Thinking on their feet


June 27, 2014

Rashmi Pratap, Hindu BusinessLine

New Delhi, 27 June 2014

That Pandit Jawahar Lal Nehru was a champion of the co-operative movement is well-known. But a little-known fact is that he extended the concept of co-operatives to not only banking, farming and sugar, but shoes as well. When one such shoe co-operative pioneered by him in Karnal (Haryana) fell on bad times in 1954, two brothers bailed it out. DP and PD Gupta retained the employees and converted the co-operative into a company. As giving customers the freedom to choose was a priority in the newly Independent country, the company was suitably named Liberty Shoes.

In the half-a-century that followed, the company thrived with its range of innovative products and soon became an aspirational brand. But when global winds of change swept the country, like most brands of its generation, Liberty began to feel the pressure. Archaic processes and a limited retail presence pushed it to the fringes of the industry by 2004. The brand is today frantically trying to make a comeback. But the question is: Can a 60-year-old company stay relevant in a market that now boasts the likes of international giants Nike and Reebok at one end and home-grown successes such as Relaxo and Metro Shoes on the other?

The CEO of Liberty Group, Adesh Gupta says the company has reoriented its approach to production, supply chain management and retail strategy. “We are no longer pushing our products to distributors and customers. The daily production is now interlinked with our previous day’s sale as well as customer feedback. That means, producing what is in demand rather than creating an inventory that could return to us after six months,” he explains.

And that, says Gupta, has been the company’s best-ever move in a decade. Its earlier strategy was successful but not sustainable, he concedes. “Retailers were not armed with tools to give us continuous feedback. We had legacy issues,” he says.

Piling troubles

Gupta, who took over as Liberty Shoes CEO in 2004, then met dealers once in six months, only to find out that most of the designs which he thought would sell had no takers. That meant piled-up stocks for the distributors and retailers, clogging the supply chain.

But he was in for even bigger trouble. In September 2005, Liberty Shoes signed a 49:51 joint venture with the then Kishore Biyani-owned Pantaloon Retail (now an Aditya Birla Group company). On paper, they were to open 45 stores in three years and target a turnover of Rs. 350 crore. In anticipation, Liberty increased capacity through new plants — two in Himachal Pradesh and one in Uttarakhand. “We added 60 per cent new capacity.” But the joint venture never took off.

“They (Pantaloon) promised us business worth hundreds of crores on paper. But it never came to us because they were sourcing from cheaper local brands in Agra despite their commitment to us. They would always ask us to supply at ridiculously low prices, usually half the MRP,” says Gupta. (An email to the Future Group went unanswered.)

Liberty, already battling an outdated supply chain and rising capital expenditure, was now saddled with extra capacity. The final blow came in the form of souring industrial relations. “In 2006, we had a huge strike, which we resolved in a day. A second one happened within a week and a third within a month,” Gupta recounts, laying the blame on politics. “We were victims of a political climate that disturbed the system,” he says.

On one hand, the company went on capacity and retail overdrive and on the other, it was hit by a strike. The result was that its takeoff crashed. Till 2008, it somehow maintained its topline, but the expenditure rose sharply and profitability vanished.

Treading a new path

Gupta decided to seek professional help. He recalls meeting consultants who wanted crores in return for coffee-table books that promised to tell him how to bail out the business. Finally, he approached the Vector Consulting Group, which is known for its Theory of Constraints. “They led us to work on the pull model, which means we just replenish the sold stock and there is no inventory. The reaction time is cut from six months to one day,” he says.

Liberty took four years to build this supply chain and system. “Till 2012, we were clearing dead stocks of our own stores and retailers through promotions or discounts. Now, if I sell 100 pairs in a day, I produce only 100 the next day. We are not working on a forecast model, we produce according to demand.”

While the back-end measures are in place, the company will have to double its efforts to increase customers and sales. “There has been a fundamental shift in the Indian market, as well as marketing strategy in the last decade. Young Indians are far more aspirational than they were 20 years ago, and that is a challenge for all brands of the previous generation,” says Arvind Singhal, chairman and managing director of the consulting firm Technopak. “Their communication and product strategy have to be in sync with social media, print and digital platforms.”

Brand strategy specialist Harish Bijoor concurs: “Social media is becoming so dominant and relevant that being there is a hygiene factor.”

The comeback Czech

Much like Liberty, yet another footwear brand is trying to create a buzz in the market to win back its customer base. Czech brand Bata has been in India for 84 years and is now working doubly hard to reinvent itself at all levels — products, retail reach and media campaigns. Last quarter, Bata spent Rs. 3 crore (0.6 per cent of revenue) on its 360-degree integrated marketing campaign ‘Where Life Meets Style’.

“Bata needs to reinvent its lifestyle positioning… (it) has dominated on the basis of its products and prices. But the price-and-product-generation has moved on, making way for a stylised generation, which is price-resilient. Bata cannot forever remain a bastion of lifestyle pricing,” says Bijoor.

Agreeing that pricing is no longer the dominant factor it once was, Devangshu Dutta, chief executive at consultancy firm Third Eyesight, says, “Today there is a lot more competition, with international brands deepening their engagement with the Indian market. Even consumers are willing to spend on higher-priced products as long as it gives them an edge — whether in terms of looks or comfort.”

After suffering losses in the early 2000s, Bata began setting its house in order. Since 2005, it has been downing the shutters of small outlets and opening new large-format stores. It has remodelled stores and shut down bleeding properties. And in a major break from the past, it has extended its working hours, and stays open on Sundays.

But its masterstroke was the voluntary retirement scheme that nearly halved its staff strength from 9,631 in 2005 to 5,162 in 2012. Employees also had the option to move to K stores — a format that lets employees turn into franchisees, with a 7-8 per cent commission on sales.

“Bata in particular has been a comeback story in the last few years. They have updated the quality of retail ambience; the stores now look contemporary and the product range has expanded,” says Singhal.

The results are showing. The company’s net profit for the January-March 2014 quarter was Rs. 39.4 crore, with sales at Rs. 495.12 crore. In contrast, Liberty faces a long road ahead. While it is back to making profits (Rs. 4.27 crore) alongside rising sales (Rs.142.05 crore), these are modest in comparison with Bata during the same period. During FY14, its net profit was Rs. 13.21 crore, a third of what Bata made in just three months. And to think that at one time, around 2000, Liberty was considered the only real competition and threat to Bata.

For the young

Gupta is all too aware of the challenges. Liberty has 450 franchisee cash-and-carry stores and 100 company-owned outlets. “We opened 100 stores in each of the last two years. We want to add 50-100 stores each year, half of them franchisees and the rest company-owned,” he says.

With Rs. 1 crore as the average annual sales per store, Gupta is keen to hit the Rs. 1,000-crore target in the next couple of years. Side by side, the company has launched its online store and tied up with e-commerce players such as Flipkart and Jabong. And its focus is the youth. Says Gupta, “Liberty will never be a luxury brand. We’ll be a youthful, fashion-centric brand with affordability as a key criterion.”

(Published in The Hindu BusinessLine.)