemicals

    Labour

    Electricity

    Compliances

    Overheads

    Operating Profit / EBIDTA 5%

    Footwear Manufactur ing

    Descript ion As a % of Sales

    Raw Material

    Labour

    Direct expenses

    Marketing, Selling and Distribution expenses

    Other Admin and Miscellaneous Expenses

    Operating Profit / EBIDTA

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    4.5. Key Success Factors

    4.6. Key Challenges

    4.7. SWOT of the Indian footwear market

    Strengths Weakness

    Opportunities Threat

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    4.8. Porters five forces model

    Diagram

    No Five Forces Remarks Current Trends

    1. Power of Supplier (Low)

    a.

    Raw material

    Unorganized

    Imports from China, Taiwan, Singapore

    Availability of suppliers of footwear components

    2. Availabi li ty of Subst itutes (High)

    Nature of substitutes

    Supply of substitutes

    Price differential

    Brand erosion

    3. Entry Barrier (Low)

    Time and cost of entry

    Designs

    Brand play

    Market access

    4. Power of Customers (High)

    Changing customer trends

    Availability of multiple options

    Discretionary purchases

    5. Competitive Rivalry (High)

    Type of competition

    Unorganized players

    Influx of foreign brands

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    Ind

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    5. State-wise Distribution of Exclusive Brand Outlets across Brands

    States Acti on Adidas Bata Catwalk Crocs Khadims Liberty M&B

    Andhra Pradesh

    Bihar

    Chandigarh

    Chhattisgarh

    Goa

    Gujarat

    Haryana

    Himachal Pradesh

    Jammu & Kashmir

    Jharkhand

    Karnataka

    Kerala

    Madhya Pradesh

    Maharashtra

    NCR

    Odisha

    Punjab

    Rajasthan

    Tamil Nadu

    Uttar Pradesh

    Uttarakhand

    West Bengal

    Assam

    Other States

    Grand Total

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    States Puma Red Chief Red Tape Relaxo

    Reliance

    Footprint Tresmo

    Andhra Pradesh

    Bihar

    Chandigarh

    Chhattisgarh

    Goa

    Gujarat

    Haryana

    Himachal Pradesh

    Jammu & Kashmir

    Jharkhand

    Karnataka

    Kerala

    Madhya Pradesh

    Maharashtra

    NCR

    Odisha

    Punjab

    Rajasthan

    Tamil Nadu

    Uttar Pradesh

    Uttarakhand

    West Bengal

    Assam

    Other States

    Grand Total

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    6. Player Profiles

    6.1.

    6.1.1. Overview

    Description

    Company Name

    Company Profile

    Promoter

    Brands

    Year of Incorporation

    Production Facilities

    (Capacity and Sales)

    Distribution

    Raw Material

    Institutional Footwear

    Other Key Businesses

    Future Plans

    Location

    Source Company Website and Reevolv Research

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    6.1.2. Locations

    Northern RegionExclusive Stores

    Main Cities

    Eastern Region

    Exclusive Stores

    Main Cities

    Western Region

    Exclusive Stores

    Main Cities

    6.1.3. Target Customer Segment

    Men Women Kids

    Formal

    Casual/ Semi Formal

    Sports

    6.1.4. Pricing

    Brands Rs. Per pair

    Source Company Website

    Source Company Website and Reevolv Research

    Source Company Website and Reevolv Research

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    6.1.5. Financials whether available based on Company Filings

    Profit & Loss Ac count for the year ended 31stMarch

    Rs. Mn FY2008 FY2009 FY2010 FY2011 FY2012

    Total Revenue

    Total Expenditure

    EBITDA

    Depreciation

    EBIT

    Financial expenses

    PBT

    PAT

    Balance Sheet as at 31st March (Rs. Mn)

    Share Capital

    Reserves & Surplus (net of P&L debit

    balance and Misc Expenditure)

    Shareholders funds

    Secured Loans

    Unsecured Loans

    Loan Funds

    Deferred Tax Liability

    Total Liabilities

    Gross Block

    Net Bloc k

    Capital Work in Progress

    Investments

    Current Assets

    Current LIabilties

    Net Working Capital excl. Cash & bank

    Cash & Bank

    Net Working Capital incl. Cash & bank

    Total Assets

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    Key Ratios 2008 2009 2010 2011 2012

    Profitability Ratios

    EBITDA %

    PBT %

    PAT %

    Return Ratios

    ROCE %

    ROE %

    Financial Ratios

    Capital Employed

    Total Debt/ Net Worth

    Secured Debt/ Net Worth

    Total Debt to EBITDA

    Turnover Ratios

    Working Capital (excl.Cash & Bank)

    Turnover Ratio

    Net Fixed Assets turnover ratio

    Inventory Days

    Debtors Days

    DuPont Analysis

    EBIT/ Total Income

    PAT/EBIT

    PAT/ Total Income

    Total Assets/ Net Worth

    Total Income/ Total Assets

    Source Company filings

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    7. Select Interviews

    Interviewer 1: Retailer

    Questions Answers

    What are the margins for a distributor in footwear Industry?

    What are the general margins for a retailer in footwear industry?

    What are the inventory levels maintained by a retailer?

    How do the companies ensure that the distributor doesnt charge higher margins than

    stipulated?

    How many days it takes for the distributor to deliver goods once the order is placed?

    What are the brands you sell?

    Do you have any fixed customer base?

    What are the margins offered to retailer by established brands?

    What type of footwear is fast moving and why?

    Do footwear companies take feedback from retailer?

    What is the price differential between organized and local players?

    What are the seasonal products?

    How is the buying pattern of a typical female customer?

    How is the buying pattern of a typical male customer?

    Interviewer 2: Manufacturer

    Questions Answers

    What is the type of footwear you manufacture?

    Do you manufacture for other big brands?

    What is the arrangement with international brands which you retail in India?

    What is the domestic and export share?

    What factors determine the pricing of raw material in case of footwear?

    Has the domestic share changed over the years?

    How many distributors you have per state?

    Where is your manufacturing plant located?

    Do you outsource the manufacturing job to smaller vendors?

    Is the labour easily available?

    Do you pay the labour on a per piece basis or on a salary basis?

    What are the main buying criteria for footwear?

    How is the childrens footwear market outlook?

    What is the trend you are observing for last 5 years in footwear industry?

    How do you see China as a threat to leather footwear manufacturing?

    What are the key challenges for footwear companies?

    What is the basis of forecasting?

    What is the SKU per male and female to be carried?

    What is the margin offered to the retailer?

    What is the average sales price for your product?

    Is there any shortage of capacity?

    What are the generic geographic variations which are observed?

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    Is the distributor critical?

    What is the credit period offered to distributors?

    What is the difference between apparel retail compared to footwear retail?

    What is the strategy to build customer retention and loyalty?

    Interviewer 3: Manufacturer

    Questions Answers

    What is your main product?

    In how many MBOs / LFRs do you have presence?

    What are the other states?

    Do you have your own manufacturing unit?

    When was the company incorporated?

    What are the other types of products manufactured by your company?

    From where do you procure leather?

    Why have you chosen Chennai as your manufacturing base?

    What is the margin you offer to retailers?

    What is the margin you offer to distributors?

    Is there any return goods policy?

    What is the credit period you offer to the distributors?

    What is your price point?

    How many exclusive outlets do you have?

    Interviewer 4: Manufacturer

    Questions Answers

    What is the main season for sports shoes?

    In which states your product is available?

    Do you sell to retailers?

    How many distributors do you have in every state?

    What is the credit period offered to distributors?

    Is there any minimum quantity the distributor has to order?

    Who bears the logistics cost?

    Does the MRP vary from state to state?

    So how do you manage same price when the state taxes are different?

    What is your daily production?

    Do you pay labourers on per piece basis or on salary basis?

    Why do you not package your products in a box?

    From where do you procure the Raw Material?

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    8. Annexure

    8.1. Annexure 1

    Manufacturing Process:

    1. Leather Footwear:

    DiagramEnvironmental Concerns:

    a. Manufacturing:

    Diagram2. Non Leather Footwear manufacturing:

    Diagram

    Diagram

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    8.2. Annexure 2: VKC group of companies

    8.3. Annexure 3: Ratios

    8.4. Annexure 4: Abbreviations

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    About Reevolv

    Reevolv is a boutique consulting and investment banking company offering a "One Stop Shop" in the areas of

    business strategy, financial advisory and operations consulting to corporates and private equity funds.

    We service our clients in their constant re-evolution process through our in-depth industry research, domain

    understanding, our timely and superior execution capabilities and strong network to provide customizedsolutions to our clients.

    With a host of implementation focused services spanning across functions, we ensure that our clients reach

    the desired goals and objectives in most efficient manner. We achieve sustainability of our initiatives by an all

    round involvement of the client resources. This approach of an integrated improvement helps build a strong

    foundation for the forward leap of our clients. Reevolv understands and acts upon the Strategic, Financial and

    Operational needs of the clients on a regular basis to ensure adaptability and flexibility to suit the market and

    industry dynamics.

    Founded in 2008, Reevolv is a team of CAs, MBAs and Engineers with functional and industry expertise and

    diverse background of investment banking and management consulting.

    Disclaimer

    This report is published for information only. Reevolv Advisory Services Pvt. Ltd. or any of its affiliates, group

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    Contact Details

    For any queries or detailed information contact us on

    +91 22- 24372746 or email at [email protected]

    Address: Shop No. 8, Shiv Shakti CHS Limited, Agar Bazar, S.K.Bole Road, Dadar West,

    Mumbai 400 028

    You can also email the research analyst at

    Shilpa Bhattar

    [email protected]

    Kaustubh Kulkarni

    [email protected]