Metro Final Report

Name – Anubhav (0910010) Sameer Mohammad Suheb Padmini Kant Mishra Radha Rani

Metro Shoes – Market Analysis of the leather footwear industry and recommendations for Metro

Context & Industry Analysis The Indian footwear market is estimated to be over Rs15,000 crore in value terms and has grown at the rate of 8.8% over the last couple of years. In terms of units, it is estimated at 1532 million units. Men’s footwear accounts for almost half of the total market, with women’s shoes constituting 40 percent and kidsʹ footwear making up for the remainder. The market is substantially brand-driven, as is evident from the fact that branded footwear constitutes more than 42 percent of the total market size. About 37.8 percent of Footwear retail is the organized segment, which qualifies it as the second most organized retail category in India, next only to Watches. One-fourths of the total footwear sales happen through organized retail outlets, and this makes it the second most organized retail segment in the country, next only to watches. Credit goes to players like Bata and Liberty for having set the ball rolling. In terms of volume, the market size of the footwear industry in the top 20 cities in the country is estimated to be 10 crore pairs per annum. For the country as a whole, the annual domestic consumption of footwear is approximately 1.1 billion pairs per annum, as per government statistics. With a population base of 1 billion, this translates to a per capita consumption of 1.1 pairs per person per annum. India is the second largest footwear manufacturer in the world, next only to China. Nearly 58 percent of the industry, which is by and large labour intensive and concentrated in the small and cottage industry sectors, remains unbranded. However, as part of its effort to play a lead role in the global trade, the Indian leather industry is now focusing on key deliverables of innovative design, state-of-the-art production technology and unfailing delivery schedules.

Globally, the trend towards sourcing to countries with low-cost production continues. Overall, the Far East continues to be the key area for footwear sourcing, but Eastern Europe (Romania and Bulgaria) has become more important as closer proximity helps European retailers to move faster. India and Vietnam are also considered important for sourcing. India is especially strong in the menʹs footwear segment though the worldʹs major production is in ladies footwear. This not only limits the scope for footwear exports, but also points to a huge potential in the domestic market. Proper branding and promotion can greatly increase the domestic demand in ladies footwear. Indiaʹs footwear exports have shown a growth of 35.2 percent over 2002-03 registering a cumulative export of US$ 608.7 million in both the Leather and non-leather segments taken together. The leather segment accounts for 89 percent of footwear exports. Nature of Indian Footwear Retail – Porter 5 Forces Analysis The footwear retail industry has been analyzed in the Porter framework taking end-users as buyers and footwear makers as suppliers. Each of the forces has been rated on its underlying drivers which are weighted on a 1-5 scale. The final score for the Fs is a simple average of its underlying drivers. 1 = weak driver …. 5 = strong driver Buyer Power – 2.5 Drivers of Buyer Power 1. Buyer Size - 1 2. Oligopsony threat - 1 3. Low switching costs – 5 4. Tendency to switch - 4 5. Product differentiation - 2 6. Price Sensitivity - 2 7. Financial muscle - 4 8. Backward Integration - 0 9. Buyer Independence - 5 10. Product dispensability - 1 The high volume of cheaper products from China, and increasing disposable income allow the Indian population to purchase branded fashion footwear from domestic and overseas markets. In addition to well-known and highly valued brands, there are more and more small

companies producing hundreds of thousands pairs of shoes. The fight for the customer is fierce which enhances buyer power. However, the necessity, and therefore high sales volumes, of footwear reduces the buyer power of individual consumers considerably. As a consequence of fashions and the variety of different functional footwear categories, there is a great deal of differentiation within the footwear market, which, despite increasing choice for consumers, often limits the availability of suitable products and therefore reduces buyer power even further. The switching costs are negligible, and often confined to personal taste and preferences. The fact that buyers are considered as end-users ruled out the possibility of players forward integration, increasing buyer power which is mitigated by very slight chance of buyers integrating backwards (unless buyer decides to enter the industry as buyer). Overall, buyer power with respect to the Indian footwear market is moderate. Supplier Power – 3.22 1. 2. 3. 4. 5. 6. 7. 8. 9.

Supplier size - 3 Switching costs - 3 Oligopoly threat - 2 Player Independence - 4 Player dispensability - 2 Substitutability - 5 Importance of quality/cost - 4 Input differentiation - 4 Forward integration -2

Suppliers to the footwear retail market are defined as footwear manufacturers. Much of the footwear sold within Indian markets is sourced from manufacturers in low-cost domestic, manufacturing locations, especially China, and therefore domestic manufacturers lack the ability to compete effectively within the mainstream footwear market. Many suppliers have gained power within the market through differentiating their offerings. They have achieved this by producing specialist footwear for specific applications and by producing high-end designer products as well as robust marketing and promotional efforts. With the exception of very popular brand name manufacturers, it is difficult for a manufacturer to establish itself in retail and therefore forward integration is rare. However this is mitigated by the fact that retailers very rarely integrate backward. Overall, supplier power with respect to the footwear market is moderate. Threat of New Entrants – 3.91 1. Low cost switching - 5

2. Product differentiation - 2 3. Importance of economies of scale -4 4. Effect of fixed costs - 3 5. Regulatory environment - 4 6. Incumbents acquiescent - 3 7. Accessibility to distribution - 5 8. Accessibility to suppliers -4 9. Importance of IP, patents etc - 5 10. Importance of brands - 3 11. Market growth -5 Entry into the Indian footwear market is defined as starting up a new company or by diversifying an existing company's operations or importing the goods into the country. The fixed costs for retail operations are relatively low and new entrants are common. However, there exists in this market a number of large established retail groups that wield significant economies of scale through bulk purchasing and pooling certain back office operations. As a consequence, it is difficult for new entrants to increase in size considerably, and new entrants who try to enter Indian region are facing higher retaliation than counterparts within other countries of the region. Given the large number of low cost manufacturers supplying the market, it is relatively easy for new players to establish the required supply chain. What is more, new entrants can differentiate themselves from the major players by offering professional services and advice centers. With the exception of certain specialist types of footwear, such as sportswear and designer products, brand recognition of footwear retailers is relatively low, further facilitating the entrance of new players. The fast market growth may encourage new entrants to some extent. Overall, the threat of new entrants with respect to the Indian footwear retail market is strong. Threat of Substitutes – 0.67 • Low cost switching - 1 • Cheap alternative - 0 • Beneficial alternative -1 As footwear is a basic necessity, the threat of substitutes to the market is very limited. With the exceptions of very poor areas in nondeveloped countries where the lack of players pushes people towards personal production of footwear, there are no other substitutes to footwear market. However, there is a significant degree of substitution between segments of the market. For example, sportswear is often a substitute for other more traditional footwear types. Overall, the threat of substitutes is low.

Industry Rivalry – 3.4 1. Number of players - 4 2. Competitor size - 3 3. Low switching cost - 5 4. Product differentiation - 3 5. Importance of fixed costs - 3 6. Economies of scale (ease of expansion) -3 7. Exit barriers -2 8. Diversity - 5 9. Similarity of players -3 10. Storage costs - 3 Although footwear retailing is highly fragmented, the market is dominated by large retail groups, between whom there is a high degree of rivalry. However, fixed costs for retail operations are not prohibitively high and, therefore, smaller companies easily co-exist within the market. Furthermore, this allows relatively easy expansion and output capacity, which enhances rivalry. There is a high degree of diversity between retailers in terms of types and designs, with dedicated shoe retailers competing with apparel retailers and large supermarket chains. This means that in order to be successful brand building has to be central. The healthy market growth in India might reduce the degree of rivalry to some level. Overall, rivalry between footwear retailers is assessed as moderate to high.

Competitor Analysis - Key players – Bata, Liberty, Action, Lakhani, Khadim & Woodland 2008 Bata Liberty Action Lakha ni

Sales Margin s

2007

2006

2005

989

867

770

707

7.1%

5.7%

6.2%

1.9%

258

238

221

195

6.4%

8.0%

11.2%

7.6%

Sales Margin s

na

89

96

93

na

6.5%

6.7%

4.4%

Sales Margin s

152

44

120

101

3.0%

4.4%

3.0%

Na

Sales Margin s

Khadi m

Sales Margin s

na

150

132

67

na

3.3%

3.3%

3.3%

Rs crores; Before Tax margins

Metro Shoes (in

Bata

Liberty

Khadim ’s

Woodland s

1300

375

264

230

All

All major cities Exclusive + Multi-Brand Outlets in malls

22

All major cities Exclusive + Multi-Brand Outlets in malls

No of Exclusive Retail Outlets No of Cities

66 2007) 31

Model of Distribution

Exclusive + Multi-Brand Outlets in malls

Exclusive + Multi-Brand Outlets in malls

Sales Volumes Network Alliance Foreign brand alliance

na None

Horizontal Diversification

None

Product Range

Formal and Casual

989 Cr Reliance Retail Bata Global (Hush Puppies), Reebok Plan to launch Apparel Formal, casual and sports

Florsheim

240Cr Pantaloon retail None

None Formal, casual and sports

Exclusive + MultiBrand Outlets in malls 200+ None

330cr None

None

None

Lifestyle + jewellery Formal and casual

Apparels Mainly outdoor casual

and

BATA (Market Leader): • 1300 retail outlets all over the country; •

Serves 1 million customers per day;

•

Employs more than 40,000 people;

•

Operates 4,600 retail stores Worldwide;

•

Manages a retail presence in over 50 countries;

•

Runs 40 production facilities across 26 countries;

Key Elements of Bata’s Retail strategy: • In 2006 Bata decide to create its presence in the shopping malls on one hand and explored the franchisee model on the other hand.

• Bata’s new stores are based on the international format of Bata Stores and have a minimum area of 3000 sq. ft It unveiled a 10,000 sq ft Mega Store at Vadodara (in the western Indian state of Gujarat). This store was spread across 4 floors and displayed a range of 800 designs. •

• By 2010 Bata aims to open 200 new stores and explore institutional markets such as hospitals, hotels, and defense establishments. Network Alliance: In January 2008, Bata and Reliance Retail announced a tie-up that would enable Reliance to retail its labels through the 1200 Bata stores in the country. Bata on its part would be provided with exclusive space in all reliance stores which were being rolled out in the country. •

It also launched its new Spring Summer Collection in its stores, offering several new trendy designs targeted at the young customers, under its famous brands such as Marie Clair, North Star, Power and Weinbrenner. •

•

Diversification: Bata intends to launch clothing products.

LIBERTY: (Market Challenger)

•

375 exclusive Retail Stores and over 6000 multi-brand outlets.

•

2008 winter collection for men from Liberty Shoes.

Spring-Summer Collection 2009 enters with a favorable response in the market. •

The range included very stylish shoes in the Fortune range and the most popular amongst the new products on display were the stylish and colorful Gliders range priced at just Rs99 onwards. •

Promotional activity: Liberty Shoes has become part of a major initiative to promote fitness culture in the country with the theme being “One needs to be healthy to be happy.” The program, aptly called “Fit Reh India”, invites people of all age groups to participate in a host of fitness and sporting activities including

jogging between 5.30 a.m. and 9.30 a.m. For this purpose 70 different parks have been identified as Jogger’s Parks in 10 cities around the country. They include Delhi, Mumbai, Ahmedabad, Lucknow, Pune, Baroda, Kanpur, Nagpur, Banglore and Ludhiana. Channelizing opinion leaders - Running for over a month now the program has not only drawn a tremendous response from the early morning regulars but it has also motivated others to adopt the fitness regime. The fitness enthusiasts have also been visiting the Liberty Shoes stalls at the program sites showing keen interest in the Liberty’s range of trendy sports shoes further strengthening the brand’s association with a sporty health conscious image that appeals to the young as well as the young at heart. Innovation: AC shoes - as the name suggests, are shoes that keep the feet cool and comfortable even in the most trying conditions. Thanks to an innovative ventilation system in the footwear's PU sole that allows free passage of air in and out of the shoes at every step. This unique innovation ensures that the feet never sweat, is also the reason why these are also known as "Shoes that breathe." Designed for 24x7 wear they are also extremely stylish in looks with leather uppers and special fabric lining which also help ensure that the feet get the right amount of extra cushioning. It is available in multiple designs and colors. WOODLAND (Market Follower) • 230 exclusive Retail Stores with each stories on an average of 1500 square feet •

Plan to start large format stores of around 1,500 square feet in size

•

Plans to open 50 more exclusive stores in next two years

•

1600 dealer base and plan to increase it by 20% in next two years

• Started in casual footwear category but now has ventured into apparel and formal footwear category • Apparel business now contributes to 35% of the company’s annual turnover •

Production capacity of 12000 shoes per day

•

Targeting a yearly growth of 35%

Brand Positioning – Woodland has created a niche for itself for casual and stylish shoes catering to the segment which is style conscious at affordable prices. Though data for quantitative comparison was not available, the brand’s image and message has been received well in the market. Diversification – Woodland has embarked on horizontal diversification and sells casual apparels in its stores in the same brand. The details of its revenue or bottom-line growth were not available, but the strategy of increasing wallet share from its existing customers seemed to have worked well, forcing Bata to announce similar plans.

Competition from International Players:

Competition in the domestic shoe market changed with the permission for 51 per cent Foreign Direct Investment (FDI) in single-brand outlet in early 2006 that allowed foreign footwear brands to enter India. It also strengthened the organized retailing in footwear. The affluent customers in India today will have a wider choice in buying stylish and comfortable shoes. However the leading foreign brands have entered the market through sales & distribution tie-up with local players in the leather segment. This is in stark contrast to the trend in the sportswear segment where Nike, Adidas & Reebok have significant presence on their own.

Customer Analysis We have conducted a paper based survey to collect primary information about customer behavior and preferences. Our response set consists of 100 usable responses. The sample was the various programs in IIMB. Hence this sample cannot be representative of the population. However, it could be fairly accurate in representing the young to middle-aged male consumers of medium to high income category. Footwear purchase has been assumed to be a high customer involvement because of intimate nature of the product, and its affect on customer in case of bad quality. This has implications for brand commitment from consumers and also on the purchase decision making process.

Warrington and Shim in their research paper in 2000 hypothesized that (a) product involvement and brand commitment may not be highly correlated and if so, (b) product involvement and brand commitment will differentiate a product category market into four distinct consumer groups: high product involvement/strong brand commitment (HP/SB), high product involvement/weak brand commitment (HPAA/B), low product involvement/strong brand commitment (LP/SB), low product involvement/weak brand commitment (LP/WB). Given the classification model proved to be successful with their college student sample (n=615), it was further postulated the four groups would display different consumption attitudes or behavior for a specific clothing product category.

Brand Commitment

Product Involvement High

Low

Stron interest in market & personal sources less engagement in large of information; amounts of decision making data g importance on functional and non- processing; habitual buyers; low

Weak

functional product attributes interest in market & personal sources of information Price Sensitive; low fashion orientation; low brand consciousness; low focus on non-functional attributes

focus on functional attributes less engagement in large amounts of decision making data processing; apathetic buyers

Though our survey was not equipped to segregate the low involvement customers from high involvement, the involvement of spouses in footwear purchase was prevalent in over 80% of the cases. This suggests that the general nature of footwear purchase is complex and involves significant to high involvement. The survey also attempts to capture characteristics of media consumption behavior of the consumers. This we believe would provide cues on what communication platforms would be optimal to reach this group of consumers. Finally, a comparative brand study of Metro Shoes with other leading brands was also done to assess the current performance of Metro. Footwear Consumption Patterns • No & Type of Products owned Findings –

•

% of people having formal/office shoes o 1 pair – 53%  Of which having casual shoes • 1 pair – 56% • 2 pairs – 21% • 0 pairs – 20%

Of the group which owns 1 pair of formal shoes, 58% of them had heard about Metro, and 23% had bought Metro. Favorite brands for this group of customers – Bata – 21% Woodlands – 45% Florsheim – 11% Hush Puppies – 22% o 2 pairs of formal shoes– 36%  Of which having casual shoes • 1 pair – 33% • 2 pairs – 39% • 0 pairs – 17% Of the group which owns 2 pairs of formal shoes, all of them had heard about Metro, and 36% had bought from Metro. Favorite brands of this group of customers – Bata – 17% Woodlands – 25% Florsheim – 14% Hush Puppies – 39% Metro was placed at the bottom (single digits) as favorite brand by both sets of customers. Metro has positioned itself as a high end product; hence it has enjoyed better patronage from customers who own multiple pair of shoes. However the brand-connect with customers is significantly weak compared to competitors. •

Brand Commitment

No of respondents who responded in affirmative to whether they switch brands – 88% No of respondents who confirmed that they don’t care about brand if they find a shoe of their liking – 66% For the subsection of respondents who owned more than 2 pairs of shoes lack of brand commitment was 89%. This leads us to believe that in the footwear market customer involvement and brand

commitment have low or negative correlation. This also might reflect a broad failure of marketing strategies of the incumbents. •

Purchase frequency

In a question on frequency of purchase, 95% respondents had a purchase frequency of over a year or more. In yet another related question, 47% respondents answered having bought a shoe a year ago or more. •

Purchase cycle

In a question of when do people consider footwear purchase; wearing of old shoe had a 78% response. •

Purchase Influencers/decision makers

With an average age of over 27yrs for our respondents, 48% of them purchase their footwear with their spouses. This has very important implications in designing communications strategy for any shoe maker. While our survey covered only male population, it is expected that purchase frequency of women could be higher for footwear. A shoe maker could strive to increase purchase frequency for males by targeting the spouses and probably have innovative joint incentives/promotions. •

Aspiration Brand –

In a question asking their most coveted brand of shoes, with options listing the global prestige brands like Gucci, Louis Vuitton etc, respondents showed overwhelming trend of not being aware of these brands. 93% of respondents were not aware of the top 5 brands mentioned in the questionnaire. This further gives cue, that while customers might have expectations on quality and style in a shoe, the affinity to a brand is minimal. We believe that a majority of our respondents would be aware of luxury brands in apparel, sunglasses or automobiles, though we did not test this hypothesis in our survey. Footwear characteristics – An attempt was made to capture important product attributes that play an important role to determine feelings as a motivation toward product attributes. Attributes used to gauge feelings – •

Extrinsic o Price

Below Rs1000 12%

Rs10002000 48%

Rs20003000 32%

Rs30004000 5%

Rs40005000 1%

o Access 46% correspondents expressed that accessibility to a store was an important element in their purchase decision. o Brand 78% correspondents paid attention to the brand while purchasing their shoes. For the ones for whom brand was very important variable in purchase decision, Bata and Woodlands were the favorite brands, both faring equally well. The other brands had far less or insignificant share. •

Intrinsic o Style

72% correspondents expressed that style was important or very important in shoe purchase decision. Another 14% placed style as being somewhat important in their decision. The favorite brands for this group is as follows Bata – 21% Woodlands – 42% Metro – 6% Florsheim – 13% Hush Puppies – 32% o Style   

Flavors Lace vs no laces– 54% Broad vs Narrow Toe – 53% High vs Low Heel – 14%

Implications for Product Mix – While the shoe maker would need to display an assortment in lace/no lace and broad/narrow toe category, higher heels had very low preference. This will have implication in designing production batch runs to optimize cost for the right product mix. This also has distinct implications for sole production, design and R&D. In the following section, respondents placed heavy emphasis on comfort and durability, for which the sole again is the key element in footwear. o Comfort

As expected, shoe being a high involvement product because of nature of use, 88% customers mentioned comfort being somewhat important to very important. While elements of comfort were not probed in the survey, quality of sole is a key element in determining comfort in footwear. Firms like Bata and Dr Scholl’s, have designed marketing campaigns around their superior soles to differentiate themselves. Dr Scholl’s is able to command almost 100% premium in the market for its superior soles and comfort factor. o Durability Durability also garnered 88% responses of somewhat to highly important. This has implications for the limit on increasing footwear purchase frequency by shoe makers. People demand durability and they go to purchase when their old shoe wears out. An innovative marketer would have to show value/savings on its product over a horizon of 2-3 years, and should strive to adopt a value based pricing. Personal Characteristics • • • •

Average age – 27.27 yrs Internet access – daily Favored Newspaper – Times of India (82%); Hindu (21%) Television viewing patterns – o Sports Channels – 54% o News Channels – 76% o Bollywood Channels – 33% o Discovery/Animal Life related – 45%

For our respondents, internet and English dailies seem to have heavy penetration with Times of India enjoying overwhelming patronage. As expected news channels, also have high penetration with a substantial patronage enjoyed by wild life, history and discovery channels. While media strategy may be build keeping the above trends in mind, it should be noted, that spouses who are important influencers in the purchase process may not be exhibiting the same characteristics in terms of patronage of media vehicles. Customer Value Analysis •

The average price for the product category in which Metro is taken as Rs 1500. 80% customers’ response for average price was in the 1000-2000 and 2000-3000 price range.

•

Variable Cost estimates – from the last 5 yrs P&L statements of the listed firms (Bata & Liberty), Fixed costs are 35% of the sales. The net profits are 9% of sales. Variable Cost = Sales – Fixed Cost – Operating Profit = 56% Contribution margin = Sales – Variable Cost = 44%.

•

Cost of Capital - Based on average cost of capital of Bata & Liberty, Metro’s cost of capital is assumed to be between 1720%. We have assumed a rate of 18%.

•

Retention Rate – we came across significant customer complaints on www.mouthsut.com. For lack of customer defection data, we have assumed the average defection rate to be 30%, giving a margin multiple of 0.28.

•

Purchase Frequency – for Metro is assumed to be 2 years. Therefore 18% annual cost of capital becomes approximately 39% for a 2 yr period. The cash flow from sales to a single customer is assumed to be occurring every 2 yrs because of the purchase frequency.

Retention Rate

Discount Rate 30% 32%

34%

39%

40%

30% 40% 50% 60%

0.30 0.44 0.63 0.86

0.29 0.43 0.61 0.83

0.29 0.43 0.60 0.81

0.28 0.40 0.56 0.76

0.27 0.40 0.56 0.75

70%

1.17

1.13

1.09

1.01

1.00

If an average price increase of 5% is assumed over every purchase, then effective discount rate becomes i – g, making it 34% CLV of a customer = m* r/(1+i-g-r) = 44%* 0.29 = 13% At an average price of purchase of Rs 1500, the CLV is approximately Rs 190 While this is on the lower side, we have been conservative in assigning a purchase frequency of 2 years, a very low retention rate of 30% and a very high proportion of variable costs for lack of data. We have also assumed no increment in price of the shoe. The CLV above can be taken as a base case to compare customer acquisition cost. Customer Acquisition Cost-

The average Selling/Admin costs (as a ratio of sales) for Bata for the past 3 yrs are 16%. Its average turnover growth for the same period is 16%. Assumption – • Bata spends 25% of its selling expenses on customer acquisition and remaining on retention • 30% of sales growth is from new customers (approximating for 30% defection rate of existing customers) Net customer acquisition cost per customer = (25%*16%)/(30%*16%) = 83% For an average price of Rs1500, it amounts to Rs1250 Note – while the absolute nos indicating customer acquisition cost being more than customer value, the relative nos rather than absolute nos should be considered for a comparison of split of focus between customer acquisition and increasing wallet share from existing customers. Company Analysis – Metro Shoes The focus has been to do a comparative analysis of Metro with the dominant players in the industry. Product – Men’s range- through tie-up with Florsheim and through its own products, Metro has present in the men’s segment in all the price ranges. Brands – • Formal – Florsheim; Metro; da Vinci • Casual – GenX • Low Cost - Mochi In the women’s range too, it has presence in all the segments. Metro has historically enjoyed much higher brand equity in the women segment. Metro does not have any presence in the kid’s range. Price – Though Metro has presence in all the price segments, it is not considered the best value provider, on which Bata scores very high customer equity. Metro has been facing quality problems in the market, and being largely present in tier I cities, its unhappy customers

have been quite vocal. Below are the excerpts www.mouthshut.com, which one sees on search for Metro –

from

“We recently purchased a sandle and the quality of the product was so bad that within just 2 days the leather started coming out. We took it to the shop who claims to say it was a manufacturing defect and...” “Buy some basic models - do not expect anything of comfort and high quality - you may get cheated. Recently got a series of shocks….” “Metro used to have a sale very rarely. Then it became an annual affair. Now it is twice a year. In case you are wondering why, it is simple. Their footwear lasts only 6 months….” The above are comments from the last 3 months.

Place – Metro has a decent coverage of tier I towns nearing 70 dedicated outlets. However it has a long way to go to match Bata or even a relatively younger company like Khadim’s. Channel Margins & Logistics costs – 46% of our survey respondents laid emphasis on accessibility in their purchase decisions making distribution strength a key factor of success. Due to lack of data availability on margins availed by dedicated franchisees of different retailers, we could asses the relative strength of the players. However, in and outbound logistics costs for Liberty shoes in the past 3 years have been 2.6% of sales whereas for Bata the average has been 1.8%. We believe that this cannot be completely accounted from by differences in yield per floor area of shops and economies of scale in logistics do play an important factor. Metro being much smaller in size could be seeing logistics expense of over 3%. Promotion Metro has launched a plethora of brands, which appear to be quite daunting for a consumer to comprehend, especially when he enters the shoe market once in 1.5 years. They also sell brands of other outfits in their stores, a practice followed by other retailers.

•

In 1. 2. 3. 4.

•

3rd Party Brands 1. Florsheim 2. Richard Brinsley 3. Red Tape 4. Crocs 5. Franco Leone 6. Homme

House Brands Metro Gannuchi Da Vincci Mochi

A similar list exists for women brands. This puts a strain both on the small communications budget of Metro and also increases brand clutter in an environment where customer anyway shows little brand loyalty. Tie – Ups with High End designers – Metro has tied – up with designers like Manish Malhotra and some others to sell their designs and signature products. We could not measure the effect of this strategy on the market. TV Ad Campaign – ‘Happy feet make Happy Feel’ While our survey did not address response to Metro’s lone TV commercial which was launched in 2006 (and has been off-air for quite some time); we did a dip-stick study on consumer’s ability to recall the campaign, right outside Metro’s flagship store at their corporate headquarters in Mumbai. Over 80% of shoppers from the 35 respondents (random mix of men & women) failed to recall the ads. The break up of customer response is below • • • •

Loyal – 5.7% Unaided – 8.6% Aided – 34.3% Switcher - 42.9%

Promotional Spends in the Market –

FY 07 Advertis er

Print

FY 08 TV

Total

Print

FY 09 TV

Total

Print

TV

Total

Action Relaxo Khadims Liberty Paragon Bata India Caron Lakhani Citi Walk

0.22 0.63 0.76 1.37 0.17

20.72 3.82 7.97 6.43 2.98

20.94 4.46 8.73 7.80 3.15

0.72 2.44 1.61 4.01 0.30

11.85 3.99 4.39 2.45 4.45

12.57 6.43 6.00 6.45 4.75

0.30 5.56 2.70 2.90 0.16

11.62 9.51 0.00 0.00 8.19

11.92 15.08 2.70 2.90 8.35

0.47 0.37 0.79 0.66

0.03 0.20 0.00 0.00

0.50 0.57 0.79 0.66

0.77 0.08 0.74 0.22

0.21 0.86 0.00 0.00

0.98 0.94 0.74 0.22

0.72 0.07 0.25 0.31

2.04 2.47 0.00 0.00

2.76 2.54 0.25 0.31

Metro

0.00

0.89

0.89

0.01

0.00

0.01

0.00

0.00

0.00

Figures in Rs crores; Source – Tam/AdEx

Metro is an insignificant spender. If we include global sportswear giants like Nike, Adidas & Reebok, the ad-budgets requirement for Metro to gain any credible noise space in the market would be humongous. There is a dominance of TV in this category. Footwear having traits of consumer durables and also fashion lifestyle category, both TV and print can be effectively deployed for promotions. Radio, if used intelligently can also be a powerful medium. We have addressed Metro’s possible media strategy in later sections. Out Doors & Internet – Details on ad spend in outdoor and internet was not available. On a search on the internet we could not find any advertisement on internet for Metro. Its website www.metroshoes.net is also under construction! All the other players have sophisticated homepages. Summary of Comparative analysis – Metro appears to be in a weak position on all comparative metrics. It has an upper edge only in the women’s range. Problem Areas – •

•

•

Low product quality vs price – While the 3rd party, Florsheim range, has a good brand awareness and commitment from customers who own over 3+ pairs of shoes, Metro’s own brands fair poorly Product range – lacks presence in o Sports segment o Kids segment o Clothing Distribution reach – lack of network alliance with any retail major

• • • •

Low brand awareness Low brand commitment from customers who are aware Innovation – Metro is not known for breakthrough products or being the style initiator in an industry where predicting new styles is the key to success Communication – no homepage or visible internet presence

Relative Strength The only area in which Metro enjoys a comparative advantage is in the women’s range. It has a higher brand awareness and patronage from women. However, due to constraints we could not conduct a comprehensive survey to assess its strength’s from women respondents. We expect the following key behavioral patterns that differentiate women customers in their purchase – Women vs Men • • • • • •

Higher purchase frequency Shorter purchase cycle – women do not wait till their shoe wears out for a new purchase like men Higher product involvement More receptive to style Comparatively less conscious of durability Significant involvement in decision making for the opposite sex

Market Opportunity & Marketing Strategy Market 1532 mn units

Branded (@ 42%) 643 mn units

Men (@ 50%) 322 No of Shoes owned4+

Women (@ 40%) 257

Unbranded (@ 58%) 889 mn units

Kids (@ 10%) Age – 20-30 (@24% from 64 survey) Age – 3040 Age – 4050 No of Shoes owned4+

Age – 2030 Age – 3040

Age – 4050

Focus Group – Men & Women owning more than 4 pairs of shoes (belonging to High Involvement & Low Brand Commitment), in SEC A, B, C Assumptions – • A broader survey on the lines of the one conducted can be conducted across gender and geography to estimate the market size (which is 24% for the average age of 27 years) • SEC A,B,C represents the entire branded market • Customer Value to Acquisition cost ratio will remain comparable in SEC A, B & C segments • Higher no of shoe ownership is a proxy of high involvement. We are assuming this because respondents’ focus on the extrinsic/intrinsic attributes in the survey did not show any significant change with no of shoes owned • High brand switch tendency (as shown in our survey) is indicative of low brand commitment Characteristics of focus group – males • • • •

High possibility of habitual buying High possibility of brand switching  helps Metro attract new customers Relatively less focus on brand attributes  helps Metro attract new customers Style is an equally important attribute as comfort and durability for this group. Launching styles that are successful in the market has been found to be a strategy involving low cost with better returns in the Indian market

Characteristics of focus group – females •

Apart from the above qualities of males, Metro having a better traction with women would require less new customer acquisition

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Women group would also be target for purchase for their spouses

Overall Growth Strategy Short Term objectives – 1. Make a good homepage!!!! 2. Reach turnover of 100 crores (based on no of stores, we assess Metro’s current turnover to be between 60 to 70 crores) 3. Double the no of styles launched every year Medium Term Objectives – 1. Strive to attain a bottom-line margin of over 5% with a top-line YoY growth of double the industry growth  with a focused split of growth between same stores sales and new stores sales 2. Increase the no of own/franchisee stores to 100 (currently at 66) 3. Reduce the brand clutter 4. Reduce no of sales/discount offers – focus on inducing purchase for style rather than discount sales or any other factor 5. Invest in R&D in design Market Harvesting Strategy –

Current Markets

New Markets

Current Products Market Penetration (focus on women) Market Development (focus on men & women)

New Products

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1. Market Penetration with focus on women 2. Market Development with focus on men & women with low brand commitment Overall Metro should embark on selective specialization with focus on style as the centre of product attribute. Rationale for the above strategy – •

Metro cannot compete on distribution with market leaders

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Bata and Liberty already have alliance with Reliance and Pantaloon Retail

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Metro has a low brand recall & commitment. New customer acquisition will be function of low brand commitment in consumers for other brands, rather than Metro’s ability to attract and retain customers

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Metro has no production facility of its own. Given its existing structure, it is most suited to fight on style & design which changes every season than comfort or durability which would require fixed investments in better technologies. Compared to that launching a new style entails lower costs. By focusing in this fashion, Metro negates the size and capital advantage that the dominant players have

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With the larger players vertically integrated and well entrenched with distribution networks in the market, Metro has to focus on competing on variable costs advantages and avoid situations which will demand fixed costs commitments. At the generic strategy level Metro cannot follow low cost strategy with outsourced production. It has to focus on selective differentiation build around ‘style’ as its strength

Dealing with Competition – Market Follower & Market Challenger Metro should follow a mix of market follower & challenger strategy. It should invest in developing strengths around style prediction and style imitation of market leaders. Its focus should be to outsmart the bigger players on style. Key elements of Competitive Strategy – •

Strive to shorten the lifecycle of a new style:

Though the footwear industry also has similar cycles of styles like the fashion and apparel industry, its cycle extends over a year compared to 3 cycles in a year for fashion industry. Metro having low Fixed Costs can launch new styles relatively cheaper compared to the large players which have their own production facilities where new styles would involve time and dedicating fixed costs. •

Reduce time to bring a competitor’s successful style in the market:

Because of consumer’s adherence to the product on shelf than brand, Metro’s ability to imitate a successful style at low cost can provide returns. Example of shortening purchase cycle – Titan Titan’s ‘fastrack’ has significantly reduced watch purchase cycle in an era of cell phones where style rather durability or utility is the key driver of purchase. Example of successful leadership in Style – Sport Obermeyer A US firm in ice skiing accessories, with annual cycles of fashion, Obermeyer has outsourced its production to Asia, and has invested heavily in design and style prediction. Through continuous style innovations, it has kept its low cost imitators guessing, and providing itself time horizon to undertake market skimming at the time of launch of new season every year.

Pricing Strategy – New Style launch – Cost+ pricing Since Metro would have low fixed investments, it should price its products based on its costs with a target mark-up, compared to a ROI based pricing. Imitator Style launch – Going Rate Pricing Metro should develop ability to imitate and launch competitors’ styles at a cheaper price. Competing on its variable costs strengths and lower market share, lower prices would hurt the larger players more. For its target market of low brand commitment consumers, price differential would be an important element in attracting consumers. Customer Relationship StrategyInternet based Interactive Communication – Product review website like www.mouthshut.com has scores of review comments by consumers on Metro and all the other players. Metro should develop a comprehensive web-site with blogging capabilities, so that it can have a dialogue with its consumers directly rather than be criticized on other websites and lose precious time to respond. It

should also encourage design competition and product reviews on its website and enable e-commerce facilities. Key features of its proposed website – 1. Customer blogging and product reviews 2. Key management blogging about new products and activities at Metro – eg- Robert Lutz, Vice Chairman at General Motors used to write a blog along with other very senior GM executives at – http://fastlane.gmblogs.com 3. Product description and intricate details of its products on website Metro has better chance of success with high involvement customers who own multiple pairs of shoes. Sharing product details on website, creating design competitions and engaging customer will increase its chances of success. Managing the Moments of Truth – Sales executives at footwear retail stores are 2nd in customer interaction disaster only to Banking call centre executives. Over the years, players in most other retail formats – apparel, durable goods etc have been able to show improvement in their sales executives. Metro should lay extra emphasis on its sales management process. Metro has invested in deploying SAP recently to integrate data from its various stores. It needs to develop significant capabilities in data mining and studying current trends of its own customers and of competitors. Given the fact that the effort is in shortening purchase cycle, knowing customer details is crucial. The challenge however is in implementing a successful CRM information system by training employees. Internal CommunicationTo implement a successful external and interactive communication strategy, a firm first needs to develop a robust and consistent internal communication environment. Metro has to take strong organizational level activation including its franchisees and suppliers for an effective customer engagement strategy. Branding Strategy – Metro should avoid any advertising war that can lead to any competition on fixed costs deployment. Its focus on advertising should be events/launch based rather than long-term corporate brand building advertising. Assumption – Fundamental traits of consumers:

1. Focus on shoe rather important than brand 2. Comfort and Durability are a must. Given that, style rather than brand will decide what will be bought 3. People buy when their shoe wear out Out of these 3 fundamental traits, we are attempting to challenge the last trait of the customer. Challenging the other 2 would involve fixed costs commitment, which can, given relative smaller size of Metro, cause substantial survival risks to the company. Brand Map Template – • • •

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Brand Substantiators – Points of Parity  Comfort, durability Brand Differentiators – Points of Difference  Style, Design Brand Benefits – o Functional – Value in style & design; be the first to bring the latest in style to customers o Emotional –  Source of confidence  Source of attention from the opposite sex Brand Personality – o Attractive o Handsome o Not pricy o Confident o Loses interest in things – gets bored fast – needs excitement o Not a daredevil, just cool o Doesn’t care which car he drives

Advertising & Promotion Cues Focus on subtle attacks on consumers’ trait to buy new shoes when old ones wear out – a. Encourage gift vouchers for special occasions like birthday’s/Diwali/New Year/Christmas etc. b. Address communication to women for both men & women shoes. c. Devise promotional pricing for women & men package purchase. Mass Media Strategy – •

Increase spending from current negligible levels

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Avoid TV due to heavy spillage (Metro has already stopped its TV commercials) • Deploy print and out of home for product descriptive/informative ads during launch of a new style • Deploy radio for creation of buzz around launches – sponsor radio talk shows and competitions Radio and Print because of their localized circulation/reach unlike TV which has a regional or national coverage can be cost effective for Metro because of its smaller distribution network • Encourage franchisees and regional distributors to develop their own media spending plan (with tight control on content), which Metro may reimburse  benefits o More focused spend delivery, more bang for the buck o Reimbursement of the spends by Metro implies franchisee and distributors spend their own capital thereby putting their skin in the game o Ease on working capital. Metro’s cash spending cycle on media splash will be eased because of delayed payment cycle Risks • • • • •

Risks in style prediction Rationalizing cost structure for quicker style launches and imitation easier said than done Reduction in no of brands may lead to loss in sales Assumption of changing purchase cycle of consumers may not hold true Investment in R&D in style may have a long gestation period

Alternative Strategy Focus on the high end segment – rich household (estimated population of 30 million) Short Term objectives –

1. Reach turnover of 100 crores Short – term steps – 1. 2. 3. 4. 5. 6.

Re-evaluate the efficacy of its existing brand portfolio Roll back the no of stores – concentrate on SEC A cities Strengthen tie-ups with celebrity designers Use celebrity endorsers Make a good homepage!!!! Invest in PR

Medium Term Objectives – 1. Target a double digit profit margin 2. Establish Metro as an aspirational or luxury brand 3. Establish tie-ups with celebrity international designers (examplefrom Italy) Medium – term Steps – 1. Become a member of the luxury marketing council, an umbrella for marketers of luxury goods 2. Consider rebranding and redesign of its brand portfolios Long-term Steps – 1. Evaluate viability of diversification into a leather fashion house with products like hand bags, jackets, belts 2. Or else evaluate tie-ups with leather accessories houses like HiDesign 3. Develop capabilities in the fashion, fashion-show industry

Risks 1. While Metro has been traditionally in the higher price segment, it has launched Mochi as a lower price range. Moving up into the premium segment after covering lower range might be confusing to consumers and might not be accepted 2. While there is a thriving eco-system of high end apparel makers/designers in India, a similar eco-system for leather products is not yet developed. High end leather footwear ecosystem is underdeveloped and there might be considerable people constraints in developing capabilities in high end design and style

Reference: • A thesis in Clothing, Textiles, and Merchandising – Leslie Everson • Zaichowsky – Measuring the involvement construct • Zaichowsky – Conceptualizing involvement • Warrengton & Shim – Empirical investigation of the relationship between product involvement & brand commitment