FabIndia Overseas Pvt. Ltd.

Case Study
Position Statement:
Fabindia was a retail firm founded in 1960 by John Bisell. Its mission is to provide work
and employment to India’s skilled rural artisans. It is planning to expand to 200 stores
and grow its revenue to Rs 8.6 billion by financial year 2011.The key problem the
company is facing to fulfill its target is how to generate the additional capital
required. The growth demand is very high and there is limited in-house investment
plans. . As William Bessel is averse to the debt-financing, the conservative Bisell family
is confused about taking the outside help.
Problem Essay:
With just 2 retail stores in 1994, the company has managed to increase its store count
to 49 by the end of 2006. William Besell was able to successfully achieve its first vision
plan well within the time frame.  In last five years (2002-06), turnover of Fabindia has
increased by 335% and profit by 422%. But now to further deepen in the market, the
company where facing several problems. Large corporations such as ITC, Tata were
expected to enter in the garment market aggressively. Also, in the organic food market
they have to face stiff competition from players like Godrej and Pantaloons. Due to
increase in rental and property rates, setting up of newer shops will cost higher. This will
contribute much to increase the operating expense of Fabindia. For desired exponential
growth and to maintain the proper inflow of cash to sustain the expenses, Fabindia may
require additional external capital.
Generating external capitals would not be an issue for Fabindia, due to the good image
in the market and expected future growth. They were worried that how they will able to
support its suppliers, which would necessarily be larger to support its expansion plans
and would they would be able to maintain the commitment of John Bisell’s mission
along with the expected future growth rate.
Although players like ITC and Tata were aggressively entering into the market, none of
these stores were directly comparable to Fabindia. The reason was that they sold a mix
of synthetic and cotton clothes which were not the niche area, Fabindia was targeting.
There were few small government- supported khadi stores and retail outlets like ‘Anokhi’
which were focused on traditional weaves and prints. As an individual company they
were no where near to Fabindia but several such stores together could pose a threat.
Supply chain of Fabindia is based on trust with uncertainty of supplies from its rural
suppliers. Estimate of supply has always been a problem for Fabindia. Since, company
follows a policy of never to return the goods for delayed delivery. It leads to increase in
inventory handling cost. Sometimes extra cost is incurred to rectify the fault in designs.
Also there is potential shortage of skilled persons, especially in middle management
and staff position. Due to the lack of retail sector experience; extra cost will be incurred
to give proper training to the labours.
Decision Essay:
Recommended Decision: In my opinion, Fabindia should go with the franchisee model
as it could eventually lead to opening up of another 151 stores. This will also increase
its revenue base and the profit margin will improve due to saving in rental cost and
labour cost. It would also help them to increase their market presence. They have to be
bit careful before going for the franchisee model. As franchises shops can promote their
own products by using the Fabindia brand name, which could lead to tarnish the brand
image of Fabindia.
There were few decision options which I thought before reaching to the final decision.

 Setting up new stores with the help of external borrowings

 Increase the efficiency and product lines of existing stores by introduction of
premium series of products
 Go for the franchisee model

Decision criteria I kept in my mind while deciding several options:

 Increase in revenue and achieve the FY 2011 target

 Maintain the commitment of John Bisell’s mission for the organization
 Requirement of additional skilled labour

Since, the company requires a lot of capital to fulfill its target. Franchisee model will be
one of the best solutions as this will solve the problem of extra cost company bears in
opening the new stores and training the new labours. In the franchisee model, Fabindia
will provide the finished goods to the shops. So, they will the one who will contact with
the suppliers for the goods and it will be possible for them to follow their lenient policy
with the suppliers. They have to just appoint new work force who will look forward for
the proper distribution of final goods to the franchisee shops. It would lead to increase in
the revenue and profit of the company. They should go for proper legal contracts with
the franchisers, so that they would not be able to take undue advantage of the brand
name of Fabindia.
They can use the capital saved in this process to use in better advertising and
marketing of their products. They have to start several promotional campaigns for the
launch of their new products so that it creates awareness among the people. Opening of
new stores across various cities requires extra advertisements as now have to face
competition with big players like Pantaloon, Reliance and ITC.
Other options like setting up the new stores with the help of external borrowings will not
much solve the problem of the company. The pressure of the loan will put more burden
on them to increase their revenue which could force them to move away from there
main mission. In this case although they will be able to reach the sales figure but profit
margin will be low as interest against the loan will become a major part of their expense.
Increasing the efficiency of existing shops will be a better approach as it will be in
parallel with the organization’s mission. But return in this case will be much less than
required.
Action Plan:
Outcomes Desired

 Achieve the target for FY 2011 while maintaining the organization’s mission
 Create a future prospect of good future growth

To start the franchisee model, they should first look for the major cities where the
numbers of middle and upper middle income levels persons are in good numbers.
These are the customers companies are targeting. Their marketing team will analyze
different markets or they can hire a market research company which will do a study of
the Fabindia products buyers. They can give their advertisements in the print and online
media that they are looking for the persons who are willing to open a store of Fabindia
by taking the franchisee. They will go for a legal contract stating the rules and
regulations which both parties have to follow. Fabindia could go for the incentive
scheme in which the franchisee is able to cross a desired sales figure, they will get an
extra incentive for that. The store rental and labour cost will be looked after by the store
owner. Fabindia will deal with the suppliers for the goods and then deliver the finished
goods to the different stores.
They should start this process by starting the franchisee model in 1-2 major cities and
after looking at the response decides the future strategies. They should also start
extensive marketing of their products by several promotional campaigns. They could
also target the niche organic products market which is very much in a naïve stage by
aggressive marketing.
Conclusion
By using the franchising model Fabindia will be able to tackle its main problem of lack of
capital which is required to sustain the future growth and the competition. They will be
able achieve their target of 200 stores and revenue figure of Rs. 8.6 billion which would
be very tough on their own. As now they do not have to spend much on the opening of
new stores and they can focus on the suppliers to get the maximum outputs. In the
process, their advertising and marketing strategies will be able to create a big name in
the market.

Submitted by:
Dibyanshu Agrawal
019/1