Bata India to grow via franchise model

Shoemaker Bata India Ltd will slow down expansion of its own store network and hand out more franchises to tap into rural and semi-urban markets, a top company official said.

“This is something we have never done before,” said Rajeev Gopalakrishnan, managing director and chief executive officer of Bata, referring to the plan. “Currently, all our stores are company-owned.” He was talking on the sidelines of the annual general meeting of the company.

Bata, which sells over 50 million pairs of shoes every year, has at least 1,265 retail stores across 500 cities. But lately, it has started experimenting with the franchise model: its partners have launched around 30 stores in Gujarat, Madhya Pradesh and Uttar Pradesh. The initial response is encouraging, according to Gopalakrishnan.

Typically, Bata launches around 100 stores every year, but this will change as the company will now focus on expanding its distribution network through franchisees. Over the next two years, Bata aims to add 200-300 new stores under the franchise model.

According to analysts, this could, in the long run, turn out to be a more efficient model because Bata already has 7,700 workers. Opening new stores also means paying for real estate from its own finances.

A lot of companies are shutting loss-making outlets, which have high real estate costs, said Sreedhar Prasad, partner (e-commerce) at consulting and professional services firm KPMG. Instead, they are using that cash for online customer acquisition and on innovative sales channels, he added.

The rural market has a lot of potential, said Gopalakrishnan. But the company needs to offer a “different product line” for this market. Bata already has within its portfolio some products that are expected to do well in rural markets, but the company needs to develop more products priced between Rs.200 and Rs.1,000 a pair, he added.

In the last fiscal year, Bata added only 26 new stores. The company also sells select lines through some departmental stores. Currently, 80-85% of its revenue come from its own stores.

In the current year, it is looking to turn around at least 40-50 loss-making stores, said R.K. Gupta, director (finance) and chief financial officer. These will be refurbished and given a wider range of products to sell, but if they still cannot turn in profits, they will be shut, he added.

Online sales are growing, but for Bata, it is still at 1.5% of its total revenue, Gopalakrishnan said. Bata sells from its own e-commerce platform and through other online retailers such as Jabong and Amazon, but offers only a small collection for sale through this channel to protect its own retail outlets.

The footwear maker’s management remains circumspect about committing resources to shore up online sales. Bata wants to scale up online sales profitably, Gopalakrishnan said, adding that organically, online sales will grow to 5% of the company’s total revenue over the next four-five years.

Adidas eyes 20% revenue from own stores

In a major retail push, German sportswear maker Adidas is planning to earn 20% revenue from its own stores in India by 2020. At present, it operates a franchise-based model here, similar to ones followed by its competitors Nike and Puma.

To begin with, the company plans to open around six flagship stores in large cities, measuring 5,000-10,000 square feet. Envisaging larger volumes, it has also opened a 2.6 lakh square-feet centralized warehouse near the Capital to streamline its supply chain, akin to the ones operated by e-commerce companies.

"We want to double our turnover to around Rs 1,600 crore by 2020 from Rs 805 crore at present. These large format stores will help us achieve that," said Dave Thomas, MD of Adidas Group India. "Our franchise partners were earlier hesitant to invest in these big stores. That mindset is changing. However, most of these flagship stores will be owned by us."

Last year, Adidas became the first sportswear company in the country to get government approval to open its own stores.

This year, Adidas wants to turn its focus on its lifestyle brand Adidas Originals, which accounts for a third of its global business but only 5% in here. "We will launch new formats of Adidas Originals stores here. Earlier, Originals products wouldn't sell here. But now, with increased awareness, the products are flying off the shelves. There is a lot of potential in that line," said Thomas.

While around half of Adidas's business here comes from apparel, Thomas said the trend is changing. "People are buying more expensive footwear. Two years ago, the average buying price of a pair of sports shoes was around Rs 3,000. Now, it's around Rs 5,000," said Thomas.