Indian footwear industry report - for illustration only

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  • 1. Reevolv Advisory Services Private Limited This document has been prepared by Shilpa Bhattar and Kaustubh Kulkarni. For any queries or detailed information contact us on +91 22 2436 3161 / +91 - 22- 6002 2001 or email at [email protected] A shoe has much more to offer than just to walk, perfectly sums up the Indian Footwear story. Last decade or so has witnessed a sea change in the footwear industry, from a basic need based industry to a fashion, style, quality and performance focused industry. The size of the domestic footwear market in India was around Rs. XX Bn in XX, which has grown from Rs. XX billion in 2005 at a CAGR of XX% p.a. The urban market has been growing at a faster pace of XX% p.a. (20052010) compared to the rural market which has been growing at a CAGR of XX%. As per our estimates, the industry will grow at a CAGR of XX% p.a. to reach to Rs. XX billion in 2015. March 2013 Indian Footwear Industry Report

2. Indian Footwear Industry Report 2 Table of Contents Particulars Page Nos. 1. Executive Summary 4 2. Global Footwear Industry Overview 5 3. Indian Footwear Industry Overview 3.1. Market Opportunity 7 3.2. Growth Drivers 10 4. Business Dynamics 4.1. Industry Constituents and Structure 12 4.2. Industry Characteristics 17 4.3. Business Model 18 4.4. Cost Structure 21 4.5. Key Success Factors 22 4.6. Key Challenges 25 4.7. SWOT 27 4.8. Porters Five Forces Model 28 5. State-wise Distribution of Exclusive Brand Outlets across Brands 30 6. Player Profiles 6.1. Action 32 6.2. Adidas 42 6.3. Bata 46 3. Indian Footwear Industry Report 3 6.4. Catwalk 51 6.5. Crocs India 55 6.6. Khadims 59 6.7. Lancer 64 6.8. Liberty 69 6.9. M & B 73 6.10.Metro 77 6.11.Nike 81 6.12.Paragon 85 6.13.Pavers England 93 6.14.Puma 96 6.15.Red Chief 99 6.16.Red Tape 102 6.17.Relaxo 106 6.18.Reliance Footprint 110 6.19.SSIPL RetailLimited 114 6.20.Tresmode 118 6.21.VKC 122 6.22.Woodland 154 7. Select Interviews 157 8. Annexure 160 4. Indian Footwear Industry Report 4 1. Executive Summary A shoe has much more to offer than just to walk, perfectly sums up the Indian Footwear story. Last decade or so has witnessed a sea change in the footwear industry, from a basic need based industry to a fashion, style, quality and performance focused industry. These changes have been driven by a host changing of demographics and economic factors like growing young and working population, increasing disposable incomes, increased discretionary spending, growing fashion consciousness, increased media exposure etc. Around XX of Indias population lives in rural areas. Though the number is gradually decreasing with increasing urbanization, a sizable population still stays in rural India. As per our estimates, an average rural consumer spends around Rs. XX per annum on footwear as compared to an urban consumer which spends around Rs. XX per annum on footwear. The size of the domestic footwear market in India was around Rs. XX Bn in XX, which has grown from Rs. XX billion in XX at a CAGR of XX% p.a. The urban market has been growing at a faster pace of XX% p.a. (2005 2010) compared to the rural market which has been growing at a CAGR of XX%. As per our estimates, the industry will grow at a CAGR of XX% p.a. to reach to Rs. XX billion in 2015. The urban market is estimated to grow at a CAGR of XX% (2010-2015E) to reach Rs. XXbillion in 2015 from Rs. XX billion in XX. The footwear market in urban cities (tier 1, 2 and 3 cities) is around Rs. XX billion in 2011 with tier 1 cities constituting more than XX% of the total market in Tier 1, 2 and 3 cities. Indian footwear retail is mainly an unorganized market with around XX% market share. The size of the organised market which was around Rs. XX billion in XXincreased to ~Rs. XX Bn in XX growing at a CAGR of ~XX% every year since 2008. The market is expected to reach Rs. XX billion by XX growing at a CAGR of ~xx% p.a. 5. Indian Footwear Industry Report 5 2. Global Footwear Industry Overview The worldwide consumption of footwear is dependent on population and consumer income levels. As a result, factors such as inflation, recession, changes in consumer preferences and purchasing power affect the footwear industry. With the growing world population, the consumption of footwear has been increasing steadily. As per the XXXXXX, the world footwear production has reached a record XXbillion pairs in XX. Production of footwear is heavily concentrated in Asia with XX% of worlds production of XX pairs coming from this continent in XXX. This is mainly because of availability of raw material and cheap and skilled labour. The consumption of footwear however is more evenly distributed compared to production as it follows population and disposable income. XXXX has the highest consumption of footwear with XXX due to large population base followed by XXXX and XXX having higher disposable income. Distribution of Footwear Production by Continent (quantity) XXX Distribution of Footwear Consumption by Continent (quantity) XXX Source: XXXXX Source: XXXXX Pie Chart 6. Indian Footwear Industry Report 6 Rank Country Pairs Millions World share Rank Country Pairs (millions) World share Per capita (pairs) XXXis the worlds largest footwear market with XXX billion pairs consumed in XXX. XXXwhich traditionally was the largest market has been relegated to second place by XXX. XXXis the leader in footwear imports, with more than XXX. XXX with XXX consumed is the world XXXX largest market. The average per capita world consumption of footwear has been steadily increasing with around XXX pairs per year in XXX. Though XX is the worlds XX largest market, the per capita consumption of footwear is below the world average at XX pairs per year in XX. XXX produces more than XX% of the worlds footwear by volume. XX dominates the industry, especially the cheaper end of the market. Though xx is the largest exporter, its share is much smaller, in terms of value (XX) vs. , volume (XX%) as a result of the low average price of xx. Italy on the other hand is the second largest exporter in the world. By value, it has a share of XX%, even if it represents only XX% of the volume exported with an average price of almost XX. It leads the market in production of high-end designer shoes. XX with XX represents XX of the total global exports by value and an average price of XX. Top 10 Footwear production countries (quantity) XXX Top 10 Footwear consuming countries (quantity) 2010 Source: XXXX Source: XXXX 7. Indian Footwear Industry Report 7 3. Footwear Industry Overview 3.1.Market Opportunity Total Market The size of the domestic footwear market in India was around Rs. XX, which has grown from Rs. XX billion in XX at a CAGR of XX. The urban market has been growing at a faster pace of XX. (XX) compared to the rural market which has been growing at a X. As per our estimates, the industry will grow at a XX to reach to XX. The urban market is estimated to grow at a XX (XX) to reach XX in XX from XX in XX. Fig 2: Footwear Industry Size (XXX) Rs. In billion 2005 2010 2015E CAGR% (200510) CAGR% (201015E) CAGR% (200515E) Total Urban Rural Urban Market % Rural Market % Organised vs. Unorganized Indian footwear retail is mainly an unorganized market with around XX market share. The size of the organised market which was around Rs. XX increased to XX Bn in XX, growing at a XXX every year since XX. The market is expected to reach XXX by XX growing at a XX. 0% 20% 40% 60% 80% 100% 2005 2010 2015E Rural Urban Source Reevolv estimates; based on NSS reports on Household Consumption Expenditure and United Nations estimates World Urbanization Prospects: The 2011 Revision Note: The totals may not match due to rounding errors Out of the total market in XX, the urban market constitutes XX of the total market size compared to XX. The share of the urban market is expected to increase slightly to XX in XX. The rural market is expected to grow at a XX to reach Rs. XX from XX in XX. Fig 3: Share of Urban and Rural Market (XX) Source Reevolv Estimates 8. Indian Footwear Industry Report 8 Urban Market Tier 1, 2 and 3 cities The footwear market in urban cities (tier 1, 2 and 3 cities) is around Rs. XXX in XX with XX constituting more than XX of the total market in XX. Fig 4: Footwear Industry Size Tier 1, 2 and 3 cities Tier 1 Delhi-NCR, Mumbai, Kolkata, Bangalore, Chennai, Hyderabad, Pune, Ahmadabad (cities with population of more than 5 million). Tier 2 Agra, Allahabad, Amritsar, Asansol, Aurangabad, Bhopal, Coimbatore, Chandigarh, Dhanbad, Durg-Bhilainagar, Vishakhapatnam, Gwalior, Indore, Jabalpur, Jaipur, Jamshedpur, Jodhpur, Kannur, Kochi, Kanpur, Kollam, Kota, Kozhikode, Ludhiana, Madurai, Malappuram, Lucknow, Meerut, Nashik, Patna, Nagpur, Raipur, Rajkot, Ranchi, Srinagar, Surat, Thiruvananthapuram, Thrissur, Tiruchirappali, Vadodara, Varanasi and Vijaywada. (cities with population of 1 to 5 million). Tier 3 Ajmer, Aligarh, Amravati, Bareilly, Belgaum, Bhavnagar, Bhiwandi, Bhubaneswar, Bikaner, Bokaro, Cuttack, Dehradun, Durgapur, Erode, Firozabad, Gorakhpur, Gulbarga, Guntur, Guwahati, Hubli-Dharwad, Jalandhar, Jammu, Jamnagar, Jhansi, Kolhapur, Malegaon, Mangalore, Moradabad, Mysore, Nanded, Waghala, Nellore, Puducherry, Rourkela, Saharanpur, Salem, Sangli, Siliguri, Solapur, Tiruppur, Ujjain, Warangal (cities with population of 0.5 to 1 million). Fig 5: Tier 1 Footwear Industry Size (2011) - XXX Cities No. of Cities Rs. million Tier 1 cities Tier 2 cities Tier 3 cities Total The total tier 1 market that constitutes metros and other cities is around XX. Of all the cities in India, XX is the largest footwear market with XX followed by XX with XX. Among the XX, XX is the largest market, followed by XX, XX and XX. Source Reevolv Estimates. 9. Indian Footwear Industry Report 9 Urban Market State wise Fig 7: Footwear Urban Market Key States Urban Population (2010) [in millions] Urban Market Size (2010) [Rs. billion] Per Capita Expenditure on Footwear Services (Rs.) Fig 6: State-wise Footwear (Urban) Market (2010) Source Reevolv Estimates; NSS Reports Among the states, XX with XX has the largest market share of urban footwear market followed by XX and XX. Among the major states (with urban population XX), XX has the highest urban per capita expenditure followed by XX and XX. XX, XX and XX have the lowest urban per capita expenditure on footwear. 10. Indian Footwear Industry Report 10 3.2.Growth Drivers 11. Indian Footwear Industry Report 11 4. Business Dynamics 4.1. Industry Constituents and Structure The domestic footwear industry is estimated to be around XX. The unorganized nature of the industry, especially on the upstream of the value chain offers a host of opportunities. The unorganized players have a XXX of the total production in footwear industry. The footwear industry is classified in two types namely leather footwear and non leather footwear. Fig 1: Footwear industry structure 12. Indian Footwear Industry Report 12 Manufacturing Process: 1. Leather Footwear: 2. Non Leather Footwear manufacturing: 13. Indian Footwear Industry Report 13 4.2. Industry Characteristics 14. Indian Footwear Industry Report 14 4.3. Business Model Fig 6: Business Model: Above is the pictorial representation of a generic footwear business model. 15. Indian Footwear Industry Report 15 4.4. Cost Structure Tanneries (Producing Finished Leather) Description As a % of Sales Operating Profit / EBIDTA Footwear Manufacturing Description As a % of Sales Operating Profit / EBIDTA Source Reevolv Research Source Reevolv Research 16. Indian Footwear Industry Report 16 4.5. Key Success Factors 17. Indian Footwear Industry Report 17 4.6. Key Challenges 18. Indian Footwear Industry Report 18 4.7. SWOT of the Indian footwear market Strengths Weakness Opportunities Threat 19. Indian Footwear Industry Report 19 4.8. Porters five forces model No Five Forces Remarks Current Trends 1. Power of Supplier a. Raw material Unorganized Imports from China, Taiwan, Singapore Availability of suppliers of footwear components 2. Availability of Substitutes Nature of substitutes Supply of substitutes Price differential Brand erosion 3. Entry Barrier 20. Indian Footwear Industry Report 20 Time and cost of entry Designs Brand play Market access 4. Power of Customers Changing customer trends Availability of multiple options Discretionary purchases 5. Competitive Rivalry Type of competition Unorganized players Influx of foreign brands 21. Indian Footwear Industry Report 21 5. State-wise Distribution of Exclusive Brand Outlets across Brands States Players Andhra Pradesh Bihar Chandigarh Chhattisgarh Goa Gujarat Haryana Himachal Pradesh Jammu & Kashmir Jharkhand Karnataka Kerala Madhya Pradesh Maharashtra NCR Odisha Punjab Rajasthan Tamil Nadu Uttar Pradesh Uttarakhand West Bengal Assam Other States Grand Total 22. Indian Footwear Industry Report 22 States Players Grand Total Andhra Pradesh Bihar Chandigarh Chhattisgarh Goa Gujarat Haryana Himachal Pradesh Jammu & Kashmir Jharkhand Karnataka Kerala Madhya Pradesh Maharashtra NCR Odisha Punjab Rajasthan Tamil Nadu Uttar Pradesh Uttarakhand West Bengal Assam Other States Grand Total 23. Indian Footwear Industry Report 23 6. Player Profiles (for 21 players) 6.1. 6.1.1. Overview Description Company Name Company Profile Promoter Brands Year of Incorporation Production Facilities (Capacity and Sales) Distribution Raw Material Institutional Footwear Other Key Businesses Future Plans Location 6.1.2. Locations Northern Region Exclusive Stores Main Cities Eastern Region Exclusive Stores Main Cities Western Region Exclusive Stores Main Cities 24. Indian Footwear Industry Report 24 6.1.3. Target Customer Segment Men Women Kids Formal Casual/ Semi Formal Sports 6.1.4. Pricing Brands Rs. Per pair 25. Indian Footwear Industry Report 25 6.1.5. Financials (wherever available based company filings) Profit & Loss Account for the year ended XX Rs. Mn 2008 2009 2010 2011 Net Sales Other Income Total Income Expenditure Cost of Goods Sold Employee cost Selling & Distribution Expenses Rent Rates and Taxes Other Expenses Total Expenses EBITDA Depreciation EBIT Interest PBT PBT after extraordinary profit/ loss PAT Shareholders Funds Paid up capital Reserves & Surplus (net of P&L debit balance and Misc Expenditure) Total Loan Funds Secured loan Unsecured loan Total Deferred Tax Total Liabilities Gross Block Less Accumulated Depreciation Net Block Capital work-in-progress Total Current Assets Debtors Inventory Others Total Current Liabilities & Provisions Current Liabilities Provisions Total Net Current Assets Cash & Bank Net Current Assets incl. Cash & Bank Total Assets 26. Indian Footwear Industry Report 26 Key Ratios 2008 2009 2010 2011 Expenditure Ratios COGS % Personnel Expenses % Selling & Distribution Expenses % EBITDA % PBT % PAT % ROCE % ROE % Capital Employed Total Debt/ Net Worth Secured Debt/ Net Worth Total Debt to EBITDA Working Capital Turnover Ratio Net Fixed Assets turnover ratio Inventory Days Debtors Days Creditor Days DuPont Analysis EBIT/ Total Income PAT/EBIT PAT/ Total Income Total Assets/ Net Worth Total Income/ Total Assets 27. Indian Footwear Industry Report 27 7. Select Interviews Interviewer 1: Retailer Questions Answers What are the margins for a distributor in footwear Industry? What are the general margins for a retailer in footwear industry? What are the inventory levels maintained by a retailer? How do the companies ensure that the distributor doesnt charge higher margins than stipulated? How many days it takes for the distributor to deliver goods once the order is placed? What are the brands you sell? Do you have any fixed customer base? What are the margins offered to retailer by established brands? What type of footwear is fast moving and why? Do footwear companies take feedback from retailer? What is the price differential between organized and local players? What are the seasonal products? How is the buying pattern of a typical female customer? How is the buying pattern of a typical male customer? Interviewer 2: Manufacturer Questions Answers What is the type of footwear you manufacture? Do you manufacture for other big brands? What is the arrangement with international brands which you retail in India? What is the domestic and export share? What factors determine the pricing of raw material in case of footwear? Has the domestic share changed over the years? How many distributors you have per state? Where is your manufacturing plant located? Do you outsource the manufacturing job to smaller vendors? Is the labour easily available? 28. Indian Footwear Industry Report 28 Do you pay the labour on a per piece basis or on a salary basis? What are the main buying criteria for footwear? How is the childrens footwear market outlook? What is the trend you are observing for last 5 years in footwear industry? How do you see China as a threat to leather footwear manufacturing? What are the key challenges for footwear companies? - What is the basis of forecasting? What is the SKU per male and female to be carried? What is the margin offered to the retailer? What is the average sales price for your product? Is there any shortage of capacity? What are the generic geographic variations which are observed? Is the distributor critical? What is the credit period offered to distributors? What is the difference between apparel retail compared to footwear retail? What is the strategy to build customer retention and loyalty? Interviewer 3: Manufacturer Questions Answers What is your main product? In how many MBOs / LFRs do you have presence? What are the other states? Do you have your own manufacturing unit? When was the company incorporated? What are the other types of products manufactured by your company? From where do you procure leather? Why have you chosen Chennai as your manufacturing base? What is the margin you offer to retailers? What is the margin you offer to distributors? Is there any return goods policy? What is the credit period you offer to the distributors? What is your price point? How many exclusive outlets do you have? 29. Indian Footwear Industry Report 29 Interviewer 4: Manufacturer Questions Answers What is the main season for sports shoes? In which states your product is available? Do you sell to retailers? How many distributors do you have in every state? What is the credit period offered to distributors? Is there any minimum quantity the distributor has to order? Who bears the logistics cost? Does the MRP vary from state to state? So how do you manage same price when the state taxes are different? What is your daily production? Do you pay labourers on per piece basis or on salary basis? Why do you not package your products in a box? From where do you procure the Raw Material? 30. Indian Footwear Industry Report 30 8. Annexure 8.1. Annexure 1 Manufacturing Process: 1. Leather Footwear: Fig 2: Manufacturing process of finished leather 31. Indian Footwear Industry Report 31 a. Manufacturing: Fig 2: Manufacturing process of leather footwear 32. Indian Footwear Industry Report 32 2. Non Leather Footwear manufacturing: Fig 3: Manufacturing process of EVA footwear: Fig 4: Manufacturing process of PU footwear: 33. Indian Footwear Industry Report 33 About Reevolv Reevolv is a consulting and investment banking company offering a "One Stop Shop" in the areas of business strategy, financial advisory and operations consulting to corporates and private equity funds. We service our clients in their constant re-evolution process through our in-depth industry research, domain understanding, our timely and superior execution capabilities and strong network to provide customized solutions to our clients. With a host of implementation focused services spanning across functions, we ensure that our clients reach the desired goals and objectives in most efficient manner. We achieve sustainability of our initiatives by an all round involvement of the client resources. This approach of an integrated improvement helps build a strong foundation for the forward leap of our clients. Reevolv understands and acts upon the Strategic, Financial and Operational needs of the clients on a regular basis to ensure adaptability and flexibility to suit the market and industry dynamics. Founded in 2008, Reevolv is a team of CAs, MBAs and Engineers with functional and industry expertise and diverse background of investment banking and management consulting. Disclaimer This report is published for information only. Reevolv Advisory Services Pvt. Ltd. or any of its affiliates, group companies, directors, employees, agents or representatives shall not be liable for any loss or damages whether direct or indirect that may arise from or in connection with the use of the information in this document. This document is the sole property of Reevolv Advisory Services Pvt. Ltd. and prior permission is required for full or part reproduction. This information is strictly confidential and is being furnished to you solely for your information. This information should not be reproduced or redistributed or passed on directly or indirectly in any form to any other person or published, copied, in whole or in part, for any purpose. Contact Details For any queries or detailed information : contact us on +91 22 2436 3161 /+91 22 60022001 or email at [email protected] Address: No. B/002,Vision Court Staney Fernandes Wadi CHS Ltd., Plot no. 746, MTNL Exchange Lane, Dadar (West), Mumbai 400 028 You can also email the research analyst at Shilpa Bhattar [email protected] Kaustubh Kulkarni [email protected]