IRF Rising Star Challenge 2011

Re-Launch of BATA: A Case Study on Restructuring the

Overall Business Strategy

By
Pawan Kumar Sharma*, Swet Kumar Singh* and Soumak Chakraborty*

Under Guidance of
Prof. Shamindra Nath Sanyal**

* Students, MBA-III Semester, Future Innoversity (Future Learning Initiative), Kolkata

Campus
** Associate Professor and Academic Coordinator, Future Innoversity (Future Learning
Initiative), Kolkata Campus, Kolkata, e-mail: shamindranath.sanyal@futuregroup.in.

Re-Launch of BATA: A Case Study on Restructuring the Overall Business

Strategy

Abstract
The study holds attention about the turnaround story of Bata India Ltd. Bata India was
earlier known for its high quality products at reasonable price mainly designed for
functional utility. But in recent years due to various reasons like choice of wrong market
segment, continuous union-related disturbances in manufacturing units and changing in
customer perception in very dynamic and complex market system, Bata started losing
its ground.

This case study proposed certain strategies that can be utilized in the restructuring of
the overall business strategy of Bata. This study also discussed different strategies that
Bata has already adopted as a part of revamping the business to combat the mounting
pressure from the local and international competitors in the Indian retail footwear
industry.

Key Words: Footwear, retail, strategy, Bata, turnaround.

1. Background: The Indian Leather Industry

Leather industry is a significant driver of economic growth in India with a direct

employment of 2, 50,000 (with 50% of them being Women) and export earnings of
US$14 billion. The Indian leather industry enjoys abundant availability of raw materials,
availability of low cost skilled labor and supporting institutions. More than 4000 units are
engaged in manufacturing, of which 95% are small and medium enterprises (SME).
Indias share in the global footwear imports is ~1.4% and future growth is expected from
the SMEs venturing into value added products. The footwear sector is now de-licensed

and de-reserved, paving the way for expansion of capacities on modern lines with stateof-the-art machinery. To further assist this process, the Government has permitted
100% Foreign Direct Investment through the automatic route for the footwear sector1.
Major competitors in the export markets for leather footwear are China (14%), Spain
(6%), and Italy (21%). 55% of Indias leather export comes from US and UK, and Dubai
in recent years had emerged as a trading destination to Africa and other markets1.
Global recession had a major impact on the industry, in terms of revenue fall and
markets. Some saw a dip over 30% in their revenue. SME focusing on exports and
producing only semi-finished leather witnessed low demand, increasing margin
pressures and high inventories.

Indian domestic leather goods market is estimated to be worth Rs 16,300 crore and is
expected to grow at a CAGR of 20%. Domestic footwear market is estimated to be over
Rs 15,000 crore in value terms and has grown at the rate of 8.8% over the last couple of
years. Mens footwear accounts for almost half of the total market, with womens shoes
constituting 40 percent and childrens footwear making up the rest. The domestic
market is essentially price driven, with branded footwear constituting less than 42% of
the total market size.

The major production centers in India are Kanpur in U.P., Chennai, Ranipet, and Ambur
in Tamil Nadu, Mumbai in Maharahstra, Jalandhar in Punjab, Agra, Delhi, Karnal,
Ludhiana, Sonepat, Faridabad, Pune, Kolkata, Calicut and Ernakulam. About 1.10
million are engaged in the footwear manufacturing industry1.

About 37.8% of Footwear retail is the organized segment, which qualifies it as the
second most organized retail category in India after watches. While the average
investment on the footwear by urban consumers is Rs. 240/annum, consumers in rural
areas spend only Rs 100/annum. The annual domestic consumption of footwear is
approximately 1.1 billion pairs per annum, and top 20 cities contribute about 450 million
pairs/annum.

India is the second largest footwear manufacturer in the world, next only to China.
Nearly 58 % of the industry, which is mainly labor intensive and concentrated in the
small and cottage industry sectors, remains generic1. However, as part of its effort of
playing a lead role in the global trade, the Indian leather industry is now focusing on
essential deliverables of innovative design, state-of-the-art production technology and
strict adherence to delivery schedules.

In India, the major players in footwear are Bata, Liberty, Khadim, Nike, ADIDAS, Puma,
Woodland, Reebok, Relaxo and Action apart from many SMEs across different states.
Indian footwear sector has witnessed tremendous growth during the past few years,
Moreover, with the increasing government initiatives, entrance of international players,
and rise in investments, the footwear market in the country is expected to surge at a
CAGR of nearly 9% during 2011-20142.
The key attributes of Indian footwear segment are

The Indian footwear retail market is expected to grow at a CAGR of over 20% for
the period spanning from 2008 to 2011.

Footwear is expected to comprise from over 38% in 2006-07 to about 60% of the
total leather exports by 2011.

Presently, the Indian footwear market is dominated by Mens footwear market that
accounts for nearly 58% of the total Indian footwear retail market.

The ladies footwear segment still remains the most untapped as nearly 80-90
percent purchases happen in the unorganized market.

As footwear retailing in India remain focused on mens shoes, there exists a

plethora of opportunities in the exclusive ladies and childrens footwear segment.

The Indian footwear market is dominated by casual footwear market that makes up
for nearly two-third of the total footwear retail market.

The Indian footwear market scores over other footwear markets as it gives benefits
like low cost of production, abundant raw material, and has huge domestic
consumption market.

2. Customer Segments
Retail footwear segment in Indian is very price sensitive and has been steadily growing
over the year. Major part of the demand is met by the unorganized sector and still there
is a shortfall of 300 million pairs. Branded shoe market only account for 20% of the
entire market. While international brands largely dominate the higher end of the
spectrum, the lower end of the market is dominated by domestic as well as unorganized
players. While men's footwear is the biggest target category (contributing almost 48%),
children's (11%) and women's lifestyle footwear (41%) is not behind in the race2.

Table 1: Segment wise classification of price ranges in the mens footwear

segments3
Segments
Mass market
Economy market
Sports market
Premium leathers
Luxury

Price Ranges in Rs
185 700
700- 1000
1000 3000
3000- 5000
10000- 50000

% of growth
60% (Liberty Bata)
30% (Bata Liberty)
7% (Nike Adidas)
5% (Charles and Keith)
1% (Gucci Louis Vuitton)

Table 2: Segment wise classification of women footwear segment3

Segments
Traditional footwear
Designer Footwear
Formals
Casual Wear
Sports Shoes

Price Ranges in Rs
699 999
599 799
299 699
499 799
500- 699

% of growth
5%
10%
40%
25%
20%

The childrens footwear segment is one of the fastest growing segments in India. The
Indian kids footwear segment is highly fragmented and dominated by the unorganized
sector. The branded childrens footwear segment has a big card to play as India has the
worlds largest child population. The overall kids retail segment has a robust margin of

20 25 % which is huge potential opportunities for organized branded retail footwear

players.

Target Markets

The Figure 1 shows the hierarchy of markets that the existing footwear companies in India
traditionally target.

PUMA, NIKE
ADIDAS, REEBOK

UPPER CLASS

BATA, ACTION,
LIBERTY,
NIKE, ADIDAS,
REEBOK
BATA, ACTION,
LIBERTY, KHADIM,
NIKE, ADIDAS, RELAXO
BATA, ACTION,
RELAXO

UPPER MIDDLE
CLASS
MIDDLE CLASS
LOWE MIDDLE
CLASS

Figure 1: Traditional target markets of footwear companies in India.

3. Company-wise Classification (based on Porters Five Forces Model)

Michael Porters fives forces model is an excellent model to use to analyze a particular
environment of an industry. Therefore, for the footwear industry, we would use Porters
model to help us find out about:

Competitive rivalry
A starting point to analyzing the industry is to look at competitive rivalry. Mostly numbers
of competitors are stable, especially because of high entry barriers. This adds to the

rivalry among existing firm. Manufacturers watch each other carefully and make
appropriate countermove to match the competitors move.
Power of suppliers
Suppliers are also essential for the success of an organization. Raw materials are
needed to complete the finish product of the organization. Shoes are made of leather,
rubber etc. These materials are commodities, where the manufacturing process adds
the value and as a result suppliers have limited bargaining power over buyers.
Power of buyers
Customers can exert influence and control over an industry in certain circumstances.
Bata was largest player in industry with 9-10% volume share and 60% market share in
organized segment. It had a market share of 70% in canvas shoe segment and 60% in
leather shoe segment. Their dominant market share give them power over buyer.
Threat of substitutes
Are there alternative products that customers can purchase over the product that offer
the same benefit for the same or less price? Consumer switch from one product to
another if alternatives are available in same quality and performance range and have
competing price or lesser price. Apart from the existing players in the Indian footwear
market, since the Government has permitted 100% Foreign Direct Investment through
the automatic route for the footwear sector, the competition is going to be very intense
where the customers have number of options before them.
Threat of new entrant
The threat of new entrants will be very high in Indian footwear sector because of three
reasons
a) Barriers to entry are absent.
b) The Footwear Sector is now de-licensed and de-reserved, paving the way for
expansion of capacities on modern lines with state-of-the-art machinery, and
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c) As discussed earlier, Government has permitted 100% Foreign Direct Investment

through the automatic route for the footwear sector,

Table 3: Comparison among the prominent competitors in Indian footwear sector

based on Porters Five Forces Analysis
BASIS OF
COMPARISON

NIKE

ADIDAS RELAXO ACTION

BATA

LIBERTY

Barriers to Entry

Absent

Absent

Absent

Absent

Absent

Absent

Bargaining Power of
Buyers

Low

Low

High

High

High

High

Bargaining Power of
Supplier

Low

Low

Low

Low

Low

Low

Threats of Substitutes

High

High

High

High

High

High

Competitive Rivalry

High

High

High

High

High

High

4. Bata India Limited

Bata India is the largest retailer and leading manufacturer of footwear in India and is a
part of the Bata Shoe Organization.

Incorporated as Bata Shoe Company Private Limited in 1931, the company was set up
initially as a small operation in Konnagar (near Kolkata) in 1932. In January 1934, the
foundation stone for the first building of Batas operation - now called the Bata. In the
years that followed, the overall site was doubled in area. This township is popularly
known as Batanagar. It was also the first manufacturing facility in the Indian shoe
industry to receive the ISO: 9001 certification.

The Company went public in 1973 when it changed its name to Bata India Limited.
Today, Bata India has established itself as Indias largest footwear retailer. Its retail
network of over 1200 stores gives it a reach / coverage that no other footwear company
can match. The stores are present in good locations and can be found in all the metros,
mini-metros and towns

The company manufactures footwear for men, women and children. The Company
manufactures shoes of various qualities such as leather, rubber, canvas and PVC
shoes. Bata Group has worldwide presence across 5 continents, serving 1 million
customers per day and operating 4,600 retail stores globally.

Today the company is the largest shoe company in India in terms of sales and
revenues. The company currently sells over 45 million pairs of shoes every year. It
commands around 35 percent of market share in India. Companys 98 percent revenue
comes from domestic operation. It owns ~1200 stores spread across 400 cities in India.
Currently the company owns brands like Hush Puppies, Dr Scholls, Weinbrenner, North
Star, Power, Marie Claire, Bubble gummers, Ambassador, Comfit and Wind India.
Currently it has five factories located at Batanagar (West Bengal), Bataganj (Bihar),
Faridabad (Haryana), Peenya (Karnataka) and Hosur (Tamil Nadu).

The company has also launched a range of safety shoes for industrial use in the
domestic market with a price tag of Rs.500-Rs. 3,000. The company is planning to sell
these shoes directly to industrial houses and not through its retail stores. Presently, the
products are going through manufacturing process at its Batanagar unit in West Bengal.

But footwear is a very price sensitive market in India and sudden swings in raw material
prices will be detrimental to profitability.

Table 4: Peer Comparison with stocks associated with retail consumption4

But the path was not very smooth sailing for Bata. Reasons are

a) Wrong target market selection

Bata had traditionally been targeting the middle stratum of the consumers in India, in
general and the lower middle and middle classes, in particular. Due to the changing
market dynamics the competition started undercutting their prices and Bata was thinking
of shifting its focus towards the premium end of the market as well.

In the early 1990s, Bata decided to enter into the high-end segments of the Indian shoe
market as a part of its new target market and subsequently launched quite a few brands
in this segment with higher price tags. This strategy did not suit Bata. This segment was
not in a position to accept Bata, because first, this segment was not sizeable for a
company like Bata. Second, the segment did not realize Batas distinctive competence.
The segment constituted a small 5-10% of the footwear market in India. It could not
provide the volumes that Bata used to receive from the existing markets and high
volume was very essential for Bata for showing a healthy bottom line. Overall, the
adoption of the segment misdirected Batas entire strategy. Actually, Bata was
squeezed at both ends like the top end of the market suddenly became the main focus
of the company and it forgot its bread-and-butter shoes that had given the company its
identity that resulted in decreasing in Batas market share by the small regional players.
10

At the lower end, smaller competitors attacked Batas mass range in canvas shoes,
school shoes and Hawaii chappals segment, which the company had practically
vacated on its own by ignoring them entirely. On the other hand, niche players who
were at the high end doing the business for several years were better prepared and
challenging Bata heavily. It resulted in sliding down of market share of around 15% in
the mid-1980s to 10% of the footwear market in mid-1990s. The year 1995 saw the
company running a loss of Rs. 42 crores.
Although Bata is still continuing with the high-end brands like Hush Puppies, these are
being sold in a selective way and through select stores only. After paying for the
mistake in a hard way, Bata returned to the mass segment to get back to the original
customers at the low end and keep that part of the market as its core focus.

b) Major Labour Problems in Bata India

Historically, Bata was crippled with perennial labor problems with frequent strikes and
lockouts at its manufacturing units. The company incurred huge employee expenses
(22% of net sales in 1999) whereas, competitors like Liberty Shoes were far more costeffective with remunerations of its 5,000 strong workforce comprising just 5% of its
turnover.

Batas most disturbing factory at Batanagar was always heavily disturbed by

labor strike. In 1992, the factory was closed for four and a half months. In 1995,
Bata entered into a 3-year bipartite agreement with the workers, represented by
the then 10,000 strong Bata Mazdoor Union (BMU), which also had the West
Bengal Government as a signatory.

In 1998, the company for the first time signed another long-term bipartite
agreement with the unions without any disruption of work. The company entered
into similar long-term agreements with the unions at its manufacturing units at

11

Bangalore and Faridabad by apprehending labor problems spilling over to these

units.

In February 1999, a lockout, lasted for eight months was declared in Batas
Faridabad Unit. In October 1999, the unit resumed production when Bata signed
a three-year wage agreement.

On March 8, 2000, a lockout was declared at Batas Peenya factory in

Bangalore, following a strike by its employees union. The new leadership of the
union had refused to abide by the wage agreement, which was to expire in
August 2001. Following the failure of its negotiations with the union, the Bata
management decided to go for a lock out.

In September 2000, Bata was again headed for a labor dispute when the Bata
Mazdoor Union (BMU) asked the West Bengal Government to intervene in a preconceived idea of a downsizing exercise being undertaken by the management.
BMU justified this move by alleging that the management has increased
outsourcing of products and also due to perceived declining importance of the
Batanagar unit.

c) Sustainability of the Position

Initially Bata was positioned as a brand offering footwear products for the family and for
the customers belonging to the middle class. But the decision to also tap the premium
segment of the market may be categorized as one which becomes diluted and casts
doubts about the sustainability of Batas desired position in the market.
Brand: The Bata brand has lost its earlier equity due to its strategy for catering both the
segments for which Bata was not at all prepared.
Image of Bata: Batas image has surely been diluted as a result of it targeting various
segments and trying to cater to their needs. Its traditional positioning would also be

12

impacted and there would be chances of Bata not being able to provide an experience
fit to its customers as per their expectations.
Activities: The sort of internal activities which they employed in terms of manufacturing,
having different categories of outlets, targeting various segments of the market from
upper to the lower level, selling through retail as well as the wholesale channels even
CSR activities would not help in any way at conveying a consistent and robust corporate
image to its customers. Hence it can be stated that they somehow failed to make any
particular trade offs as far as the key activities were concerned.
Attaining competitive advantage: The competitive advantage for Bata based on what
they are currently planning to do, i.e., trying to offer something for different segments
would render them pretty uncompetitive. The various levels of fits, that a firm should
strive for, would not be easily achievable for Bata with their current marketing strategies.
The traditional Bata positioning strategy is diluted and it can not make any strong impact
to the customers in order to achieve competitive advantage.

d) Traditional Value Proposition for the Customers

Bata was providing with its customers their value proposition that may be categorized
as follows.

Reasonable quality at low or reasonable price

Footwear for the entire family

Footwear catering to various functional needs e.g. sports, casual footwear,

formal-semi formal.

Excellent distribution system that enabled Bata to provide a consistent

experience to its target customers at all the outlets to leverage its brand equity

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5. Bata Turnaround Stories: Restructuring the Overall Business Strategy

5.1 Proposed Strategy Mapping for Bata Restructuring

Bata would urgently need to make some prominent changes in the way it operates
especially in the face that the value the company provides to its customers and
reorganize its operations for achieving the goals laid down in the strategy.

Customer: The competitive advantage for Bata based on what they are currently
planning to do i.e. trying to offer something for both segments like middle-class and
premium would render them vulnerable. The customer delivered value will also be
substantial as Bata would now be offering value for money along with the trust which is
essential to revamp. In terms of access, functionality and selection options it would
again be fulfilling its promises of being a family store. The service levels would be
strictly monitored and hence an experience fit need to be provided to the customers and
the customers, in turn, will be willing to pay premium because of brand Bata and hence
the competition undercutting Bata on price would no longer be that big a threat. Bata
may still focus on its premium brands but there needs to be a separate entity that will
monitor it meticulously.

Financial: In terms of financial aspects in order to have better returns ensured for the
stakeholders, Bata should be banking on its focus on the middle and upper middle class
segment through its Bata brand, apart from the middle class segment to enable to it to
be a major force and have higher profits through enhanced market share. Also the fact
that the renewed brand image will enable Bata to earn premium at the upper middle end
of the market will aid the achievement of the financial goals.

Brands: Considering the fact that the Bata brand has traditionally been targeting the
middle class customers, it would be appropriate for Bata to use its Bata brand name
only with its traditional product offerings. Since Bata is known for its functional footwear
offering utility and reliability etc., to make its name established in fashion footwear, it

14

would highlight its repositioning or, they can come out with a different brand like Bata
Lifestyle or Bata Trendy. The reason behind is that prospective buyers in this segment
will not really be able to associate style or fashion with a brand like Bata. A separate
entity may increase their degree of association with Bata and fashionable footwear and
it will help to challenge the supremacy of local, more responsive and trendy stores
famous for women footwear. In Kolkata city, Bata earlier tried to experiment with the
store called Bata-for Her meant exclusively for the female customers. That venture
was not successful as some twenty years back in Kolkata, that concept was time ahead.
But nowadays, number of working woman is increasing exponentially and the younger
generations are looking for the trendy shoes/chappals. This strategy can also be taken
up in other metro and class I cities as well. However, Bata may continue to carry brands
like Hush Puppies, Power and Weinbrenner for which they have exclusive distribution
rights and also focus on their successful brands like Bubble gummers. Power brand
cricket bats and other cricket playing articles were once-upon-a-time very famous. Bata
can open up new retail stores that can start positioning Power cricket kit.
Internal Operations: So far the internal aspects of the firm are concerned Bata will
need to restructure its operations management processes, customer management
processes, Research & Development and regulatory and social processes and stress
on customer relationship management, the Mantra of the current marketing system.
Changes in the operations management processes will allow Bata to realign systems to
have low cost to an extent, through economies of scale attained through specialist
regions. Through customer management processes it will need to focus on marketing
itself as an outlet meeting all basic needs of the families in its target market segment.
Bata should focus heavily on customer relationship management as it becomes a
widely-implemented strategy for managing a companys interactions with customers,
clients and prospects. Bata should undertake customer relationship management by
involving technology usage to organize and synchronize business processes through
automationprincipally sales activities and also those for marketing, customer service
with necessary technical support. Time has come for Bata to find, attract, and win new
customers-majorly in the middle class segments, nurture and retain the existing ones,

15

welcome former customers back into the fold, and reduce the costs of marketing and
customer service. For innovation and R&D, Bata can rely on its international research
centers and with their aid bring newer designs and further enhance its brand image
especially for the premium segment. With regards to regulatory & social processes,
Bata can also enhance its care for its employees by introducing more special schemes
including incentives and smooth promotion process and even help its franchises by
providing them with some of the employees. Bata should, at this juncture, help the
franchises to resolve their attrition related issues, and also enable itself to maintain a
proper organizational culture even at the franchise stores through the trained
employees.

Learning Systems: Retailing in India is in the phase of huge return on investment and
a very lucrative career as well. Organized retailers are regularly giving their store
employees very structured training so that they would be able to better handle the
dynamically changing environment and thrive through increased coordination. In order
to attain its goals as per the new strategy Bata will need to emphasize into training its
human resource, especially those at the outlets to provide consistent quality service to
its customers so that customers can associate the same experience with whichever
Bata outlet they visit. As part of its revamped strategy, Bata would need to develop its
information system in order to allow better sales forecasting and trend analysis. It will
also be helpful to the Bata management and also to meet the increasing necessity of
internal coordination. Effective implementation of customer relationship management
will also help to get closer to its customers by interacting with them from time to with
more focus on customer intimacy. Table 5 shows the comparative analysis of Bata retail
with some of its peers in terms of sales, earning per share (EPS), P/E ratio with respect
to no. of stores. Higher ROE shows a silver lining of transaction, but simultaneously,
less operating profit (EBIT) reveals a cause of concern.

16

Table 5: Peer Comparison5

5.2 Re-structuring of Bata: The Siver Linings

a) Investment Details of Bata

Continuous process of restructuring adopted in all areas of operation: There

has been an improvement in internal controls and corporate governance,
manufacturing,

changes

in

sourcing,

credit

management,

working

capital

management, retail restructuring, labor union & management relationship, retail

expansion programs and de-risking the business of the company to restructure the
operation process of Bata.
Repositioning brand Bata with operational efficiency, stylish layout and trendy
shoe design: Bata has introduced soothing music, colorful ambience, contemporary
styling and well-trained and efficient staff at exclusive Bata stores as part of their
latest strategies to provide the best retail environment to its customers. The large
and international layout of these stores help in better exhibition and display of the
several footwear concepts from Bata's new shoe collection. Bata has adopted the
strategy of repositioning brands with stylish layout and trendy shoe design. The
company has already introduced and expanded high-margin premium brands such
as Hush Puppies, Marie Clarie and Weinbrenner. Bata's popularity continues to grow
with the trendy Marie Claire range and its latest designs to enhance a woman's
femininity, sensuality and individuality.

17

 Introducing new-age customer service: Bata remained their focus on customer

service with launch of new initiatives like Home Delivery service, e-commerce
enabled website and a dedicated call centre for customer queries and suggestions.
Extensive training of store staff, customer response and research management
systems, and customer relationship management will remain focal areas for the
Company.
Opening large Format Stores in Tier 2 & Tier 3 cities: It plans to open 50-60 large
format stores in tier-2 and tier-3 cities annually of at least an area of 3000 sq. ft to
increase its market penetration from the current store of ~1200 in CY10. It is also
closing down unviable old stores.
Making shoes for Industrial uses and Armed Forces to add value: The
Company has recently launched shoes in the range of Rs. 500-3000 for industrial
uses in the domestic market. It is also planning to become an approved supplier of
armed forces of which demand is 1.2 million pairs a year.
Research & development activities and energy conservation: Bata continued its
local Research & Development activities during the year in the key areas of product,
process, material development, footwear moulds, leather and tannery technology
with emphasis on creating a pollution-free work environment. Total expenditure
incurred on Research & Development was Rs. 50.1 million during FY-10.
Performance management through Quarterly Performance Review: Bata
initiated a quarterly performance review process for all the Retail Managers and
District Managers. This process very clearly defines their objectives and
achievements. This review takes place in retail chain office by the immediate
supervisor before HR representative and feedback of the last quarter is given to the
assesses and also their target for the next quarter is set. The overall process has
been extremely helpful in setting up a process of continuous performance
measurement and performance enhancement.

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 Executive Development plan: For the second consecutive year, Bata pursued its
aim of nurturing and developing new talent for various responsibilities by
successfully training its executive trainees. 13 executive trainees have been hired
from various retail management schools who have gone through 9 months Executive
Development Plan (EDP) which was initiated in the year 2009. Total 13 executive
trainees, who successfully completed their training, have been placed as District
Managers across chains in retail operations in 2010. Many more executives have
been hired during 2010 for retail operation, merchandising and whole sale, etc.

Table 6: Last five years sales-profit analysis of Bata

b) Changing Customer Perception

Bata commands a very strong position as a low-cost, functional brand at the entry level
and as a school-wear brand. However, it is trying to throw out this image in favour of a
trendier, premium standing, targeted at the vast youth market that is more open to
investing more for better quality.

19

Changing consumer perception, however, is a challenging and time-consuming task. It

requires an innovative repositioning strategy and investments in promotion and
advertising. The footwear market is crowded with domestic and international brands
such as Metro, Woodlands, Puma, ADIDAS, Nike and Reebok; most of which already
established themselves as big brands in the youth market segment. With international
brands looking to Indian markets to augment their revenues, competition in the branded
footwear market is likely to shoot up.
The capital expenditure incurred by Bata during the FY-10 amounted to Rs. 580.4
million as against Rs. 436.1 million in 2009. The increase in capital expenditure was
predominantly due to opening a number of new stores and modernization of old stores.
Capital expenditure has also been incurred for installation of machinery and moulds to
modernize the factories and to produce latest trendy design footwear.
In the March '11 quarter, the company received Rs 109.35 crore in consideration for
disposing its stake in its real estate joint venture. This one-time income resulted in a sixfold jump in net profits6. The company still stands to receive constructed space at no
cost, but revenue from real estate ventures is not likely to flow in.
Bata is a turnaround story, utilising its securities premium account to completely write
off accumulated losses in 2007. In FY-07 (Jan Dec '07) the company posted a
revenue growth of 12%, a significant jump from the flat revenues in the years before
that6.
Since then, however, revenue growth has sped up at that level, even as the company
shut more unviable stores and revitalized others. Revenues have clocked a three-year
compounded annual sales growth of 13% to Rs 1,258 crore in FY-10. Operating and net
margins during this period have hovered at around 12 and 7%, respectively.

20

Figure 2: Bata India Stock Development6

c) Investment Argument of Bata

Post turnaround focus on growth: Bata started restructuring its operations in
year 2004 wherein it launched VRS scheme, closed unviable stores, launched
franchisee scheme and revamped product portfolio. Profit after tax is increased at
CAGR of 50% in 2005-10 whereas sales grew at 10% during the same period.
During 2010 and Q1CY11 it registered a sales growth of 15%/20% yoy4. It is
evident that focus has now shifted towards accelerating growth by leveraging its
strong brand in footwear market. Bata opened 108 new stores in 2010, which is
significantly more than its usual store addition of 40-50 per year4.
Formidable market position in footwear market: Indian footwear market is
around Rs. 13, 000 Cr market growing at ~10% per annum, out of which ~55%
market is unorganized. Bata enjoys value market share of around 25% out of
organized market and 12% of the total market whereas it has just around 5%
volume share. India's per capita consumption of footwear is 1 pair/year, which
offers lot of opportunities for a strong brand like Bata, which is present across
market spectrum catering to all kinds of consumers4.
Balance sheet strength to expand presence: Bata has a debt free balance
sheet and will have cash of around Rs. 250 Cr in 2011 to fund its expansion plans.

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It has internal accruals of ~ Rs. 80 Cr every year, which is sufficient to open more
than 120 new stores every year4. Thus, free cash generation and healthy balance
sheet will lead to increasing payout from the company. The Earning per Share
(EPS) (Basic and Diluted) of Bata has increased substantially by 41.87% (from Rs.
10.46 in 2009 to Rs. 14.84 in 2010). Bata is out of bank borrowings since April
2010 as against Rs. 146.5 million at the end of 2009, despite the entire capital
expenditure and VRS funded through internal accruals.
Strong promising notes: The year 2011 has begun on a very promising note for
the company with highest sales growth in the first quarter as a result of its
continued expansion through 29 new stores and great response from customers to
its ever improving product range. These 29 new Bata stores are opened across
India with a surface selling area of 4000 sq. ft. The company also continued
expansion of its Hush Puppies brand with 4 new stores in this Quarter. The
wholesale business also continued to grow with opening of new customers in
unrepresented towns which resulted in additional business. The Branding,
Institutional, safety and exports division are also growing by more than 40%5
(Microsec).
Figure 3: Bata Shareholding5

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Table 7: Bata India- Financial and Valuations4

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Figure 4: Bata Stock Scan5

The above report shows that Bata has been maintaining better stock position
consistently that the average SENSEX data across the last one year.

d) Key Strategies Adopted for Growth

Positioning in fashion footwear segment with huge range of trendy footwear.

Positioning it as a family brand

Key Mantra: customer service and satisfaction

Planning the franchise route and online sales to push up its sales.

Introducing almost four designs/day.

Strong focus on financial control

Reduce unviable stores, thereby cutting unnecessary costs

Expanding its retail outlets with better and colorful design with more floor space
of at least 4000 sq. ft

Thorough analysis of the catchment areas.

Throw out its image as a low-cost functional footwear brand that appeals to the
middle-aged.

Focus on product design and contemporary and trendy look

Launch of new industrial and customized sectors

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Increasing institutional business to hospitals, military forces, factory workers,

sports clubs and airlines.

e) Awards and Recognition7

Bata India Limited was awarded CNBC Awaaz Consumer Awards 2010 for
"India's Most Preferred Exclusive Brand Retail Outlet" in July 2010. Mr. Marcelo
Villagran, Managing Director was felicitated by Mr. Pranab Mukherjee, Hon'ble
Finance Minister of India in a ceremony held in Mumbai.

'Brand Equity' recognized Bata in the 'TOP 50 Most Trusted Brands' in August
2010.Bata is the only lifestyle retailer in the top 50 brands.

Bata India Limited was listed amongst India's Largest Corporations by Fortune
India Magazine in December 2010.

Bata Industrials received Directorate General Mines Safety Certification for its
PUSole Safety Footwear range.

Bata India Limited received Images Fashion Award for the Most Admired Retail
Partner of the Year in January 2010.

Bata India Limited was awarded "Retailer of Year (Footwear / Non Apparel)"by
the Asia Retail Congress. Mr. Marcelo Villagran, Managing Director received the
award in a glittering ceremony at Mumbai on 8th February 2011.

Bata India Limited received the "Most Admired Footwear Brand" of the year
award by Images Fashion Forum in Mumbai on 18th February 2011.

Amity University awarded Bata India Limited "Corporate Excellence Award for the
Best Retail Chain" during the international business summit on 23rd February
2011.

Bata India Limited was recognized as the Most Trusted Brand at 18th position by
the Brand Trust Report. This ranking is post survey of 16,000 brands; only 300
top brands were felicitated by The Trust Advisory.

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6. Reference

1) Council for Leather Exports Report on Footwear Sector, retrieved from

http://www.leatherindia.org/footwear.asp
2) RNCOS Data, Indian Footwear Market to Grow at 9% CAGR, retrieved from
www.rncos.com/Report/IM310.htm.

3)

Bhaskar,

S.

(2010),

Browne

and

Mohan

Report,

retrieved

from

http://www.browneandmohan.com/file3.pdf.

4) Tarway, Rakesh (2011), Bata India, retrieved from www.motilaloswal.com.

5) Vyas, Naveen (2011), The rise of Indias leading footwear retailer, Microsec
Research, retrieved from http://breport.myiris.com/MR1/BATINDIA_20110322.pdf.

6) Acharya, Bhavana (2011), Bata India: Book Profits, The Hindu Business Line,
retrieved

from

www.thehindubusinessline.com/features/investment-world/stock-

insight/article2134849.ece.
7) 78th Annual Report of Bata covering the operating and financial performance for the
year

ended

December

31,

2010,

The

Economic

Times,

retrieved

from

economictimes.indiatimes.com/bata-india-ltd/directorsreport/companyid-13974.cms.

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