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Fabindia Overseas Pvt. Ltd. Case Analysis Executive Summary
Fabindi Fabindia a was founded founded in 19 1960 60 with with a missi mission on to provi provide de work work an employment to India’s skilled rural artisans and to protect traditiona weaving and printing skills. Change in customer consumption pattern and increased income pe capita has given boost to domestic sales of Fabindia. In last five year (2002-06), turnover of Fabindia has increased by 335% and profit b 422%. Fabindia’s vision is to expand to 200 stores and grow its revenue to R 8.6 billion by FY 2011. Key Key chal challe leng nges es in achi achiev evin ing g targ target et reve revenu nue e of Rs 8.6 8.6 bill billio ion n additional capital requirement, shortage of qualified personnel, threa from from new retail retail chains chains,, increa increasin sing g rental rental rates, rates, and uncert uncertain ainty ty supply.
Situation Analysis
Rapid scale ale-up would require more quali alified person sonnel a form formal aliz izat atio ion n in orga organi niza zati tion on.. Ab Abse senc nce e of orga organi nize zed d reta retail il sect sect in India has lead to shortage of qualified personnel. New retail chains like like Pantaloon, Pantaloon, Trend Ltd, Shoppers World, ITC hav entered in garments sector posing potential threat to Fabindia. 70% o Fabindia’s revenue are generated from garments. Small players like priv privat atel ely y owne owned d An Anok okhi hi,, Govt Govt.. owne owned d Khad Khadi, i, Stat State e Govt Govt owne owne Phullkari, Rajasthali, Chunari etc have also expanded and opened the shops in major cities of India. New product lines were introduced and have shown positive results. I last two years organics and body care revenue has seen a growth o 100 times. Read Free Foron 30this Days Sign up to vote title Incr Increa easi sing ng numb number er of sh shop ops s will will requ requir ire e more more Not inve invest stme ment nts s du useful Useful Cancel anytime. to increasin increasing g rental rental and property property rates. rates. Another Another major challenge challenge Special offer for students: Only $4.99/month. Fabindia could be capital for expansion. For desired exponential growt Fabindia may require additional external capital.
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organization. An expected saving of Rs 55 million expect (Source: Exhibit 5)
2. Increase Export Activity After Fabindia’s main UK based customer, Habitat was acquire by larger firm, Fabindia was not able to utilize its export potentia and has seen negative growth. In 1965, revenue from export wa at Rs 2 million. Currently export revenue has declined to Rs 1.02 Exploring new market and clients may result in better results Additional revenue of Rs 2 million can be generated by focusin on exports.
3. Collaboration and franchisee model Franchisee model may have multiple advantages like increase market presence, saving on labor cost, rental cost, an managing cost. Franchisee model may also tarnish image of Fabindia an franchisee may use Fabindia brand name to promote its ow You're Reading a Preview products. A carefully legally bounded agreement may required. Unlock full access with a free trial. An additional average revenue of 3 million (10% of averag Fabindia store sales) may With be Free expected from each franchise Download Trial store.
4. Setting up new store (with external investing) Average rental rates are at Rs 400/sq feet, Fabindia store size i 500 sq feet for small stores and 8000 sq feet for large stores Read Free Foron 30this Days Sign up to vote title stores o Currently Fabindia has 49 stores and additional 151 medium size (4000 feet) will make an rental Useful Not useful cost of R additional Cancel anytime. 241.6 million per month. Special offer for students: Only $4.99/month. A new store on rental may have average Rs 19.2 million renta
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Garment sector is facing competition by organized retail sector Including diverse product line like food and personal care ca generate new source of revenue while reducing competiti Concept like organic departmental store may be used. Organic and body care were introduced in 1998, till 2004 revenue from organics were very less. In last two years organics revenue ha seen a growth of 100 times contributing Rs 25 million to revenue Expected growth opportunities and additional revenue could b huge. Assuming moderate growth of 10 times in next two year may result in 250 millions of revenue and 500 million in next 5 years.
7. Increase advertisement and marketing of Fabindia products Apart from opening of new stores advertisements are not issued Fabindia is sustaining on its quality and perceived value spread by word of mouth. Advertisement and spread awareness could result in 5-10% increase in sales. Expect returns could be 125 millions per year by advertisement budge of Rs 50 million (0.03 of sales revenue) which is far below tha You're Reading a Preview industrial norms of 1 to 1.5 percent. Unlock full access with a free trial.
Criterion for evaluation
With Free Trial 1. Consistency with Download organizational mission No compromise with mission. 2. Extent of revenue contribution An activity with higher level of revenue contribution will be selected. 3. Profitability Read Free Foron 30this Days Sign up to vote title The activity must be profitable when implemented. Useful Not useful 4. Requirement of additional work forceCancel anytime. Special offer for students: Only $4.99/month. Activity with minimum additional requirement of workforce wi be given preference.
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Extent of revenue contribution: Nil Profitability: Yes (Rs 55 million) Requirement of additional work force: Nil External capital requirement: No Result: No points awarded to alternative
Increase Export Activity Consistency with organizational mission: Yes Extent of revenue contribution: Rs 2 million per year Profitability: Yes Requirement of additional work force: little or not required External capital requirement: little or not required Result: 2 points awarded Collaboration and franchisee model Consistency with organizational mission: Yes Extent of revenue contribution: Rs 453 million from 151 new stores (Rs 3 million per franchisee) Profitability: Yes Requirement of additional work force: little or not required External capital requirement: little or not required You're Reading a Preview Result: 453 points awarded (Table 1.2) Unlock full access with a free trial.
Setting up new store (with external investment) Consistency with organizational Download With mission: Free Trial Depends on new investing partner Extent of revenue contribution: Rs 4530 million from 151 new stores (Rs 30 million per store) Profitability: Yes Requirement of additional work force: large Read Free Foron 30this Days Sign up to vote title will be External capital requirement: yes (approx 2500 million required) Not useful Useful Cancel anytime. Result: rejected as mission can’t be compromised Special offer for students: Only $4.99/month.
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Profitability: Yes Requirement of additional work force: little or not required External capital requirement: little or not required Result: 500 points awarded
Increase advertisement and marketing of Fabindia Consistency with organizational mission: Yes Extent of revenue contribution: Rs 125 million Profitability: Yes Requirement of additional work force: little or not required External capital requirement: little or not required Result: 125 points awarded
Evaluation result Increase efficiency of existing stores: zero points Increase Export Activity:2 points Collaboration and franchisee model: 453 points (151 stores) Setting up new store (with external investment): 0 points Setting up new store (without external investment): 450 points You're Reading a Preview (15 stores) Unlock line: full access withpoints a free trial. Including more product 500 Increase advertisement and marketing of Fabindia: 125 points Download With Free Trial
Recommendations With current growth rate of 50%, Fabindia could achieve its revenue target of 8.6 billion by FY 2011. Fabindia has to maintain the growth rate of 45% for next 5 years. Following actions may be taken from maintaining growth rate of 45%. Read Free Foron 30this Days Sign up to vote title 1. Fabindia should setup 15 more stores which could generateRs useful Useful Not Cancel anytime. 450 million. More stores may be opened as and when Fabindia Special offer for students: Only $4.99/month. has its own capital. 2. Fabindia should look for partners for franchisee and extensively
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Organic and body care product line should be promoted, as the product line has shown 100 times growth in last 2 years. Fabin should focus on organics and body care products. Sales Target for organic and body care products. Year 2007 2008 2009 2010 2011
Sales Target 100 million 250 million 350 million 450 million 500 million
Franchisee stores Fabindia should first concentrate on franchisee You're Reading a Preview model before opening own stores. This will save case reserves. Franchisees should be Unlock full access with a free trial. increased to approx 150 numbers in next 3 years. Year
2007 2008 2009
No of franchisee 50 50 51
Download Trial new Total With no Freeof additional stores 50 100 151
Master your semester with Scribd Read Free Foron 30this Days Sign up to vote title new stores & The NewEstablishing York Times Useful Not useful New store should be set up in three phases starting from year 2009. Special offer for students: Only $4.99/month.
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1203 million 1403 million
Table 1.1 Rental Cost calculation Store Size Small (500 sq feet) Medium (4000 sq feet) Large (8000 sq feet)
Average Rent Rs 400/month Rs 400/month Rs 400/month
Annual rent Rs 2.4 million Rs 19.2 million Rs 38.4 million
Table 1.2 Franchisee Stores and expected revenue Year
2007 2008 2009
No of newTotal no ofRevenue franchisee store franchisee store You're Reading a Preview 50 50 3 million 50 100 million Unlock full access with a free 3 trial. 51 151 3 million
perTotal revenue
150 million 300 million 453 million
Download With Free Trial
Table 1.3 Establishing New Stores
Year of No of newTotal no ofRevenue perTotal operation stores additional stores store revenue
Master your semester with Scribd 2009 5 5 & The New York Times 2010 Only $4.99/month. 5 Special offer for students:
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Rental cha (@19.2 million p year) Free Foron 30this Days Sign up to million vote 30 millionRead 150 96title million
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300 million 192 million
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