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
 TIMELINE
FabIndia Indian Economy
Post ‘47- govt supports socialism &
nationalism
1960- Incorporation in Delhi 1957- Govt sets up KVIC
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
2005- Vision Plan II is born 2006- 8% economic growth
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.)
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
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
 COMPETITOR ANALYSIS
 Government 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 ANALYSIS
 Designer Boutiques: (Ritu Kumar’s, Ritu Beri’s, Rohit Bal, Manish
Malhotra, Sabyasachi Mukherjee, etc.)

Strengths:- Weaknesses:-
1. Product customization 1. Exorbitant prices-not
facilities-extremely high meant for masses
2. Highest level of 2. Not a robust supply chain-
customer intimacy- not meant to be a pan-
Relationship marketing India operation
 COMPETITOR ANALYSIS
• Unorganized Sector:-
 Mom-and-pop stores and local tailoring units:-

Strengths:- Weaknesses:-

1. Effective in addressing 1. Source of finance-not secure

high geographical 2. Next-to-nil brand equity

dispersion 3. Customer loyalty-low

2. Customization facility 4. Scarcity of skilled manpower-

available lack of ability to employ the

same-critical for expansion.
 COMPETITOR ANALYSIS
 NGOs & SHGs

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

optex 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 Pantaloons
Interest Coverage Ratio Interest Coverage Ratio
20.00
4.50

18.00 4.13
17.35 4.00
16.54
16.00
3.50
14.00 3.27 3.31
3.00
12.00
10.75 2.50
10.00
9.27
8.41 2.00 2.06
8.00

6.00 1.50

4.00 1.00

2.00 0.50

0.00
0.00
2002 2003 2004 2005 2006
2005 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 Pantaloons
Interest Cost as a Percentage of Sales Interest Cost as a Percentage of
1.20 Sales
1.14 4.00
1.09
3.67
1.00 3.50
0.96

3.00
0.80

0.69 2.50

0.60 2.25
2.14
2.00
0.48
0.40 1.50 1.49

1.00
0.20
0.50

0.00
0.00
2002 2003 2004 2005 2006
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 Pantaloons
PAT % PAT %
7.00
4.00

6.30 3.63
6.00 6.02 3.50
5.78 3.41
5.66 3.27
3.00
5.00
4.79
2.71
2.50
4.00

2.00
3.00
1.50

2.00
1.00

1.00
0.50

0.00 0.00
2002 2003 2004 2005 2006 2005 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