Friday, July 17, 2009

Get ready to......Play Footsie!


IIPM Alumni Officially on Facebook

The problem accentuates when you take into account the huge brand and portfolio stretch by the company in recent times. In its 13 year India stint, Reebok has increased its annual turnover by an impressive 500% by continually enriching its portfolio. “If you are opening your own retail stores, it’s necessary that you offer as many options as possible,” says Prem. Nike, Puma and Adidas are also bearing the brunt of expanded portfolios, which includes footwear, apparel & accessories for the female consumer too. Their over-optimism touched new heights when many of them announced their foray into the Rs.130 billion kids prêt-a-porter market too. Clearly, an enhanced portfolio portends an even greater sourcing problem, for the already beleaguered players.

However, some like Bata are optimistic about their supply chain. Bata India has strategic alliances with several suppliers and the company boasts of consistently exploring options that enhance the availability of these suppliers. Anything goes, including emotive cajoling and carrots of comparatively higher margins than rivals. Says Marcelo Villagran, MD & CEO of Bata India Ltd., “Our partnership with many suppliers has been standing for more than a decade and we have always paid them according to the changing market,” he says. This is not to say that Bata India has not invested in its own manufacturing hub. But Villagran is confident of being able to “bank on his suppliers” for any contingency that comes up.

Sourcing is one area where Nike India boasts an edge. Despite playing second fiddle to rival Reebok in India in the sportswear category, the shoe-maker from Uncle Sam’s country has understood the importance of establishing a sturdy sourcing hub. Nike has consolidated its sourcing base to 70-90 fixed vendors from seven countries, including Bangladesh (where the slowdown hasn’t affected the manufacturing industry much).

These vendors are further connected to Nike through five exclusive dedicated agents. The $18.6 billion company is also gung-ho on ground activation activities, deploying over 70% of its marketing expenditure toward BTL promotions for sports like athletics, football and tennis. Besides, having ignored cricket for years, Nike (albeit belatedly) has recognised India’s undying fetish for the gentleman’s game and is batting hard to lure the consumer with cricket accessories (in its stores) and advertising campaigns.

To its disadvantage, Nike is not the only sportswear brand banking on cricket. Reebok has been doing it for years. Avers Rajiv Mehta, MD of Puma India, “Focus on several sports might help globally, but in India the competitive edge in sports only comes from cricket.” Puma recently announced its association with defending champions Rajasthan Royals as the official sponsor of their uniforms during IPL 09’.

Ravdeep Singh, CEO, Planet Sports, imparts some words of wisdom: “Right now, the core focus should be on the rising real estate and raw material costs.” Singh too is feeling the slowdown heat. “We are compromising with 25% of our margins,” he says, adding that although raising prices would have been an option in normal course to decrease pressure on margins, it would be suicidal in a slowdown.

Clearly, trouble is brewing! Their over-optimism may be well-warranted, yet global players in the footwear fray are a decidedly worried lot today. Brands that manage the slowdown today, without mortgaging the future, will be the eventual winners. Whether or not it was meant for them, yet to ‘Keep Walking’ is their only solution in sight!

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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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