Fabindia Overseas Pvt. Ltd.

Submitted by: Alpana Nagar (PGP/14/259) Group 9 Amoy Kumar Dutta (PGP/14/262) Pooja Gandhi (PGP/14/286) Preetha Subramanian (PGP/14/289) Rutvij Jadav (PGP/14/293)

Fabindia Overseas Pvt Ltd

Mission : To provide work and employment to Indias skilled rural artisans and protect traditional weaving and printing skills Sold ethnic wear, home furnishings, body care products and organic food items through it retail formats 32 stores in Tier I, 11 stores in Tier II and 6 stores in Tier III geographic markets They make sure that there is at least one handmade element in the product They have a network of around 15,ooo weavers and artisans from all over the country They do not advertise for their stores except for their store openings Designers worked closely with artisans to make the products as per urban trends and tastes The competitor selling similar products were KVIC which were 7500 stores with sales of Rs. 580 crores their stores were not oriented to the modern consumer It negotiated deals with private sector banks to provide loans to artisans against a guaranteed buying commitment

The Fabindia Vision

No. of stores : 200 stores by 2011 Revenues : Rs.860 crore by 2011 Increase in the same store sale Product Range :
Introduction of premium products in garments Expand the offering of Fabindia food products to organic dairy products, baked goods

Separate stores for organic foods

Challenges facing Fabindia

Challenge 1:

The growth should not come at the cost of forsaking the mission of upliftment of rural artisans Challenge 2: Supply chain bottleneck owing to a large supplier base in rural India Challenge 3: Competition
From western wear apparel retailers From small local players From tailors From chain of stores similar to Fabindia focusing on the same niche (e.g. Anokhi) From national home - furnishing majors (e.g. S Kumars)

Challenges facing Fabindia

Challenge 4:

Human resources -

For rapid scale up, exponential increase in hiring required Formalization of the practices Ideology match of the employees with Fabindias vision Dearth of individuals with retail experience in India lead to high training costs

Challenge 5:

Costs and finances -

Reaching target of 200 stores required huge capital expenditure Rising real estate costs Fabindia was currently completely internally financed

Analysis: Expansion of organic food segment

PROS

extension as it matches with their ideology and customers perceive it as genuinely organic owing to the Fabindia br sales owing to SKUs in more variety ked tripled and revenues from organic products increased by 100 times in two years when organic product founding mission as organics are pertinent to rural employment

ores:

ly chain leads to irregular supply, hence it is not advisable to open specific stores for organic food as it will lead to de

and make changes in the layout of existing stores

More stress should be laid on building the back end supply chain and getting vendors that meet the criteria

CONS

Analysis: Supply chain bottleneck

Currently, all supplier relationships are based on trust. However, this might not be able to continue on a large scale as the number of supplier-buyer transactions increase and are handled by different people at different times. As the number of stores is set to increase, a reliable set of suppliers that can cater to this demand is required Solution:
Suppliers can be organized into groups which will make monitoring and coordination easier. This will include smaller artisans who might not have the volumes to deal with Fabindia directly.

Analysis: Competition
Fabindia catered to a different segment than that of small local players, tailors and western apparel makers It faced competition from large national chains that were able to provide similar products and a similar experience Fabindia already has a recognized name as the pioneer which will help in warding off a little competition, it can further publicize its founding mission of helping rural artisans on its products.

Analysis: Scaling Up
No. of stores already existing (till 2006) = 50 No. of new stores to be opened (till 2011) = 150 Average size of a store = 3000 sq ft Rent on an average = Rs. 400/sq ft Rental cost per year per store = 3000 400 12 = Rs. 14.4 mn Average revenues per year per store = 1293.9 mn/50 = Rs. 26 mn Assuming other costs as 10% of turnover = Rs. 2.6 mn Annual profit per year = 26 14.4 2.6 = Rs. 9 mn So, additional profit that can be generated by 150 stores = 150 9 = Rs. 1350 mn Additional Revenue generated = 26 150 = Rs. 3900 mn Debt financing required = 14.4 150 = Approx Rs. 2000 mn

Analysis: Scaling Up
Ways of financing the capital requirement of Rs.2000 mn 1.Using retained earnings Total retained earnings as of 2006 = Rs. 338.81 mn, which is not enough Or, a compromise on the number of stores can be made. With this, approximately 338.81/14.4 = 24 stores can be obtained Total revenues that can be generated = 1239.9 (1.18)^5 + 24 26 = Rs. 3460.6 mn, thus not reaching their targets 2. Borrowing from bank/VC It was a conservative, family owned business, with an ideology of self sufficiency More importantly, borrowing may lead to an increase in pressure, which might lead to people(artisans) being ignored and compromised in their constant tussle between people and profit 1.

Analysis: Scaling Up
3.Raising via stakeholders Funds can be raised by issuing shares and giving all the artisans, and suppliers a stake in the company. Giving them a sense of ownership will motivate the artisans to supply on time and of required quality. It will thus be a win-win situation. 3.Start Franchisee stores This would lead to elimination of all rental costs, maintenance costs, salary, etc Profits would be split in a particular ratio Depending on the ratio, profits would vary, but the extent to which revenue would be contributed by a franchisee store would definitely be very small compared to a company owned store