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A REPORT ON FAB INDIA: ITS INDIAN OPERATIONS AND GLOBAL EXPANSION PLANS

Malobi Banerjee 20C

CONTENTS

1. INTRODUCTION 2. THE 4Ps OF FAB INDIA 3. MERCHANDISE MIX 4. INTERNATIONALIZATION OF FAB INDIA 5. MARKET SELECTION PROCESS 6. FABINDIAS DECISION MAKING PROCESS FOR INTERNATIONALIZATION 7. ADVANTAGE OF EXPANDING OVERSEAS 8. CHANNELS OF BUSINESS 9. ACQUISITIONS 10. CONCLUSIONS

Fabindia- Fabric of India


Fabindia was founded with the strong belief that there was a need for a vehicle to market the vast and diverse craft traditions of India and thereby help fulfil the need to provide and sustain rural employment. Our endeavour is to provide customers with hand crafted products which help support and encourage good craftsmanship.1 John Bissell

INTRODUCTION: Fabindia (or Fabindia Overseas Pvt. Ltd.) is an Indian chain store retailing garments, furnishings, fabrics and ethnic products handmade by craftspeople across rural India. Established in 1960 by John Bissell, an American working for the Ford Foundation, New Delhi, Fabindia started out exporting home furnishings, before stepping into domestic retail in 1976, when it opened its first Fabindia retail store in Greater Kailash, New Delhi. Today it has over 135 stores across India and abroad, and is managed by his son, William Bissell2. Determined to showcase Indian handloom textiles, and providing equitable employment to traditional artisans, and sensing an entrepreneurial venture, Bissell established Fabindia in 1960. It was also to fuse the best aspects of East & West collaboration. Initially, Fabindia started as a wholesale export company, concentrating on the export of upholstery fabrics, durries and rugs3. Currently Fabindia is India's largest private platform for products that are made from traditional techniques, skills and hand-based processes. Fabindia links over 80,000 craft based rural producers to modern urban markets, thereby creating a base for skilled, sustainable rural employment, and preserving India's traditional handicrafts in the process. Fabindia promotes inclusive capitalism, through its unique COC (community owned companies) model. The COC model consists of companies, which act as value adding intermediaries, between rural producers and Fabindia. These are owned, as the name suggests, by the communities they operate from; a minimum 26% shareholding of these companies is that of craft persons4. Initially his goal was to export to the US and to other western countries. With that aim in mind, he incorporated Fabindia in 1960. The company operated from Bissells residence in
1 2

Bissell John, PHILOSOPHY, available at http://www.fabindia.com/philosophy, last visited on December 16, 2012. Anon., BUSINESS ENQUIRIES, available at http://www.fabindia.com/businesses, last visited on December 16, 2012. 3 Ibid. 4 Ibid.

the posh Golf Greens locality in New Delhi. Growth was initially slow for the company and in 1965 the company moved out of his house into a proper office. By then, Fabindia had an annual turnover of rupees Rupees 20 lakhs. Most of this turnover was accounted for by a single buyer and a single supplier. A. S. Khera made durries and other home furnishings in his workshop in Panipat and most of the output was purchased by the UK based Habitat, which was founded by a famous interior designer, Sir Terence Conran5. FABINDIAs PROGRESS AT A GLANCE:

Ibid.

THE 4 Ps of FAB INDIA:

PRODUCT
FABINDIAS products are its differentiating factor and it has made sure that the quality and style of the product is maintained over the years. It has a wide range of products ranging from garments to organic food. All the products have one factor in common; they are all handmade and thus support artisans. This is a very strong customer value leveraged by FABINDIA which support poor artisans and provide livelihood to a large number of people.

PLACE

It h a s 9 9 s t o r e s l o c a t i o n a c r o s s In d i a . It i s t r yi n g t o i n c r e a s e coverage in order to make sure that the products are available at large number of places as possible. It also differentiates its store according to the products stored. This ensures convenience for the customer since the products are available in the same store or in the nearby stores.

PRICE

FABINDIAS product range enables it to provide a wide range of products in a wide price range. The product ranges from garments for men and women to upholstery, furniture etc. Fab India has tried to make sure that the customer cost remains affordable and gives value for money. To this end it has expanded its range of garment starting from rupees 200 to rupees 2000 in order to provide something for its customers.

PROMOTION

F A B I N D I A h a s t r a d i t i o n a l l y r e l i e d o n w o r d o f m o u t h advertising. It believes that product speaks for itself and this strategy has up till now worked very well. It believes that only problem in this strategy is that customers do not know the location of the store, so to overcome this they have started using various tools such as mobile marketing, advertorials in newspaper to aware the customers about heir stores.

MERCHANDISE MIX: During the early days, merchandising was not a planned activity. Whenever Bissell saw something of interest, he procured it for display at the store. Sometimes he would also invite the craftsmen , to display the products and assist in the sale. This orientation of customer relationship later became a part of the company culture. The expansion in merchandize mix is mainly done through customer feedback especially that of its loyal customers. Fabindia believes: A delighted Customer is our Best Brand Ambassador6 Fabindia does not follow any customer acquisition strategy. It instead focuses on customer retention. Fabindia creates its market through its existing customers which is quite evident from the fact that about 85% of its customers are repeat customers7. The Unique Selling Proposition of Fabindia is the quality of the fabric and the traditional style, which is always in vogue. It has designed the stores decor and ambience keeping this in mind. It constantly attempts to improve the quality of the products in order to retain its customers. The company concentrates on customer feedback by maintaining a visitors register to record customer views. The store managers prepare a report on buying pattern among consumers which is periodically reviewed by the Product Selection Committee at Fabindia . Recently, the CRM software has been implemented in a select few stores which aims to help in maintaining a entralized database. This will help Fabindia in retaining customers by building lasting relationships and improving loyalty. The implementation, however, is still in its nascent stage, but is soon expected to be spread across all the stores in the country8. Fabindia also has the Mystery Shopper Program to gauge the customer satisfaction level. Mystery shoppers posing as normal customers perform specific tasks such as purchasing a product, asking questions, registering complaints or behaving in a certain way and then provide detailed reports or feedback on their shopping experiences to the management. It serves as an effective tool to improve the customer experience9. Moreover, the brand managers at Fabindia rely upon a concept of intuition. If a new line of traditional kurtis is launched, the jewellery which suits the attire also gets launched. It automatically gets sold without any promotion. Before launching any new product, be it traditional, western, organics, jewellery or furniture, Fabindia looks into the value which a customer may feel by having the product as a part of his/her life10. Some customers are so inclined to Fabindia that they just dont believe in going elsewhere else, and dont even tell
6

Suri Mallika, AMROHA LOOM(ING) LARGER THAN INDIA, available at http://mallikadipproject.blogspot.in/2010_06_01_archive.html, last visited on December 16, 2012. 7 Agarwal Anushka and ors., GRASSROOTS, available at inishingschool.pbworks.com, last visited on December 16, 2012. 8 Supra note 2. 9 Supra note6. 10 Supra note 2.

other people that they have purchased the particular item from Fabindia.This helps them create an image of exclusiveness . Hence the key innovations of Fabindia can be classified as below:

NETWORKING

Pioneering the concept of community owned businesses, whereby they source products from communities that are traditionally well versed in their craft Decentralized inventory management: Fabindia has a well orchestrated supply chain across India, since the products are mostly handmade. Decentralized quality assurance and mechanism for transmission of market signals.

ENABLING PROCESS

CORE PROCESS

CUSTOMER EXPERIENCE

Standardized and consistent quality along with a wide range to select from.

INTERNATIONALIZATION OF FAB INDIA: Apart from India, it operates its stores in the capitals of Italy (Rome), Nepal (Kathmandu) and UAE(Abu Dhabi) as well. Additionally, it exports to over 33 countries to wholesalers as wellas to retailers the world over with a special collection that is designed twice a year and is displayed at the Indian Handicrafts and gifts fair, New Delhi in spring and in autumn11. The export collection is primarily based on cotton textiles and apparels. Furthermore, it hasan office in US that wholesales home furnishing collections across the continent(Fabindia website, 2011. b). In a telephonic conversation with its director Madhukar Kheda on 25th May 2011, it was noted that the biggest overseas export markets for Fabindia in the year 2009-10 were Canada, Australia, UK, Qatar, and Oman, where maximum revenue was generated from Canada12. Fabindia is planning to increase its international presence by opening more international stores in near future and is currently in the process of identifying profitable markets for further expansion. This assignment as a study will be useful for it to identify and to explore future profitable international markets for Fabindia.
11 12

Supra note 7. Ibid.

Deciding internationalization readiness: FabIndia is already an established brand in India catering to the urban middle class. Also it is operation in 6 countries too thus it has a presence globally and is ready to expand further and tap into other foreign markets.

Identifying target market: The identification of target markets for international expansion should be done based on the Indian population in the place, per capita income of the place and the consumer beliefs and attitudes of the place

Market entry strategy: The market entry strategy is one of the key ways to impact consumer perception while entering new markets. It is essential for fabindia to focus on its core competency that is, Indian handloom goods using organic products.

Designing the marketing program: Although in India Fabindia does not aggressively promote its products aggressively for creating a globally recognised, profitable retail brand it needs to promote its products.

Implementing the marketing strategy: This being the most crucial stage, care should be taken to ensure that Fabindia does implements its strategies effectively to make maximum impact.

MARKET SELECTION PROCESS: Continuous international expansion has become vital for Fabindias success in its industry. To make international expansion profitable, international market selection process plays an integral part There are multiple approaches of identifying attractive foreign markets. 1) An approach of decision making by analyzing the given statistical data 2) Choosing foreign markets with less psychic distance from the country of origin 3) Relationship method 4) Tradeoff model.

This assignment uses a traditional approach of decision making by analyzing the given statistical data. The selection of further international expansion and opening of new outlets will depend on quantifiable factors such as 1) Per Capita Income 2) Population (Market size) 3) Population growth 4) Inflation rate. Since, Fabindia plans to venture in foreign market with a new outlet of its own, there are additional variables such as Corruption perceptions index will also be considered. In case of cotton fabrics markets, there are more unquantifiable variables that are thought to have come into existence like 1) Ethnicity 2) Indian Influence 3) Nationalism 4) Weather 5) Regional Demographics 6) Regional Fashion Trends 7) Consumer beliefs and attitudes.

These variables more often are intertwined with each other. For example, there is evidence that despite cold weather, women from UK prefer cotton garments over other artificial fabrics. This part of the assignment aims to identify an international market in a structured manner that involves an analysis of all the mentioned quantifiable factors in order to identify maximum potential for revenue generation from Fabindia products.

FABINDIAS DECISION MAKING PROCESS FOR INTERNATIONALIZATION: Per Capita Income: Per capita income of a country is a useful tool to approximate disposable income of people. However, in case of Fabindia, products are affordable even to the Lower Income group bracket13 (For Example: Price of a table covers start from USD 13.00) (Fabindia online store, 2011). Thus, the weightage for Per Capita Income is lowest. Population and population growth: Both these factors indicate the size of the market and expected growth. So, the importance is medium. Residents of Indian origin: It is the most important factor since a large number of settlers from a source country will increase the influence of that country. This also increases the affinity and acceptability of products among the nationals of foreign country. Corruption perception index: This index shows the apparent corruption levels of that country. Since Fabindia will operate on a small scale with just one outlet, it is of relatively lower concern. Geographic area: This is considered to be the most influential negative factor in this case due to the accessibility of Fabindia potential store. Inflation rate: There is evidence that inflation causes an increase in the costs of doing business (Example: Labour, production, raw material cost, overheads). However, since Fabindia does not plan to
13

Kulshreshta Shobhit, available at FUTURE INTERNATIONAL EXPANSION OF FAB INDIA, http://www.academia.edu/1855102/A_report_on_Future_international_expansion_of_Fabindia, last visited on December 16, 2012.

currently open its manufacturing facility and is planning to open an outlet with limited number of staff, the effects of inflation will be very less. The figure below shows the relationship between a firm and internationalization:

To enter new international markets its also essential to carry out a SWOT analysis of FABINDIA to help it better capitalize on its core competencies in foreign markets:

STRENGTH

Differentiable products Brand recognition and loyalty Diverse product mix Partnering with suppliers In-house manufacturing Price Trends Setter Different categories of stores Customer Loyalty

WEAKNESS

No specific promotions strategy Limited channels of business Sourcing strategy skewed towards suppliers Inconsistent quality of products Inconsistent service in stores

OPPORTUNITY

In store merchandising & navigation Promoting e-business channel Organic foods market Customer acquisition strategies

THREAT

Substitute producing competitors Not in touch with Fashion Trends

The entry mode to a foreign market depends on the extent of these factors inaccordance to 1) Global concentration 2) Global synergies 3) Global strategic motivations

Based on above facts, following analysis can be drawn upon for each of the mentioned factors:

FACTOR International experience

EXTENT OF CONTRIBUTION Fabindia already possesses the necessary skills for international expansion by way of previous experience of opening its outlets in Nepal, USA, Italy and UAE Fabindia is the biggest organization in its field in India Fabindia products are not easy to replicate because most of the printing and stitching is done by hand in traditional style in small villages in India Handcrafting the products in traditional style makes them differentiated in the market. It attaches a value of goodwill as well since it acts as a source of regular income for people living below the poverty line. Fabindia will face heavy competition from alternatives like factory made garments. For all the businesses, international expansion involves an element of risk. Fabindia is also not excluded from this variable and will be averse of risk like all businesses. However in the recent past none of the international venture undertaken by Fabindia has suffered. A well planned and coordinated expansion will be useful to come out of this dilemma for Fabindia.

IMPACT ON FINAL DECISION Positive

Firm Size Product Complexity

Positive Positive

Product differentiation

Positive

Competition

Negative

Risk averse

Negative

ADVANTAGE OF EXPANDING OVERSEAS: By expanding its operations overseas Fabindia will be able to tap into larger markets and thereby increasing sales volumes, revenues and ultimately profits. Internationalization will also provide Fabindia market access to a much larger base of consumers. The table below explains the market segments Fabindia will be able to access due to internationalization: CUSTOMER ORIGIN SEGMENT EXPLANATION Aware of product as well as company. Buying from wholesalers, retailers and online sources Customers aware of products but not the company therefore they buy from competitors Customers who are unaware or products and the company. Such customers buy alternates Aware of product as well as company. Buying from wholesalers, retailers and online sources Customers aware of products but not the company therefore they buy from competitors Customers who are unaware or products and the company. Such customers buy alternates

Customers of Indian Origin

Customers of foreign origin

CHANNELS OF BUSINESS: It has created a visibility in the international market either through its own stores or through other retailers and boutiques and also through institutional sales. The main advantage Fabindia has enjoyed is that its products have a distinctive and quintessential style and it can easily be identified by potential customers. Retail The retail channel is already developed within India with almost 100 stores in Tier 1 and Tier II cities. As of today, internationally Fabindia owns stores in Rome (Italy), Guangzhou (China), Dubai (UAE), Manama (Bahrain) and Doha (Qatar)14. The product range consists of garments for men, women, children and infants; garment accessories; home furnishings bed, bath, table and kitchen linen, upholstery fabric, curtains, floor coverings and a range of non textile products like furniture, lights, lamps and stationery. In addition to handcrafted clothing and home furnishings, Fabindias product line includes organic foods and body care products.
14

Supra note 7.

Wholesale exports As of today, Fabindia exports to more than 34 countries. The clients are wholesalers as well as secondary retailers. Products exported include home linens as well as garments. Exports are done as per the Terms and Conditions agreed by Fabindia and the customer. The export being a very lucrative market, Fabindia develops a special collection for exports markets twice every year. The special collections are showcased at the Indian Handicrafts and Gifts Fair, New Delhi in Spring and Autumn. This collection draws on different techniques to present a range of home furnishings comprising bed and table linen, with a focus on textures both visual and tactile. As different wholesalers and retailers flock to these fairs to address their sourcing needs, Fabindia is able to reach out to potential clients. Institutional Sales Fabindia envisages to service high business institutional segment especially the heritage hotels and multinational corporate houses. It provides customization and interior designing consulting for clients like heritage hotels, resorts and corporate houses. ACQUISITIONS: As recently as March 2012, Fabindia endured a partial French takeover: Louis Vuitton Moet Hennessy (LVMH) acquired an 8% stake in Fabindia. Despite the size and power of the French luxury goods group, Fabindia insists that it wont be affected by LVMHs involvement. Fabindia is going to stay Fabindia, said spokesperson Prableen Sabhaney. It is one of Indias iconic brands and we are not going to change.15 Fabindia, also acquired a 25% stake in UK's bohemian womens wear retailer EAST. EAST has 77 outlets, which includes selling through 18 John Lewis stores. These networks will help Fabindia sell its garments in UK. Fabindia already has a presence in Gulf with stores in Dubai, Bahrain and Qatar. The investors in EAST include Luke Johnson, t he Channel 4 chairman and John Singh of Jaipur16. CONCLUSIONS: From a turnover of 36 crore rupees in 2000-01, Fabindia has grown to having a turnover of Rs 350 crores in 2010. For Fabindia William Bissell has set a very ambitious target of reaching 250 stores and a turnover of Rs.1000 crore17. The growth is expected to come from new stores as well as increase in sales from existing stores. That increase will be achieved by increased
15

Burke Jason, INDIAN ICON SUCCUMBS TO CHARMS OF LOUIS VUITTON, available at http://www.guardian.co.uk/world/2012/mar/19/louis-vuitton-fabindia-purchase, last visited on December 16, 2012. 16 Mamgain Pramugdha and anr., available at FABINDIA ACQUIRES MAJORITY STAKE IN UK BASED EAST, http://articles.economictimes.indiatimes.com/2011-10-10/news/30263231_1_fabindia-american-john-bissellclive-pettigrew, last visited on December 16, 2012. 17 Jayashankar Mitu and ors., available at FABINDIAS TIGHTROPE WALK, http://www.forbes.com/2011/11/08/forbesindia-william-bissell-growth-plan-fabindia.html, last visited on December 16, 2012.

emphasis on premium products. Growth in locations is also expected to come from expansion in overseas markets as well as a greater penetration of the markets in smaller towns in India. An estimate made by a professional demand forecaster shows that out of the total retail business potential, the Indian market for ethnic wear is likely to be a about Rs. 9000 crore18.For geographies outside of India, there is a strong mysticism about Indian culture and hence the products reflective of Indian folk art hold great potential in those markets. Thus even though Fabindia remains firmly dedicated to bringing fair business practice to India, Fabindia has not shied away from expansion. Today, it has over 140 retail stores across India and is still growing19.It also has stores in Nepal, Dubai and even Italy and perhaps one day it might make it back to its humble birthplace of Canton, Connecticut.

18 19

Ibid. Ibid.s