STRATEGIC ANALYSIS FABINDIA

Group V: Budhaditya Banerjee Sourabh Dhariwal Tarun Daga Uma Balakrishnan

AGENDA Timeline Fabindia under John Bissell Fabindia under William Bissell Competitor Analysis SWOT Analysis Buying Behaviour and the Way Ahead Organic Food Apparel Home Furnishings & Furniture

Financial Comparisons Recommendations at a Glance

TIMELINEFabIndia Indian EconomyPost 47- govt supports socialism & nationalism 1957- Govt sets up KVIC

1960- Incorporation in Delhi 1976- First retail store in GK 1977- Contemporarizes design 1981- Introduction of garments

1990- Fiscal deficit reaches 8.5% 1991- Indian economy opens up

1992- Liaison with Habitat ends 1994-Second store opens in Delhi 1999- William Bissell becomes MD 2003-Vision Plan I originates 2004- Goes online 2006- 8% economic growth 2005- Vision Plan II is born 2006- Garments make 70% revenue 2006- Govt allows foreign single brand outlets

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 Fabindia s first retail store in Greater Kailash with ad-hoc merchandising 1977-Featured contemporary design to attract consumers and designers Garments were introduced in 1980s after John Bissell got khadi shirts made for himself Habitat was acquired in 1992 and Fabindia could no longer continue selling to it John Bissell dies in 1998, passing the baton to son William Bissell who becomes MD in 1999

FABINDIA UNDER WILLIAM BISSELL End of license raj, and liberalization gave textiles duty concessions on machine imports William s vision included expansion, depending less on exports and setting up retail operations India saw robust economic growth, change in consumer 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 4 years Achieved it in two years and Vision Plan II came along It planned to achieve revenues of Rs. 2 b by March 2009

COMPETITOR ANALYSIS Organized Retail: Retail Stores (Shopper s Stop, Pantaloons, Globus, etc.)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 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

COMPETITOR ANALYSISGovernment 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 foreign governments 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.

COMPETITOR ANALYSISDesigner Boutiques: (Ritu Kumar s, Ritu Beri s, Rohit Bal, Manish Malhotra, Sabyasachi Mukherjee, etc.) Strengths:1. Product customization facilities-extremely high 2. Highest level of customer intimacyRelationship marketing Weaknesses:1. Exorbitant prices-not meant for masses 2. Not a robust supply chainnot meant to be a panIndia operation

COMPETITOR ANALYSIS 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 manpowerlack of ability to employ the same-critical for expansion.

COMPETITOR ANALYSISNGOs & SHGs Strengths:1. Strong commitment towards local communities 2. Helps in making its clients self-reliant 3. Encourages women entrepreneurs and hence a women can supplement the male s income towards a family Weaknesses: 1. Lack of expertise on part of the manpower 2. Lack of ambition to spread out on a pan-India or even a regional basis 3. Lack scales of economy

SWOT ANALYSIS

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 supplier s 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

WEAKNESSES Delays in delivery from artisans Opportunity losses due to irregularity Difficult to predict quantity and time of thaan 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

OPPORTUNITIES 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

THREATS 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

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

ORGANIC FOOD Increased consciousness about health, nutrition and physical well-being Display of price elasticity- Do not mind paying more for better health Organic food perceived as healthy, nutritious, non-synthetic and detoxifying Natural food encouraged by environment savvy consumers Domestic brands selling organic foods are trusted more as compared to multinationals selling organic food

THE WAY AHEAD Capacity expansion in terms of number of suppliers and quantity produced Significant investments in supply back-end needed Skilled agricultural labour and experts are required for developing 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, green manure etc

APPAREL Quality and prestigious brands are causing customers to drift Usually garments of different brands are tried while shopping Influencers are primarily of similar age groups and endorsers Consumers now identify with western brands which are high priced and are influential in making choices

THE WAY AHEAD Capturing attention and engaging customers is critical Fabindia can safely outclass many established brands in the 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 promote traditional design as wedding wear

FURNITURE AND HOME FURNISHINGS Consumers tend towards non-branded players and 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 the product instead of going to the Fabindia store

FINANCIAL COMPARISONS Financial aspects of Fabindia have been compared with Pantaloons Though not a direct competitor, it represents the Indian Retail Industry very well Financials for its direct competitors such as Anokhi, Cooptex etc. were not available, restricting comparison This assessment contrasts the performance of Fabindia with respect to the biggest retailer of India Hence, we get a sense of the feasible options available with Fabindia to raise funds

FabIndia Interest Coverage Ratio20.00 18.00 17.35 16.00 14.00 3.00 12.00 10.75 10.00 9.27 8.00 6.00 4.00 2.00 0.00 2002 2003 2004 2005 2006 8.41 2.00 1.50 1.00 0.50 0.00 2005 2.50 16.54 3.50 4.50 4.00

Pantaloons Interest Coverage Ratio4.13

3.27

3.31

2.06

2006

2007

2008

The interest coverage ratio of Fabindia is far higher than that of Pantaloons. Hence, raising funds through debt is not a big challenge.

FabIndia Interest Cost as a Percentage of Sales1.20 1.14 1.09 1.00 4.00

Pantaloons Interest Cost as a Percentage of Sales3.67 3.50 3.00 0.69 2.50 2.00 2.14 2.25

0.96

0.80

0.60 0.48 0.40 1.50 1.00 0.20 0.50 0.00 2002 2003 2004 2005 2006 0.00

1.49

2005

2006

2007

2008

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.

FabIndia PAT %7.00 6.30 6.00 5.66 5.00 4.79 2.50 4.00 2.00 3.00 1.50 2.00 1.00 1.00 0.50 0.00 2002 2003 2004 2005 2006 2005 5.78 3.00 6.02 3.50 3.41 4.00

Pantaloons PAT %3.63 3.27

2.71

0.00

2006

2007

2008

The PAT as a percentage of sales of Fabindia is higher than that of Pantaloons. Though retail industry works at low margins, Fabindia s margins are quite high. Hence, raising funds through debt is not a big challenge.

OPTIONS AVAILABLE DEBT FINANCING Pros The decision authority stay with them, hence can stick to their mission Healthy current ratio (around 2:1 throughout years) A very healthy interest coverage ratio (as high as 16 times) which is quite higher compared to Pantaloons, Shoppers Stop etc. (1.5%2.5%) A very healthy debt to equity ratio Interest cost as a percentage of Sales is very low (0.006%) Family owned

Cons Debt acquired may not be huge Loose out on the expertise of other organisations which can be brought in through JVs or investments

OPTIONS AVAILABLE PRIVATE INVESTORS/ JVs Pros Huge investments can be brought in Professional expertise can be brought in

Cons Decision authority gets diluted Emphasis may shift to profit maximisation and hence Fabindia s mission may get diluted

RECOMMENDATIONS AT A GLANCE Heavy investments in back-end of value chain Supply chain development for efficiency and quality management

Expansion aiding strong regional presence Outlets to counter regional competition Sourcing from local suppliers for outlet and other regions will be easier

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 and retail arms

THANK YOU