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Fabindia was founded in 1960 with a mission to provide work and employment to India’s skilled rural artisans and to protect traditional weaving and printing skills. Change in customer consumption pattern and increased income per capita has given boost to domestic sales of Fabindia. In last five years (2002-06), turnover of Fabindia has increased by 335% and profit by 422%. Fabindia’s vision is to expand to 200 stores and grow its revenue to Rs 8.6 billion by FY 2011. Key challenges in achieving target revenue of Rs 8.6 billion are additional capital requirement, shortage of qualified personnel, threat from new retail chains, increasing rental rates, and uncertainty in supply. This document is intended to analyse different possible alternatives like increasing product line, establishment of new store with external and internal financing options, development of franchisees to achieve target revenue without compromising with vision of organization.
Rapid scale-up would require more qualified personnel and formalization in organization. Absence of organized retail sector in India has lead to shortage of qualified personnel. New retail chains like Pantaloon, Trend Ltd, Shoppers World, ITC have entered in garments sector posing potential threat to Fabindia. 70% of Fabindia’s revenue are generated from garments. Small players like, privately owned Anokhi, Govt. owned Khadi, State Govt owned Phullkari, Rajasthali, Chunari etc have also expanded and opened their shops in major cities of India. New product lines were introduced and have shown positive results. In last two years organics and body care revenue has seen a growth of 100 times. Increasing number of shops will require more investments due to increasing rental and property rates. Another major challenge for Fabindia could be capital for expansion. For desired exponential growth Fabindia may require additional external capital. Supply chain of Fabindia is based on trust with uncertainty of supplies from it’s rural suppliers. Estimate of supply has always problem for Fabindia.
Alternatives and their impact 1. Habitat was acquired by larger firm.2 million per year .04 % of revenue. It has reduced the profitability of organization. Other costs may include hiring personnel. Additional revenue of Rs 2 million can be generated by focusing on exports. A carefully legally bounded agreement may be required. rental cost. <!--[if !supportLists]-->5 <!--[endif]-->Setting up new store (with internal investing) Fabindia has reserves and surplus of Rs 338. Exploring new market and clients may result in better results. Fabindia store size is 400 sq feet for small stores and 8000 sq feet for large stores.8 % to 26. In 1965. Collaboration and franchisee model Franchisee model may have multiple advantages like increased market presence. and managing cost. Setting up new store (with external investing) Average rental rates are at Rs 400/sq feet. revenue from export was at Rs 2 million. saving on labor cost. (Table 1. 3. Franchisee model may also tarnish image of Fabindia and franchisee may use Fabindia brand name to promote its own products. Increase efficiency of existing stores In last five years operational expanses has increased from 21. Currently Fabindia has 49 stores and additional 151 stores of medium size (4000 feet) will make an additional rental cost of Rs 241.6 million per month.02. An additional average revenue of 3 million (10% of average Fabindia store sales) may be expected from each franchisee store. (Source: Exhibit 5) 2. 4. Increase Export Activity After Fabindia’s main UK based customer. Currently export revenue has declined to Rs 1. An expected saving of Rs 55 million expected.To grow in terms of revenue to Rs 8. salary and other maintenance cost.6 billion by FY 2011.1) A new store on rental may have average Rs 19.51 million. Fabindia was not able to utilize its export potential and has seen negative growth.2 million rental cost per year with revenue of Rs 30 million per year. Rental cost of new store would be Rs 19.
Requirement of additional work force Activity with minimum additional requirement of workforce will be given preference. till 2004 revenue from organics were very less. Expected growth opportunities and additional revenue could be huge. Concept like organic departmental store may be used. In last two years organics revenue has seen a growth of 100 times contributing Rs 25 million to revenue. Criterion for evaluation 1. (assuming average return per store as Rs 30 million) 6 Including more product line Garment sector is facing competition by organized retail sector. Extent of revenue contribution An activity with higher level of revenue contribution will be selected. 4.03 of sales revenue) which is far below than industrial norms of 1 to 1. Evaluation of Alternatives .15 stores can be established providing additional revenue of Rs 450 million per year. Advertisement and spreading awareness could result in 5-10% increase in sales. Consistency with organizational mission No compromise with mission. Profitability The activity must be profitable when implemented. 2.5 percent. 7 Increase advertisement and marketing of Fabindia products Apart from opening of new stores advertisements are not issued. Expected returns could be 125 millions per year by advertisement budget of Rs 50 million (0. Assuming moderate growth of 10 times in next two years may result in 250 millions of revenue and 500 million in next 5 years. 3. Fabindia is sustaining on its quality and perceived value as spread by word of mouth. Organics and body care were introduced in 1998. Including diverse product line like food and personal care can generate new source of revenue while reducing competition.
Each alternative is evaluated against each criterion. Increase efficiency of existing stores Consistency with organizational mission : Yes Extent of revenue contribution : Nil Profitability: Yes (Rs 55 million) Requirement of additional work force : Nil External capital requirement : No Result : zero points awarded to alternative Increase Export Activity Consistency with organizational mission : Yes Extent of revenue contribution : Rs 2 million per year Profitability: Yes Requirement of additional work force : little or not required External capital requirement : little or not required Result : 2 points awarded Collaboration and franchisee model Consistency with organizational mission : Yes Extent of revenue contribution : Rs 453 million from 151 new stores (Rs 3 million per franchisee) Profitability: Yes Requirement of additional work force : little or not required External capital requirement: little or not required . thus each alternative will be judged against the extent of additional revenue it can generate. Our target is to increase revenue of Fabindia. Points equal to additional revenue is provided to each alternative. We may choose one for more alternatives to maximize our revenue function as all these activities are mutually exclusive.
2) Setting up new store (with external investment) Consistency with organizational mission : Depend new investing partner Extent of revenue contribution : Rs 4530 million from 151 new stores (Rs 30 million per store) Profitability: Yes Requirement of additional work force : large External capital requirement : yes (approx 2500 million will be required) Result : rejected as mission can’t be compromised Setting up new store (with internal investment) Consistency with organizational mission : Yes Extent of revenue contribution : Rs 450 million from 15 stores (Rs 30 million per store) Profitability: Yes Requirement of additional work force : medium External capital requirement : No Result : 450 points awarded Including more product line Consistency with organizational mission : Yes Extent of revenue contribution : Rs 500 million Profitability: Yes Requirement of additional work force : little or not required External capital requirement: little or not required Result : 500 points awarded Increase advertisement and marketing of Fabindia .Result : 453 points awarded (Table 1.
3. More product lines in organic should be included and organic products should be boosted. Fabindia has to maintain the growth rate of 45% for next 5 years. Better marketing and advertisement by allocating a budget of Rs 50 million.6 billion by FY 2011. Following actions may be taken from maintaining growth rate of 45%. Fabindia should setup 15 more stores which could generate Rs 450 million. 2.Consistency with organizational mission : Yes Extent of revenue contribution : Rs 125 million Profitability: Yes Requirement of additional work force : little or not required External capital requirement: little or not required Result : 125 points awarded Evaluation result Increase efficiency of existing stores : zero points Increase Export Activity :2 points Collaboration and franchisee model : 453 points (151 stores) Setting up new store (with external investment): 0 points Setting up new store (without external investment): 450 points (15 stores) Including more product line : 500 points Increase advertisement and marketing of Fabindia : 125 points Recommendations With current growth rate of 50% Fabindia could achieve its revenue target of 8. More stores may be opened as and when Fabindia has its own capital. 1. Action Plan Organic and body care . 4. Fabindia should look for partners for franchisee and extensively create more franchisees and must increase their number to 150 in next 3 years.
Year 2007 2008 2009 2010 2011 Franchisee stores We should first concentrate on franchisee model before opening own stores.4) Year 2007 2008 2009 2010 2011 Addition Revenue 250 million 550 million 953 million 1203 million 1403 million . Year No of stores 5 5 5 new Total no additional stores 5 10 15 of 2009 2010 2011 Revenue targets (source table 1. Franchisees should be increased to approx 150 numbers in next 3 years. Sales Target for organic and body care products.Organic and body care product line should be promoted. This will save our case reserves. Fabindia should focus on organics and body care products. Year No of new Total no franchisee additional stores 50 50 50 100 51 151 of Sales Target 100 million 250 million 350 million 450 million 500 million 2007 2008 2009 Establishing new stores New store should be set up in three phases starting from year 2009. as these product line has shown 100 times growth in last 2 years.
4 million Rs 19.Appendix A Table 1.4 Expected additional revenue Year Revenue from organics and body care 2007 100 million 2008 250 million 2009 350 million 2010 450 million 2011 500 million Revenue from Revenue from Total Revenue franchisee stores new stores 150 million 300 million 453 million 453 million 453 million 250 million 550 million 953 million 1203 million 1403 million 150 million 300 million 450 million .1 Rental Cost calculation Store Size Small (500 sq feet) Medium (4000 sq feet) Large (8000 sq feet) Average Rent Rs 400/month Rs 400/month Rs 400/month Annual rent Rs 2.2 million Rs 38.4 million Table 1.3 Establishing New Stores Year of No of operation new stores 2009 5 2010 2011 5 5 Total no additional stores 5 10 15 of Revenue per store 30 million 30 million 30 million Total revenue 150 million 300 million 450 million Rental charges (@19.2 million per year) 96 million 192 million 288 million Table 1.2 Franchisee Stores and expected revenue Year No of new Total no franchisee franchisee store 50 50 50 100 51 151 of Revenue store 3 million 3 million 3 million per Total revenue 2007 2008 2009 150 million 300 million 453 million Table 1.
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