Category: CBN/culture/Marketing strategy

Archies: The Way Indians Greet

It (Archies) is a phenomenon that touches your life from womb to tomb. - An Archies Retail Outlet O ner! in "ece#$er %&&'( A co#)any in trou$le* In February 2002, the Delhi High Court dismissed an application for injunction filed by leading Indian greeting card and gift company, Archies Greetings Gifts !td" #Archies$" %he company &anted a stop order to restrain Hindu fundamentalist groups'the (hi) (ena, the *ish&a Hindu +arishad #*H+$ and the ,ajrang Dal'from -interfering in the *alentine.s Day celebrations and sales promotions in its sho&rooms and outlets"- Archies filed the application fearing that the groups &ill )andali/e their outlets as they had in February 2000"0 %he Court.s decision shoc1ed Archies. management, for any disruption of business on *alentine.s Day &ould translate into huge re)enue losses for the company" Director *ijayant Chhabra said, -2)eryone 1no&s &hat happened last year" 3ur outlets &ere targeted in 4umbai, Delhi and other parts of the country" 3ur business has been affected se)erely"- %he dismissal of the injunction appeal came at a time &hen the company &as facing a host of problems on )arious other fronts that &ere ta1ing a toll on its performance" In the late50660s, e5cards became )ery popular" Archies &as forced to launch its o&n egreetings &ebsite, archiesonline"com, through its &holly5o&ned subsidiary Archies 3nline"com !td" in mid52000" Ho&e)er, by late 2000, the company made archiesonline"com a paid ser)ice" 7ouhan Darrab Aria #Aria$, Chief 3fficer #!ogistics and Finance$ of the portal commented, -25commerce &as not happening from our site as e8pected and ads &ere also not forthcoming" 9e &anted to increase our re)enue and charging users &as the solution"- As e8pected, a large number of the 0": million registered users stopped using the ser)ice" Aria admitted, -9e ha)e suffered massi)e drops in our registered user base since &e became a paid site"In addition to these problems, Archies. initiati)es to con)ert its net&or1 of franchisee outlets into company5o&ned outlets and its distributor set up into a Carrying and For&arding2 #C F$ set up &ere pro)ing to be major burdens on its finances" As a result, in 2000500, for the first time in its o)er 205year history, the company e8perienced a negati)e gro&th" %urno)er declined from ;s" <00 mn in 066652000 to ;s" :=0 mn in 2000500, &hile net profits for the same period declined by around >2? from ;s" 0>0 mn to ;s" 60 mn>" Archies. mar1et share remained at @A? bet&een 066= and 2000" Analysts remar1ed that the company.s leadership status in the Indian greeting card and gifts mar1et seemed to be doing it no good in increasing its mar1et share and sustaining profitability"

Background note Archies &as the brainchild of Delhi5based Anil 4oolchandani #Anil$, &hose family business &as selling saris" In the late 06<0s, he decided to buy and sell good5Buality posters through mail5order catalogs, ad)ertised in one of the popular maga/ines in those days, Sun" 9hen the demand increased, he started getting posters of film stars, natural sceneries and other subjects of interest, printed by local printers" +,hi$it I Archies C (hareholding +attern #as on 4arch >0, 2002$ (hareholder#s$ ? of shareholding +romoters ::"0= Institutional In)estors ="<6 ,an1sDFIsDInsurance Companies 0"2> FIIs 0"00 +ri)ate Corporate ,odies :">< Indian +ublic 0<"@@ E;IsD3C,s 0"00 (hares in transit 0"=< %otal 000"00 (ourceF &&&"archiesonline"com An a)id music enthusiast, Anil decided to sell boo1s containing lyrics of hit 2nglish songs in addition to the posters" He &rote do&n the lyrics of songs himself &hile playing them on a gramophone" He began to sell songboo1s containing the lyrics of hits from groups such as A,,A, ,eatles and ,oney4" Commenting on his e8periences, Anil said, -I &ould spend hours listening to a sound trac1, meticulously translating lyrics &hich &ere initially incomprehensible, so &hen &e finally managed to sell the entire lot to a music shop in Chana1yapuri, &e &ere so e8cited &e could barely contain our emotions"As customer a&areness increased, he started coming out &ith songboo1s containing hits of a particular year and he &as soon selling o)er 00,000 copies per year" Anil then decided to enter the greeting cards business" He obser)ed that in India, cards &ere typically sold out of dusty shoebo8es mar1ed G,irthday. and GAnni)ersary. 1ept in the corners of stationery shops" In 06<6, Anil and his brother Hagdish 4oolchandani #Hagdish$ got GArchies Gifts Greetings. registered as a partnership concern for starting the greeting cards business" %he name Archies &as chosen after Anil too1 a fancy to a neighbor.s dog named Archie" During a )isit to (outh52ast Asia, Anil &as impressed &ith the e8clusi)e greeting card shops offering good ambience and soft bac1drop music" He said, -%he card shops there &ere li1e a ;aymond or ,ata sho&room here" If &e had to retail, &e had to ha)e a proper

shop"- He decided to try out this concept in India as &ell, &hich led to the launch of the first Archies. outlet in Delhi in 06=@, named GGift Gallery." Commenting on the runa&ay success of the shop, Anil remar1ed, -%heme cards'*alentine.s Day, 4other.s Day, Father.s Day, Friendship Day'&ere concepts entirely alien to Indian buyers" %hey immediately caught the fancy of teenager shoppers"In 06=<, the first e8clusi)e Archies gallery &as set up in Iamla Eagar, situated in the heart of the Delhi Jni)ersity campus" %he 0000 sB" ft" rented shop became an instant hit &ith college students &ho floc1ed to buy cards and gifts" 9ith sales touching ;s" 2"2 mn, the 4oolchandanis managed to brea1 e)en in the first year itself" Follo&ing this, the brothers decided to franchise the name to interested parties" +,hi$it II A Note on the Indian -ocial +,)ression Industry In 2000, the ;s" @"A bn Indian social e8pression industry &as gro&ing at a rate of 20? per annum" 3f the total mar1et, around 2A? belonged to cards from charitable institutions li1e Child ;elief and 7ou #C;7$ and Jnicef" Another 2A? &as accounted for by the unorgani/ed sector consisting of o)er 200 manufacturers producing lo&5priced and lo&5Buality cards" %he organi/ed sector comprised only A0? of the greeting card mar1et, of &hich Archies and *intage had mar1et shares of >=? and >A? respecti)ely #*intage Cards is a +une5based company and the Indian franchisee for global greeting cards major, the J(5based Hallmar1 company$" ;e)enues for the greeting cards mar1et &ere mainly concentrated in the urban areas, specifically cities such as 4umbai, Delhi and ,angalore" 2)eryday cards accounted for A0? of o)erall sales, season.s cards for festi)als such as Di&ali, Christmas and Ee& 7ear accounted for 2A?, and the rest by special occasion cards li1e *alentine.s Day, 4other.s Day, and Friendship Day" %hough the unorgani/ed sector accounted for almost 2A? of the industry, organi/ed sector players did not see them as a major threat" A spo1esperson for Archies said, -3ur cards are in a different category altogether" Ho&e)er hard the unorgani/ed sector tries, you only ha)e to loo1 at their production Buality to reali/e the difference" 9e don.t e)en )ie& them as any threat because they don.t fall in our segment" If you.re tal1ing cheaper price tags, then e)en our cards are priced competiti)ely'our range starts at ;s" @"9ith the economic slo&do&n in the country, the margins &ere going do&nhill for most players" Ho&e)er, many players &ere entering the mar1eting including the tobacco5to5hotels major I%C #in association &ith the JI5based design company, (imon 2l)in$, Gut1a manufacturer 4ani1chand, and pen company ;otomac" In 0660, the brothers established Archies Greetings Gifts +)t" !td", &hich too1 o)er the partnership firm.s business" In 066@, Anil decided to install a printing unit for the company, because it &as no longer economical to get printing done from outside" He

in)ested ;s" =0 mn in a fi)e5color printing machinery and an additional ;s" A0 mn o)er the ne8t fe& years" %he same year, Archies tied5up &ith the J(5based Gibson card manufacturing company" According to the agreement, Archies could sell cards that had Gibson.s designs, in India" In 066A, Archies &as incorporated as a public limited company, &ith its initial public offering of ;s" <@ mn #0"0A: million eBuity shares at a premium of ;s" :0 per share$" %he issue &as o)ersubscribed @"A times #;efer 28hibit I for the company.s shareholding pattern$" ,y the end of the 0660s, Archies &as operating in three clearly demarcated businesses' greeting cards, gift items and stationery products #;efer 28hibit II for a note on the Indian social e8pression industry$" %he greeting cards di)ision contributed :6? to the company.s re)enues in 066652000 &ith a sales )olume of =A"= million cards and &as gro&ing at 0A?" %he cards &ere sold &ith designs sourced from )arious international collaborators such as American Greetings Corporation #+aper ;ose$, Gibson Greetings #Fine 28pressions and Gibson$, +ortal +ublications #+aper 4agic$, Iingsley of JI and Iel Geddes of Ee& Kealand" In addition, the company also sold cards under the HelpAge@ brand" Archies had an in5house creati)e team of about =A people'artists from premier art institutes and &riters &ith e8cellent &riting s1ills" Archies had cards for almost e)ery major festi)al in both 2nglish and Indian languages" It &as the first company to retail regional language cards on a national scale" %he company launched cards &ith ne& designs e)ery month to 1eep its portfolio updated" ,esides the retail route, it also sold greeting cards to corporate clients such as ;eliance, (amsung, !IC, ,irla International and Dabur" %he gift items di)ision, &hich became operational in 066@, contributed 0A? to the turno)er as in 066652000" Gro&ing at >0?, the di)ision &as primarily outsourced by the company" %he gift items include photo albums, frames, cloc1s, stuffed toys, mementos, Buotation plaBues, sunglasses, pen stands and other decorati)e articles" In 066<, the music cassettes and CDs from its music di)ision &ere also retailed under this di)ision" In 0666, the di)ision began to sell deodorants and perfumes under the brand names, ,oy/, Gals, and later on launched the G00. range" %he stationery product di)ision contributed 0:? to the company.s re)enues'all its products &ere manufactured in5house" %he product range comprised autograph boo1s, diaries, calendars, posters, gift5&raps, designer stationery, fancy stationery, business organi/ers, &rought5iron frames, friendship boo1s, telephone inde8es, and planners" %he di)ision &as gro&ing at 0050A?" %he company sold its products through a )ast distribution net&or1 that co)ered e)ery major state in India and e)en in remote to&ns" %hus, Archies. products &ere sold through around =000500,000 multi5brand retail stores across the country and ser)iced through <0 dedicated company distributors" Archies had four branch offices in 4umbai, Ahmedabad,

!udhiana, and Hyderabad to e8tend its reach and penetration" %hese branch offices catered to the needs of both franchisees and retailers, and &ere managed by the company.s representati)es as &ell as its C F agents" +roducts &ere retailed through the follo&ing channelsF L Archies Gallery'%he first concept store opened by Archies, typically A0050000 sB"ft" in si/e" L Archies5%he Card (hop'(maller in si/e than the Archies Galleries" L +aper ;ose (hoppe'(hops &ith an area of 00050A0 sB"ft" &ith around =A? of Archies merchandise" L Archies Feelings'In April 2000, Archies too1 o)er the popular 2A5store GFeelings. chain of greeting card and gift outlets in the state of Gujarat" Follo&ing this, Feelings outlets &ere renamed as GArchies Feelings." L +remium Archies Galleries or *ision 2000 stores'28clusi)e Archies sho&rooms housed at prominent locations, spread o)er a larger area &ith a lot more shelf space than the other outlets" L 3ther retail outlets" ,y the end of the 0660s, Archies had established automated production lines using the latest printing and card production technologies" In April 2002, Archies entered the ;s" = mn 1ids stationery business and launched crayons, pencils, erasers and rulers" %he company planned to reach the ;s" 000 mn mar1 by 200A, cashing in on the fact that the Archies brand name &as )ery popular among 1ids" %he product range &as to be e8tended to include glues, poster colors, geometry bo8es, and school bags" In the same month, Archies entered into an alliance &ith Eorma1 Fashions, manufacturers of the famous 2stelle brand of &omen.s fashion je&elry" According to the agreement, 2stelle.s line of fashion je&elry &as to be made a)ailable at Archies outlets across India" +,ihi$it III Archies-O.er The /ears 7ear 06<6 06=0 06=@ 06=A 06=< 2)ent Anil 4oolchandani starts Archies as a mail order supplier of posters and songboo1s" Hagdish 4oolchandani joins Archies" %he company starts producing cards and stationery products &ith Disney characters, under license from 9alt Disney !td", J(A" A >5day e8hibition, M%he Archies 28plosionN at %he %aj +alace Hotel, Ee& Delhi, &here 00,000 people shopped for Archies products" %he first Archies cards, posters and stationery gallery opened in Iamla

06=6 0660 0662 066> 066@ 066A 066:

066<

066=

0666 2000

Eagar, Ee& Delhi" AG G ties up &ith HelpAge India to mar1et and produce greeting cards in aid of under pri)ileged elderly" All proceeds of the sale of HelpAge Cards are gi)en to HelpAge India Charities" Archies becomes a household name, than1s to the ad)ertising initiati)es" AG G ties up &ith Gibson Greetings Corpn", J(A to produce an e8Buisite range of cards" Archies Gallery opens the 000th outlet at Iarnal" AG G launches Fine 28pressions Cards under license from Gibson Greetings Corpn", J(A" AG G launches +aper ;ose Cards under license from American Greetings Corpn", J(A" %he first Archies C %he Card (hop opened in (a1et, Ee& Delhi" Archies con)erts into a +ublic !imited Company, and comes to be 1no&n as Archies Greetings Gifts !td" %he company floats its first +ublic Issue" %he company.s stoc1 is listed and traded on the Delhi (toc1 28change" 2nters the music business through a separate di)ision, and releases 00 albums" AG G acBuires a license from &orld5reno&ned photographer, Anne Geddes to print her designs on cards and posters under the brand name M+aper 4agicN" C %he Archies scrip gets listed on the E(2 and ,(2" AG G launches the Archies +arfum Di)ision" AG G acBuires an e8clusi)e license from Iingsley JI, to produce Iingsley Cards in India" 5%he company starts to de)elop in5house scanning facilities and installs automatic en)elope ma1ing machinery, insert5pasting machinery, automatic greeting card folding machine, fully computeri/ed paper cutting machine, card pac1ing machine and fi)e colour offset printing machine" C Comes out &ith the concept of *ision 2000 stores" AG G stoc1 ma1es its &ay to the ,(2 200 Inde8" %he Archies share price touches an all5time high of ;s =06 #e85bonus price$" Archies goes regional by launching greetings in 4arathi" AG G launches its portal archiesonline"com" Archies cards, gifts, stationery, music and perfumes are made a)ailable on the Eet"

,y 2002, Archies had 2@0 Archies Galleries, 002 Archies Card (hops and A= +aper ;ose (hoppes, and o)er A0 *ision 2000 (tores in 020 cities across eight countries" %here &ere si8 franchisee outlets in ,angladesh, three in Eepal, three in (ri !an1a and one each in ,hutan, 4uscat and Abu Dhabi" 28port re)enues from these 0A outlets touched ;s" 20 mn in 2002" %he company had distributors for cards for Indian festi)als and occasions in the J(, JI, the 4iddle 2ast, (outh Africa, and (outh52ast Asia #;efer 28hibit III for a chronological profile of Archies. gro&th o)er the years$"

The story $ehind the success According to analysts, Archies. franchisee model contributed a great deal to its success" ,harat (hah, Chief In)estment 3fficer, ,irla Capital, the mutual fund company, said, -%he 1ey to understanding Archies is to reali/e that it is not in the business of cards or gifts, but in franchisee management"- Anil agreed, -9e made our o&n model suitable for Indian conditions" 9e created a branded franchise" Eo& the scenario has changed in India and e)erybody tal1s about franchising" ,ut &e &ere the first to do that 1ind of stuff" 9e then &ent in for tie5ups so as to get a greater range to support these stores because these &ere e8clusi)e stores"Commenting on the decision to opt for the franchising route from the )ery beginning, Anil said, -7ou don.t ha)e malls in India so &e ha)e to manage in limited area"- ,y franchising, Archies &as not only able to sa)e on real estate costs, but share the ad)ertising and promotion e8penditures &ith franchisees" Archies franchisees made their o&n in)estment in the business and paid royalty to Archies for the turno)er generated from the sale of Archies products" As per the franchising agreement, products &ere sold to the franchisee, &ho had the option of e8changing products, &hich &ere not profitable &ith the more profitable ones" As part of group ad)ertising, each franchisee paid a fi8ed amount to the company e)ery month" Archies. Buality control team monitored the franchise stores and ensured that the ambience, space allocation, lighting and display &ere standardi/ed across all outlets" In the late 0660s, the company also started appointing franchisees on a commission or minimum guarantee basis under &hich the in)entory cost &as borne by the company &hile the franchisee in)ested in fi8tures, furniture and premises" Archies constantly updated its strategies to ensure a smooth functioning of its franchising set up" %he company di)ided the franchise operations into three segments targeting different set of franchisees" %he top5le)el franchisees ran the Archies Galleries, the middle le)el franchisees ran the Archies Card (hops and +aper ;ose (hoppes, and the bottom le)el, and smaller franchisees operated the Feelings and other retail outlets" Another success factor &as the company.s Glocali/ation. strategy" 9hile many players sold cards for Christmas, Ee& 7ear and *alentine.s Day, Archies became the first to come out &ith cards for Indian festi)als such as Holi, Diwali, and Rakshabandhan. %hese initiati)es &ere bac1ed by an aggressi)e promotional campaign in the media to create a&areness and persuade people to communicate through cards" Archies &as the first cards and gifts company in India to ad)ertise on a satellite tele)ision channel" 9ith its tie5ups &ith companies li1e +epsi and +idilite, it built a strong brand eBuity" %he tie5up &ith HelpAge helped attract corporate clientele" %he company entered into arrangements &ith mo)ie producers, through &hich it offered items associated &ith the latest Hindi, 2nglish and )arious regional language mo)ie releases" It released a host of mo)ie5specific items, such as greeting cards, postcards, picture frames, letter pads, calendars, and posters to coincide &ith the release of mo)ies

that it thought &ill be a success" (ome of the mo)ies the company associated itself &ere Hum Aapke Hain oun, !era "adoo #hal $aya, %ohabbatein, and &a'aan" %hese focused and &ell5e8ecuted mar1eting strategies helped Archies build good brand eBuity" As a result of the abo)e initiati)es, the company &ent from strength5to5strength and remained the undisputed mar1et leader throughout the 06=0s and the 0660s" During 066A56: and 066652000, the company.s net profit gre& at a compounded annual rate of :=?, &hile sales gre& at 2:?" 3perating profit margins o)er this period &ent up from 00"A? to an impressi)e >0?, &hile returns on capital employed &ent from @:? to <=?" %he near5monopoly status and the healthy trac1 record helped the price of Archies shares reach ;s" 0,@00 by August 0666" ;e)enues also increased from ;s" @:0"A mn in 066= to ;s" <02"0 mn in 2000" In the late 0660s, sending greetings through the Internet and mobile phones became )ery popular &ith youngsters, &ho formed a major part of Archies. clientele" 25greetings pro)ided an opportunity to send personali/ed messages at a nominal cost and did not ta1e more than a fe& minutes" (imilarly, (4( &as also )ery cheap and much more con)enient than sending a paper card" (ome analysts e)en claimed that cards &ere still popular because people ha)e used them for generations and many people did not ha)e access to e5 mail and cellphones" %hough the 4oolchandanis initially denied that e5greetings posed a major threat to the paper cards industry, they had to admit that the Internet caused a substantial dent in their re)enues" Anil said, -9e reali/e it is a threat, but &e.re hoping that it.s just a fad" After all one can.t really replace the physical thing"- Ho&e)er, soon the company disco)ered the negati)e impact e5greetings &ere ha)ing on its re)enues" %his compelled the brothers to launch archiesonline"com in 4ay 2000" Tackling the e-greetings threat Archiesonline"com had three major sections'meet, greet and gift" Jnder Gmeet., Archies offered ser)ices such as free e5mail, chat, reminder ser)ices, and a greetings scheduler" %he Ggreet. section &as a consumer interaction area &here registered customers could send and recei)e a )ariety of animated e5cardsDgreetings online for free" 3)er <00 programmed e5cards &ere made a)ailable, &hich &ere Buite different from the usual cards a)ailable on the Internet" %hese cards had an a)erage eight5second long storyline &ith animation and sound effects incorporated into them" In the Ggift. section, consumers could purchase gifts and get them deli)ered at their doorstep" 9hile residents of Delhi got free deli)ery of their purchases, customers in other parts of the country had to pay ;s" 2A as deli)ery charges" %he minimum )alue of each purchase &as ;s" 2A0" Archies tied up &ith courier companies 2lbee and ,lue Dart to deli)er the gifts and cards purchased by customers" %he company tied up &ith 2asy Eet Com for the payment gate&ay" Anil said, -9e ha)e a three5point program to ensure re)enue flo&s by selling content on royalty basis, sell banner ad)ertisements and third5party gifting"- In addition, the portal acted as a ,2, platform, creating a )irtual mar1etplace for retailers and

distributors &ho could ha)e easy access to the company" %his attracted many ne& retailers and franchisees to the company" In late 2000, archiesonline"com entered into strategic alliances &ith )arious portals" %his mo)e &as a part of the company.s plan to secure online penetration in )arious youth5 oriented portals by le)eraging the Archies brand eBuity" (ome of the alliance partners &ere 7ahoo"com, Haldi"com, Indiagreetings"com, 4antraonline, and Jth+lanet"com" According to the agreement &ith 4antraonline #an Internet (er)ice +ro)ider$, Archies launched an Internet access product, &hich &as sold through Archies outlets" Jnder the agreement &ith 7ahoo, Archies. &ebsite &as to ha)e a hyperlin1 on 7ahooO.s homepage" %o bridge the gap bet&een its Internet and retail outlet models, Archies introduced the concept of e51ios1s, that introduced shoppers to the company.s &ebsite and its ser)ices" %he portal also came out &ith ad)ertisements that targeted non5resident Indians in the J(, JI and the 4iddle 2ast &ith the help of India Abroad Ee&s (er)ice, Ihaleej %imes, India +ost and India 9est" For Diwali, the company came out &ith no)el concepts li1e e5 crac1ers that enabled surfers to burst Gpollution5free. crac1ers" (urfers could also perform religious rituals at archiesonline"com" As a result of these initiati)es, the portal claimed to ha)e registered o)er four million page )ie&s and programming of 0"0A million egreetings in (eptember 2000" %he &ebsite became )ery popular in a short span of time and began to recei)e o)er three million page )ie&s per month" %he number of registered users reportedly reached a phenomenal 0": million" 2)en though the number of e5greetings sent through the site touched A@ million, Archies disco)ered that the company gained no monetary benefit" In fact, the )enture &as pro)ing to be a drain on the company.s finances" Hence, Archies decided to ma1e archiesonline"com a paid site" Aria said, -9e had in)ested ;s" 20 mn in the online subsidiary but made just ;s" 2 mn from ecommerce" Creating and hosting one card &as costing us around ;s" :,000" 9e could not ha)e continued &ith this free5for5all for e)er since &e accumulated losses of ;s" 0>"A mn"Archies snapped its ties &ith 7ahooO because 7ahooO did not &ant to be associated &ith Archies if it &anted to stop the free card ser)ice" Archies then approached indiatimes"com for a tie5up and finali/ed a A0FA0 profit5sharing agreement" As per this agreement, archiesonline"com charged ;s" >66 per user for 000 e5greetings per year" Jsers &ere also gi)en 00 paper cards &orth ;s" 0=0 from Archies, a music CD and cassette and 00? discount coupons for shopping at Archies Gallery and +lanet 4 #a music retailing outlet$ stores" Archies sold bo8es containing these gifts and the pass&ords to access the &ebsite at its retail outlets" Although most of its e8isting registered users stopped using the &ebsite, Archies &as not much &orried" Anil said, -9e don.t &ant to ha)e millions of people to come to our site and shop" 9e ha)e to really start )ery slo& and ma1e sure that the customer comes bac1 and has a great e8perience in recei)ing or sending gifts" %he idea is that the site &ill complement the e8isting physical business"-

In Hune 2000, Archies ran a nation&ide ad)ertisement campaign across )arious ne&spapers and tele)ision channels" %he idea &as to GeBuate e5cards &ith fun. and tell people that &hen it came to Gserious e8pressing of emotions., an Archies card &as the best option" %he company spent :? of its turno)er on the campaign, &hich had the tagline, G9hen you really mean it, send an Archies card". In late 2000, Archies ran huge ad)ertisements in leading Indian financial dailies, stating that egreetings or (4( could ne)er be as effecti)e as a physical greeting card" According to analysts, these de)elopments indicated that Archies had decided to treat the online )enture as an e8tension of its business rather than as a thrust area for future gro&th" Despite all the abo)e measures ta1en to maintain its profitability, the company.s re)enues in 2000500 too1 a se)ere beating due to a nation&ide postal stri1e in end52000 that affected the sale of Christmas and Ee& 7ear cards" (imilarly, in 2000, the *alentine.s Day celebrations &ere hit hard due to opposition from religious fundamentalists and the earthBua1e in Gujarat, &hich &as one of the 1ey mar1ets for Archies. products" %o add to the company.s &oes, serious problems cropped up as a result of some of its strategic initiati)es" Archies faced problems due to the distribution and retail outlet rationali/ation e8ercises it &as underta1ing" Rationali0ation gone rong1 The distri$ution re.a#) During the financial year 066652000, Archies decided to re)amp its distribution net&or1 and replace e8isting distributors by a C F agent net&or1" According to the ne& distribution system, in place of := distributors in 20 states, Archies appointed 00 C F agents in 00 states &ho catered to distributors &ho in turn reached out to the retailers" 4anish Hain, Company (ecretary, Archies, said, -%he biggest ad)antage of this model is that the company o&ns the in)entory, so the consumer is ensured of seeing the entire products range that is a)ailable"In the earlier set up, Archies had to accept the distributors. decision &hen they pic1ed up only those products, &hich they belie)ed &ould do &ell" As a result, Archies could not push its entire range of products into the retail channel" ;ajesh (yal, 4ar1eting 4anager #9estern ;egion$, Archies, said, -Distribution could not match the pace &ith &hich &e introduced products and &ith their limited resources it &as difficult" Eo& &ith the C F agents and e8clusi)e outlets &e can at least continue to re)amp our product portfolio"%he shift from distributors to C F agents cut costs significantly'&hile the distributor margin &as bet&een 2A5>0?, the C F margin &as only 02?" Ho&e)er, after Archies adopted the concept of C F agents, it faced bottlenec1s in some parts of the country" %hough the C F agents &ere themsel)es responsible for the distribution of products across the allotted territory, many &ere unable to e8ploit the mar1et properly" %herefore, the company began to appoint C F agent in a particular territory &ho, in turn, appointed )arious area5&ise distributors" %he C F agent &as gi)en the full responsibility to control and manage these distributors" %he e8ercise enabled

Archies to penetrate deeper into the mar1ets because of &ider reach" In the long run, the C F agents &ere e8pected to help the company enlarge its retail net&or1" The retail re.a#) In 2000, Archies began an Ge8clusi)ity dri)e,. by &ay of &hich all e8isting Archies Gallery franchisees &ere as1ed to 1eep only Archies range of products" If they did not &ant to be an e8clusi)e outlet, they &ere gi)en the option of con)erting into an Archies +aper ;ose (hoppe on a Gnon5e8clusi)e. basis" %he idea &as to ha)e only Archies Gallery and Archies +aper ;ose (hoppe as the completely franchised outlets" As a part of this e8ercise, many shops &ere re)amped and some e)en had to be shut do&n" Archies belie)ed that being in direct contact &ith the customer &ill help assess the detailed reBuirements of )arious product lines, and ha)e better in)entory management and product mi8 systems" In addition, the company &as also planning to increase the number of *ision 2000 stores on a large scale" %he *ision 2000 stores &ere much bigger than any other Archies retail outlets and according to company sources, brought in @0? more re)enues as &ell" %hese stores had &orld5class interiors and stoc1ed all the products mar1eted by the company" In a sense, they &ere the 4oolchandanis. )ie& of an Gideal Archies outlet." Archies &as able to get full )alue for its products from *ision 2000 stores" %he company typically sold its products at A0? discount on 4;+ to retailers" Ho&e)er, in its o&n stores, it could sell directly to customers at 4;+, thereby registering a sharp impro)ement in margins" Also, &hile Archies had to gi)e >05:0 day credit to its business partners, its o&n shops brought immediate cash flo&s" %he company planned to o&n at least A0? of the *ision 2000 stores in the future, either leased, rented or bought" In order to ensure that franchisees deli)ered results, the ne& contract included a clause that demanded the franchisee to ma1e a commitment of >05>A? gro&th annually" (tores, &hich had a reasonable si/e and prime location, &ere gi)en a minimum business guarantee or a commission of sale #&hiche)er &as higher$, to allay the apprehensions of not being able to meet the targets" In prime locations, &here the company &as not able to fine a suitable franchisee, it opened its o&n stores" In the long5term, Archies hoped that the higher costs of o&ning the retail infrastructure &ould be offset by substantial sa)ings in trade margins" %hese t&o rationali/ation mo)es resulted in the company facing a decline in profitability" During the con)ersion stage #from distributors to C F agent set up$, the company too1 bac1 all the stoc1 lying &ith the distributors" %his increased the le)el of in)entory, &hich increased the &or1ing capital reBuirement" %his forced the company to outsource fund reBuirements, and therefore, incur a hea)y interest burden" In addition, the fact that Archies had to pay higher interest on &or1ing capital and had to &rite off e8penses incurred on an 2;+ initiati)e also contributed to the decline in performance" In)estments in real estate, &hich &ere negligible in the franchisee5based system, &ent up as the company had to in)est hea)ily in real estate" %hough Archies planned to ta1e retail space on lease, it had to incur substantial in)estments during the transition"

For the financial year 2000502, the company.s re)enues &ere ;s" =0@"< mn, an increase of 0=?" Ho&e)er, net profits declined to ;s" <A"> mn" According to analysts, the re)amping of the distribution and outlets &as li1ely to affect the company.s performance at least for some more years to come" %hey also had their doubts about Archies regaining the gro&th rates it e8perienced in the mid50660s" I%C.s entry into the greeting cards business &as not great ne&s either" In addition, analysts also Buestioned the company.s entry into the highly competiti)e music and perfumes businesses" Archies &as in direct competition &ith giants such as (aregama and %ips Cassettes in the music segment and &ith Hindustan !e)er and Ca)in Iare in the perfumesDdeodorants segments" The 2uture3-hi2ting 2ocus %he 4oolchandanis belie)ed that the distribution and retail re)amp e8ercises &ill yield positi)e results after the transition phase" Archies decided to focus more on the gifts segment, as it belie)ed the segment &as under5e8ploited" %he company planned to de)elop and introduce ne& lines in the gift segment including higher5end items, &hich &ere lac1ing in the present set up" %he idea &as to ma1e an Archies gallery a Gone stop gift shop. for people from all &al1s of life" %he company had already begun importing high5end gift articles such as crystal, soft toys and Feng (huiA items from China, Hong Iong and Iorea in addition to outsourcing from local )endors" %he company also decided to outsource certain gift articles #such as posters, mugs and 1ey chains$, &hich it had manufactured till no&" %he decision to outsource the gift items &as ta1en because Archies reali/ed that the business &as Gfad5 dri)en." Anil said, -9e need to respond Buic1ly and so don.t &ant to in)est in fi8ed assets"- 4any analysts sa& this as a smart mo)e" %he company e8pected the share of the gift segment to go up from 20? to A0? in the future" Archies priced the products competiti)ely" For instance, perfumes started at ;s" 66, as against other brands, &hich started at ;s" 0A0" %he company also planned to co5 brand the gift items in the near future" For the greeting cards business, Archies decided to rene& its focus on the corporate sector, &hich had largely remained unaffected by ecards" %hough the company had cards in almost all the price ranges, it planned to launch a ne& range of economy cards #priced around ;s" 00$ called GHeart 9armers., to be sold in small to&ns" In 4ay 2002, Archies decided to change its name to Archies !imited" Anil.s business acumen and entrepreneurial spirit remained the same" (umming up his )ision for the company, he said, -Fi)e years from no& I thin1 &e &ill ha)e 000 *ision 2000 stores, &hich &ill contribute at least @0? to sales" C Fs &ill contribute @0? to sales and the balance 20? &ill come from distributors" And, if the dotcom ta1es off, then you ne)er 1no&"-

Questions for discussion P0" Analy/e the circumstances in &hich Anil 4oolchandani started Archies and highlight the reasons for the company.s runa&ay success" 9hy do you thin1 Archies could not sustain its profitability gro&th in 2000500Q P2" Critically comment on Archies. franchising and distribution strategies for e8pansion" Do you thin1 the company.s strategy in the initial years &as right in the light of the rationali/ation e8ercisesQ Gi)e reasons to support your stand" P>" Do you thin1 the measures ta1en by Archies to meet the threat of e5greetings &ere adeBuateQ 9as the company.s decision to ma1e its &ebsite a paid one, a sound business mo)eQ Hustify your ans&er" P@" Discuss if Archies &ill be able to maintain its mar1etshare and leadership in the future &ith the entry of players such as I%CQ 9ill the company.s current strategies help sustain its competiti)e positionQ