Fabindia's Fabulous March
By Kapil Bajaj October 3, 2007Travelling from Delhi to Sedda village in Bijnaur (UP) on a warm September morning, one gets a feel of the inconvenient distance that separates India from Bharat. There, one gets to see how Fabindia Overseas — the 47-year-old Delhi-based retail chain that sells handloom garments, linen and other handicrafts — manages its relationships with its rural suppliers.
The journey is illuminating. Fabindia is recasting its supply chain, setting up dozens of “supply-region companies” that will gradually take over its entire supply chain in a particular region; these companies will also offer shareholding to Fabindia’s suppliers in line with the vision plan articulated by Managing Director William Bissell (40), who sees himself as a champion of free market in the NGO- and government-dominated handicrafts sector.
For a company that owns India’s most successful and chic brand of handloom garments and handicrafts, that’s only one of many exciting developments taking place — Fabindia has opened 37 stores in the last 18 months; sales have been growing at a CAGR of 40-50 per cent over the last three years; and margins are so attractive that investors are queuing up with their cheque books.
Aqueel Ahmed, who owns one of the two dozen home-based handloom units in Sedda that weave cotton fabrics for Fabindia, has applied for shares worth Rs 1.5 lakh in Bijnaur Artisans, the newly set up supply-region company that will deal with all artisans and suppliers in the Bijnaur region. “I have worked with Fabindia for the last eight years and supply exclusively to the company. It’s a relationship that’s based on mutual trust, which is why I have invested in Bijnaur Artisans. I am sure it will be to my benefit,” he says.
Nabeel Ahmed, Mohammad Rizwan and Gauhar Ali, all Aqueel’s neighbours, are also Fabindia suppliers and shareholders-in-waiting in Bijnaur Artisans. All of them say they are “happy” with the orders they get from the company and the payments they receive.
Nabeel “outsources” part of his work to a household unit where Tarannum and her sister Yasmine weave colourful cotton khadi table mats for him. Each of them makes Rs 5 per mat, does about 30 mats, thus, earning about Rs 150 per day.
The successful adaptation of handloom fabrics to urban tastes in a purely commercial manner has been the strength of Fabindia. Government-owned players like Khadi & Village Industries Commission (KVIC) and state emporiums have fared miserably on this front despite large subsidies and grants.
Interestingly, the company has woven its handloom magic without ever spending anything significant on advertising. “I’ll credit Fabindia with bringing traditional and heritage products into the mainstream. Today, it’s the only commercially successful and widely available brand associated with handloom apparel,” says a Bangalore-based marketer of handicraft products and a former Fabindia supplier.
The growing acceptance of handlooms and crafts by urban Indian consumers also explains the shift in Fabindia’s focus, in the early 1990s, from exports to the domestic market, and the rapid expansion from 13 stores in 2003-04 to 68 at present. “The 1992-93 period was difficult—we suddenly lost our largest overseas buyer and (founder) John (Bissell) suffered a severe stroke. By the time we opened our second store in Delhi, William (John’s son and successor) had decided the company’s future lay in domestic retail expansion,” says Charu Sharma, Working Director, Fabindia. In the years that followed, Fabindia became increasingly surefooted. “We started work on our first Vision Plan in 2002, which laid stress on creating and sustaining the demand for handmade goods and generating fast growth in sales. Since then, the company has done a lot to streamline its back-end,” says Anita Kathpalia, CFO, Fabindia.
More Stores, More Products
The retail expansion gathered pace from 2004 onwards; revenues grew in tandem from Rs 89 crore in 2004-05 to Rs 129 crore in 2005-06 and then to Rs 200 crore last year. Riding on over 35 store openings this year, the company hopes to close 2007-08 with sales of Rs 300 crore. “While we have been opening stores in Tier-II cities like Vadodara, Dehradun and Bhubaneswar, we also want to add more outlets in Tier-I cities like Mumbai and Bangalore,” says Sunil Chainani, Working Director, Fabindia. The company is also looking at retail expansion overseas, particularly in West Asia, which “has the scope for multiple Fabindia stores”. The existing store in Dubai is doing “extremely well” and the ones in Rome (Italy) and Guangzhou (China) are picking up. The company wants each of its stores to be a profit centre, adds Chainani.
Bissell, who is married to an Indian, says Fabindia’s emphasis on utility and contemporariness, rather than beauty and quaintness, have created “sustainable demand”. Result: customers buy a product because they need it, not because they think it’s beautiful. “Fabindia’s regular customers tend to be Indians who are not insecure about their identity; who appreciate the fact that they have an extraordinary culture and that a handmade product has an intrinsic value, not an externally imposed price of a big brand, inflated manifold by advertising and packaging,” says Bissell. Then, given that its “basic” line of garments starts at a price point of Rs 150, Fabindia has become synonymous with “affordable chic”.
Profits and Jobs
Prakash Tripathy, Director in Artisans Micro Finance, a Fabindia arm and main promoter of supply-region companies, says these companies are “our way of streamlining and strengthening our supply chain, eliminating middlemen, providing jobs to rural artisans, and giving our suppliers ownership in this business”.
According to Bissell’s plan, 200 supply-region companies, manned by local people, to be set up by 2010 across India’s handloom- and craft-rich regions, will gradually take over design, distribution, quality control, warehousing, and some processes like dying from the parent company. Sixteen companies have so far been set up in various states, of which eight are already functional thanks to a financing arrangement with ICICI Bank. “Fabindia’s evolving supply chain is responding to the need for large investments in enhancing product quality and sophistication. So, we’ll provide better quality and designs to our customers,” says Bissel, whose American father John Bissell, a buyer for Macy’s, New York, visited India in 1958, fell in love with Indian crafts, and established Fabindia in 1960 as an export house.
The company hopes to expand its sourcing from over 22,000 artisans in 21 states to about 100,000 by 2010—the “back-to-the-grassroots” approach it decided to take a couple of years ago after agonising over whether or not it should move away from handlooms in order to grow faster. “Fabindia’s success lies in getting small handloom and craft units scattered across remote villages to develop products that appeal to urban consumers. We’ll continue to develop our supply chain the hard way rather than take the easy way of using mill-made fabrics,” says Chainani.
Growth and Constraints
The company’s expansion this year has been helped in part by WCP Mauritius Holdings; the private equity firm has reportedly invested $11 million (Rs 44 crore) for a 6 per cent stake. This values the company at about $183 million (Rs 732 crore). Chainani says the company’s healthy internal accruals and balance sheet gives it the ability to raise debt without overleveraging the company. “We have been ploughing back profits into expansion on an ongoing basis. We’ll invest several hundred crores over the next few years. Options like IPO and private placements will be considered only when an extraordinary need arises,” he adds.
Spiralling real estate prices are, however, slowing down retail expansion, admits Shilpa Sharma, Fabindia’s Marketing Head, who’s scouting for new store sites. The company’s strategy has been to lease property rather than own it (it owns only 6 stores; the rest are leased) and is trying to be the first mover in new markets to get cheaper prices, says Kathpalia. “Fabindia has decided not to expand through the franchisee route in the domestic market because we do not want to dilute our brand,” adds Shilpa Sharma.
Bissell says his wage costs are rising fast.like in the case of other organised retailers. He is also aware that retailers like Westside and Pantaloon now stock handloom apparel, furnishings, and crafts, but points out that Fabindia's painstakingly built supply chain gives it a clear advantage over its rivals. Crafts make up a niche market in the sense that our customers know what a handcrafted product is. The larger market, on the other hand, could become increasingly full of fake handloom products. So, players like Fabindia need to constantly educate customers, says Charu Sharma, noting that all Fabindia products bear Craftmark, which is the craft industry's certification for original handmade products.
Bissell says he hopes more Indians will wise up to the ggenius of modern marketing that sells them big brands at outrageous prices. He also hopes that more Indians will become secure about their identities and stop being dazzled by western lifestyles and brands.
Whether that happens or not, Bissell and Fabindia have little reason to be insecure.