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When Bartle Bogle Hegarty created the iconic Keep Walking campaign for the ailing whisky producer Johnnie Walker, little did he have glam footwear brands in mind. But for a majority of aspirational Indians, keep walking simply translates into keep wearing videshi footwear brands, as there are hardly any home-grown options to choose from. Oh sure, there are the likes of Lakhani and Liberty. But because they did not change with the times, their fuddy duddy image hardly puts them in the glam, aspirational category a la Reebok, Aldo, Bata, Adidas, Nike and Puma. All these global brands in fact over the last few years have aggressively dived headlong into the Indian market by seriously expanding their retail footprint and supplier base, as also by venturing into new market segments.
But now that the slowdown bug has started to bite, some of that aggression may come back to haunt these footwear majors. Ask them and they are quick to wave away such pessimism. Puma officials candidly point out that the Indian market has given the company its highest growth globally and that too in a short span of eight years. So where is the question of problems, they ask?
A set of analysts and market watchers however claim that most footwear/ sportswear brands in India are actually over-confident about the market’s potential. They add that strategies of biggies like Nike, Adidas, Puma and Reebok may backfire if not decided cautiously from hereon. Actually, all these global players have been busy changing the rules of the game during the last three years of a 30% y.o.y mind-boggling growth. They not only opened stores left, right and centre (their real estate costs have skyrocketed as a result); they also expanded into non-core segments like fashion, prête-á-porter and even denim. The brand and portfolio stretch which was looking potentially rewarding till yesterday, is now hanging like the proverbial noose around their necks.
First, simply look at the vast retail presence that these guys have notched up in the country till now. The Switzerland-headquartered Bata, for instance, has over 950 stores across the nation, and boasts the distinction of having largest retail presence in the country. Reebok follows with 800 stores. The only difference: while all Bata outlets are company-owned, most Reebok stores are on-rent. The increase in commercial real estate costs is pinching Subhinder Singh Prem, MD, Reebok India, where it hurts the most. Sources say that almost 25% of Reebok sales went toward paying rentals in 2008 (in 2007 that figure was limited to just 10% of sales). The story is not very different for other global brands. Coupled with the decline in sales, some if these players can put paid to their plans of reaching the per store break-even point within the industry standard of three years. Till end-2008, most footwear giants were raring to open more outlets. Prem had said that Reebok would “have 200 more outlets by next year,” while Puma had made public its plans of opening 70 more stores by 2009. Guess we can bid adieu to such grandiose expansions in this financial year at least!
However, the real wrath of the economic meltdown is visible for those brands that failed to tackle their sourcing problems in the country. Although high on retail expansion, most of these brands shied away from making their own manufacturing hub in India. Unfortunately for them, the slowdown has now browbeaten a majority of Indian suppliers. With the collapse of Adidas’ outsourcing system in end-2008, Reebok’s merchandise flow has taken a hit. Reebok, till now, was taking advantage of Adidas’ outsourcing system, an advantage that Reebok had, ever since its $3.8 billion takeover by Adidas in 2006. Although when asked, Prem declined knowledge of any outsourcing problem in Reebok India “till now”, but the industry is abuzz with ‘talk’ about the sourcing troubles in the sports wear major’s operations.
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Source : IIPM Editorial, 2009
An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).
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