Footwear Industry in UK and UAE in the Crisis Period - Essay Example

Retail Management Table of Contents Retail Management 4 Footwear Industry in UK and UAE 4 Footwear Industry in UK 4 Footwear Industry in UAE 5 Introduction 6 Part 1 7 Category management 7 Product Planning and Selection 8 Retail Design 9 Space Management 10 Visual Merchandising 10 E-shopping or Non- store retailing 11 Recommendations 12 Part 2 13 Sourcing and Buying Strategy 13 Decision Making Process 14 Decision Making Unit 15 Centralised Buying 16 Local Adaption 16 Buying Committees 17 Buying Group 18 Recommendations 18 Conclusion 19 Reference 20 Abstract The recent recession had its effect on the footwear industry which saw a downturn in its revenue and profit margin. Bata was no exception to it. However, the organisation was able to revamp its retail management facilities by focussing on the consumers’ demands. Bata has extended their business facilities to the accessories division which has diversified their business in different areas. Still the company is better known as one of the market leaders in global footwear industry. Footwear Industry in UK and UAE Footwear Industry in UK After the demise of the British Shoe Corporation in mid 1990s, UK footwear industry saw the biggest downfall in the last year, 2009. A number of lower and middle price footwear business experienced the risk of collapse. Few number of large scale specialists in fashion and premium players were able to survive the trembled economic condition. In the coming future there would be certain factors which could affect the footwear industry. Venture capitalists have been the key driver in the growth of the footwear industry. However, due to the financial turmoil the venture capital sector was not able to offer any lucrative prospectus. That is why even the footwear industry had to bear a stalled growth in the last few years. During the global recession, the consumers had been very much selective about their spending. They would polish their old shoes rather than buying some new shoes. UK footwear industry also experienced less profitability due to the depreciation of Sterling against the US Dollar (Verdict, 2009). They were operating on low operating margins as low consumer confidence made it quite difficult for the retailers to offer higher price to the customers. Now that UK is reviving from the trembled situation, one can expect a revival for the footwear industry. Footwear Industry in UAE In the mid nineties, the demand in the footwear industry had seen a downturn. However, between 1996 and 1999, only the leather footwear industry saw a growth of nine percent. The demand for the footwear have been rising since then; the reasons are many including increased population, enhanced standard of living and continual increase in the shopping spree of the tourists. However, due to the financial downturn, consumers started looking for bargains and at the same time tourist spending was reduced to bare minimum. As a consequence the footwear industry saw a drop in sales in the last two years. With the economy recovering, the show retailers expect the shoe retail industry to rebound this year. The revival is indicated by the recovery in the local shopping sectors. The process was also encouraged by Dubai shopping festival and ‘back to school’ promotions which helped the retailers to put a cushion over the low consumer spending. Many shoe retailers have now been looking for expansion plans in the premium places like Abu Dhabi and some other posh areas. The expansion process was the result of the revelation that the footwear industry in Dubai has been impacted UAE more than any other places. Sales values had declined in 2009 against that in 2008 as the progressive years saw a decline in the total tourist arrivals (Zawya, 2010). It has been predicted that Dubai would be a tough trading area and at the same discount driven market for some times in future. However the good news is that in some malls footwear fashion are bouncing back which is really encouraging. Despite the decline in their revenues the retailers in UAE would like to expand the business. Due to the financial downturn, the footwear markets in both the countries have seen a downturn in their revenue and profitability margin. However the response to the situations has been quite different for both the countries. In Europe the footwear industry is struggling to survive the trembled situation with a number of small and mid sized shoe companies being forced to exist. The premium footwear companies were only there to cater to the customers. In UAE it was quite different. Despite the fall in their sales amount, the shoe companies are now looking for more premium destinations to expand their business there. It is not only that the large companies are willing to do so, a number of small and mid sized organisations have intended to follow the same path. The retailers over there are looking forward to a fast revival of the shoe industry. There have been twofold rationales behind these differences. The intensity of financial downturn on the economy is less in UAE than that in United Kingdom. UAE can expect a better revival as their shoe industry is mostly dependent on tourist shopping. The region is expecting an increased tourist arrival this year. Apart from that some big shopping festivals and promotions have enabled UAE to revamp its footwear and fashion industry at a much faster pace. Introduction Back in 1894, the most celebrated footwear organisation, Bata, was founded by Tomas Bata and his siblings. The organisation started in Czechoslovakia. The birth of the company can be traced to a small cobbler’s shop. However, now, the organisation is enjoying a worldwide presence in more than 50 countries. The organisation operates with approximately 5000 company owned stores around the globe. Bata produces its own brand of footwear mainly in the production units located in India. The growth of the organisation was quite fast. Within the 10 years since its inception the organisation was able to produce 2,200 pairs of shoes daily. Within some 23 years, by 1917, the organisation was involved in producing some 2 million pairs per day which led the company to export its surplus product. This enhanced the cash inflow of the company. In 1940, the company was shifted to Canada. That helped the organisation to rebuild itself when the factories in the Eastern Europe were affected by the Soviet sphere. Till date the organisation is the most celebrated footwear industry around the globe. This report discusses some important concept in the retail industry with special focus on one of the leading footwear industry, Bata. At the end of each section recommendations have been provided. A conclusion has been inferred from the overall discussion and included at the end of this report. The overall effort has been to offer an insight into the retail management of Bata company with due consideration to the relative concepts. Part 1 Category management Category management is a popular concept in the retailing industry. In this, a retailer breaks down its products into discrete product groups of related or similar products. Each of the categories is run by its own business units and acts as distinct mini business with its target revenue and profitability margin. Bata has segmented its product primarily in two parts; footwear and accessories. In the footwear section, the organisation has introduced a number of product categories like men’s, women’s, children and sports. Within this division, certain other brand divisions have been introduced. The accessories division is an extension of their footwear products. Bata has divided their products into different categories and has been managing the same as distinct profitability and revenue centres. This category management has enabled the organisation to have better management of the brand categories of Bata. Stock Management Stock management is significant as it is very important to understand whether the optimal stock mix of the organisation is in alignment with the different demands on those respective product stocks, because this would incur less inventory cost for the organisation. The demands are affected by both the internal and the external factors. The optimal stock level can be maintained by exercising a proper control on the purchase order requests to keep the supply at a reasonable calculated level. There are certain procedures to maintain the optimal stock level as per the customers’ demands. The raw materials include the chemicals used in cement adhesive, inner and outer sole, rubber latex and cloth. These raw materials along with other supplements like binding, treading and packaging items are stocked in the company warehouses. Inventory management system looks after the stock level of an organisation. Bata uses the ‘Material stock position’ chart with the help of computerised inventory database. Each and every department has been assigned a maximum level of stock and the departments can not store raw materials beyond this certain limit. The stock level and the usage are reviewed every fortnight. Product Planning and Selection Planning the ‘product ranges’ and selection of the same is quite significant in the product management concept in retailing. Diversion, depth, availability and price level are the influential variables which must be taken care of while assorting the product ranges. The product ranges must reflect the target customers’ requirements and aspirations. The procedures consider various stages of the retail product management before zeroing down to the products. The retail organisations must translate the customers’ requirements into actual product features which can add value to the customers. The product planning is significant as it takes into consideration what should be there in display at the store at any particular point of time. In a number of businesses, planning can change once a year, while in some others the stock models is changed in some specific trading seasons. It is the responsibility of the buyers to select the final version of products that would be coming in the stores (Varley, 2006). The range is selected from a manufacturer’s range or might be developed in the house. Bata plans the products and selects the same as per the customer demands. As specified earlier, the organisation has divided its products into different categories. For each of the category, Bata produces its products in their production units, most of which are located in India. For the raw materials Bata has trust on its suppliers. Pre-determined amount of chemicals, cloth and other raw materials are purchased for the outside suppliers. Retail Design Retail design is a commercial and creative concept combining several arenas of expertise to construct and design the retail space. The designing process takes into account specific architecture and interior design practices. The concepts cover significant elements of interior decoration, ergonomics, graphic design and advertising. The main intention of having a retail space is to store and sell various products to the customers. The design of the space must be such that it promotes a pleasant and unperturbed shopping experience to the customers. The retail space must be shaped according to the kind of products which are supposed to be sold in it. Retail design must be accomplished in a way, considering the attractive settlement of the shop floor, that it brings more consumes to the shop floor. Bata designs its stores in a way where the consumers can fell comfortable. The products are kept in a way such that one can distinguish different types of product ranges. Accessories are kept at different shelves, so that the consumers can easily identify them and purchase the product of their choice. Space Management As the financial downturn has been quite appalling for the economy, many retailers are thinking of optimising the space available in the retail shop so as to work in a much more cost effective way. At the same time the retailers should keep in mind that consumers would expect some logical movements in the shop floor with appropriate space around them. Bata makes optimised usage of their store spaces. They make proper use of shelf places. However, the organisation makes sure that the consumers have enough space which will enable them to shop for their choices within a comfortable retail environment. The organisation ensures the optimal utilisation of the store spaces which has led them to operate in a cost effective way. As a consequence the organisation can transfer the cost benefits to their customers. That explains the reason why Bata can offer their products in an affordable price. Optimal space management has enabled the organisation to operate in a cost effective and profitable way. Visual Merchandising Visual Merchandising is a concept of presentation in the retail arena that puts ‘merchandise’ in focus. It educates the consumers, encourages desires to emerge and at the end boosts the selling process. Visual merchandising is meant to present the products in a 3D environment; thus creating a long lasting impact on the consumers’ minds with enhanced recall value. This helps the company to create an exclusive position against its competitors. Visual merchandising has been a significant part of the organisation. The stores present the products in front of their customers in such a way that the consumers are attracted to it. This helps the organisation to leave an imprint in the customers mind. E-shopping or Non- store retailing With the improvement in life style, people demand that their requisite products be delivered at their doorsteps. With the increased use of technology, a number of retailers are offering their products over the internet. Internet is being largely used as a communication medium and as a medium for business. The process of shopping over the internet is known as e-shopping or non-store shopping of products and services. Both products and services can be offered over the internet. E-shopping is used for the business to business transaction and even business to consumer transaction. As most of the other retail companies, Bata has also forwarded its steps to establish and enhance its online business activities. They have e-shops segment on their website. In their e-shops segment, the consumers can hunt for style, their size charts and the materials used in it. As Bata is operating in the footwear industry, the e-shopping would mostly enable the consumers to zero down on the products of their choices; however in most of the cases the consumers prefer buying the shoes from the shop stores rather than buying them online. However, in near future with the improvements of technology one can expect more advanced e-shopping techniques, so that more and more consumers will use it as their better mode of shopping. Apart from e-shopping, other accessories can also be done through their websites. The organisation believes in multichannel offering of their products through internet. In places like Asia, where the transportation is not so good, the organisation tries to offer more of their products catalog over the website. Recommendations Nowadays a number of industries diversify their businesses as a growth strategy. However it is better to diversify the business by introducing new related category of products. Bata has done the right thing by bringing forth a range of products in the accessories division. Belts, bags etc have been already included in their product ranges. Apart from that, they can try out some new accessories in those departments that offer something new to the consumers. In stock management the company has ensured that no division is able to stock materials above the permissible limit. This is quite a generalised approach to the stock management. There can be a difference in the customer demand in various departments. Having a generalised approach to all the departments will make them lose revenue in some units while in other departments, where the demand is quite low, it can lead to higher stock cost. Product planning and selection must be in alignment with the consumer trends in any local region. In some areas Bata should focus on the traditional shoe production while in some it would be better to move with the fashion trends. Retail design and space management needs also to be done keeping the location of the store and the customer feelings in sync with each other. However the design must be done to boost the visual merchandising of the products. In the coming years, e-shopping is going to be more popular among the consumers. Bata must explore this arena with more advanced techniques to reach out to a wider audience. Part 2 Sourcing and Buying Strategy The retailers’ buying strategies are mostly influenced by the philosophy of merchandising and intended relationship shared between the organisation and its suppliers. Guiding principles regarding all the merchandise decisions, which are required to be made by the retailers to carry on the businesses, are included in the merchandising philosophy. The philosophy must consider the requirements of the target market, the institutional type of the retailers, market place, positioning of the organisation, suppliers’ capabilities, costs, product trends, enhanced value chain, competitors and some more factors. The intensity and magnitude of relationship in the supply chain is one of the significant factors which drive the buying and sourcing decisions. The relationship between the retail organisations and the suppliers are shifting from adversarial towards the collaborative relationships. This has encouraged a paradigm movement towards long term buying from the short term buying. This has been quite advantageous for the organisation from the total cost focus which would include all the costs in the buying process. Traditionally there used to be a bilateral interaction between the concerned person in the retail organisation and the key account manager from the supplier side. Presently multifunctional teams from both the sides interact with each other. This collaborative approach is a major shift from the ‘traditional transactional view of exchange’ (Zentes, Morschett & Klein, 2007). Any retail organisation can have two major merchandise sources, they are: company owned suppliers and the outside ones. Company owned suppliers are the manufacturing and wholesaling facilities owned by the retailers. The outside suppliers can be categorised in two major ways; regular suppliers and new suppliers. In case of regular retail suppliers, retailers have a good idea about the product qualities and reliability of the suppliers. When the retail organisations opt for the new suppliers, they are unknown about the quality and reliability of the merchandise. The sourcing strategies can either be active or passive. In active sourcing the retailer influences the product development and improvement. Passive sourcing means the retailers buy goods, which have been independently manufactured by the outside suppliers. With technical advancements, web based buying has gained familiarity among the retail organisations. In web based buying, the negotiations on the purchase and terms, which include delivery date, quantity to be purchased, payment agreements and price, discounts, are accomplished on the electronic platform. Regular trading communication over the internet can reduce the purchase cost of the retailers and enable them to work in a cost effective environment. It’s a better practice to use multichannel sourcing. It is better to purchase some products, but for some other products there is no virtue in doing so. Even the decision about the cooperative retail sourcing should not be generalised for the whole product range. Cooperative sourcing may sometimes be counterproductive with can lead to increase in price; this mainly happens in a situation of extremely low supply which leads to surplus demand in the market. Decision Making Process The retailer’s mission statement aims to enhance profitability, to establish a renowned brand name and to become the market leader. The goals of the organisation would impact the decision on the retail location strategy. The strategy would be successful if proper decision making is aligned with the strategies. For instance, decision needs to be made on where, how and when the retailer should locate its retail stores. Decision about repositioning can also be significant. Repositioning can be expensive and requires a number of changes in merchandise, pricing strategy, store format and customer service. New locations in the town would require more service oriented approach as the customers in town are already accustomed with higher service quality. Changes are required in any business and decisions need to be taken for the same. Changes are supposed to reorient the position of the organisation against its competitors. Being in the footwear industry, Bata has a number of product categories. As a matter of fact the organisation has to take a number of decisions regarding the locations of the stores, store management, pricing strategy, customer service and merchandise etc. These decisions must take a proper avenue to reach their destinations. To zero down on a new design, a market research is carried out. The decision on styles and comfort must also take care of the requirements and interests of the customers. Suitability, acceptability and feasibility tests must be carried out on the specific brand or product ranges. Only then can the decision be taken. So the decision would follow a proper procedure in alignment with Bata’s mission and vision statements and at the same time it should reflect the organisation’s strategies. Decision Making Unit There can be many decisions which are quite significant from the organisation point of view. Decisions like choice of supplier are mainly decided by a group of people rather than one individual. There can be various functional decisions which need to be made in an organisational environment. Decision making units include people from the respective functional areas or sometimes they even can include people from different functional areas across the organisation. For example, the decision making unit consists of people from functional areas like engineering, marketing, finance, purchase and quality. The organisation has divided its whole operational business across 5 continents into three regional meaningful business units. All these business units are responsible to make decisions and can be assumed as the decision making units of the respective regions within the organisation. Each of the business units are encouraged to be entrepreneurial so that the units can adopt the changes in the footwear and fashion market and explore the prospective potential growth opportunities. Centralised Buying Currently a number of organisations have opted for centralised buying. In centralised buying, the orders of the branch stores for items are consolidated together at the centralised office. The central office, which can either be the corporate office or the main branch office in any region, places the order to the suppliers. The supplier would deliver the raw materials to the central distribution centre of the organisation and from there the goods get distributed to other branch stores. Bata used to have centralised factories in the past years. However in recent times, the organisation has changed its factory model and has introduced a number of smaller facilities which are more effective in meeting the local customer demands at its own. The transformation from huge factories to the smaller regional production facilities have helped the organisation to respond quickly to the changes in fashion. Local Adaption A number of retail organisations often take the local adaptation strategy to achieve local ownership in a region. This is done considering the requirements of the local customers. Bata has its own local charms. The organisation adapts the local essence in such a way that the suppliers in the concerned country get the same treatment that it would have got from any indigenous company. However in doing so the organisation would have to face a number of challenges. Bata also has to consider a number of things before expanding into a new area. Although Bata does not have any worldwide competitor, it can not deny the local ones. To survive in the local competition in any country it is very much required to get adapted to the local requirements and align the merchandise and service with the same. For an instance, while expanding business to the Africa, Bata had to face a number of challenges. The biggest challenge had been to adapt to the customer requirements demanding personal service while alluding to fashion and style. The organisation had to attract the whole population. For the youth they had to offer trendy and fashionable shoes, while for the old people the organisation had to present traditional shoes. It could have been done but being in Africa and operating in their environment would need the feedback and suggestions from the local people. Bata explored all the arenas to better understand the people, culture and trend in one region. In Africa they gave a modern and fresh look to their stores and tried to align the products and store designs as per the customer requirements. Now even the Africans feel that the company has its ground base in their country. Bata had made it all. In Africa the students now wear its shoes while going to the schools. In Asia, Bata represents comfort because of its hot weather. In South America, Bata is the leading shoe brand for the children. In North America and Europe, Bata has flaunted its fashion statements. In the whole Northern Hemisphere the concentration of Bata goes to the fashion market. In the other regions they are more focused to cater to the specific requirements of the customers. Buying Committees Buying committees are the significant decision making units in an organisation. The committee takes care of the procurement decisions in an organisational environment. This committee would include a number of selected executives who would approve or decline deals from the suppliers. Bata has divided its business into three meaningful business units which would be taking care of the specific regional requirements. They are responsible to make decisions regarding pricing, procurement and any other significant decisions. Bata has a dedicated procurement committee which is responsible to purchase raw materials from the suppliers. The team can be named as the buying committee and the committee will be responsible for purchasing chemicals, clothes, inner and upper soles and many more materials from the suppliers. The negotiation and implementation of the deal is dependent on the procurement departments of the respective business units. The buying committee would let the organisation to have more economies of scale. Buying Group Buying groups can either be permanent or even can be formed for specific transaction purposes. Being a part of the buying group can enable an organisation to select, negotiate and implement the best possible deals in the market. Bata can join the buying groups in the local regions. It would help Bata to fetch competitive pricing for their raw materials against the competitors. At the same time Bata can take the advantage of the local materials for cloth, inner and upper soles, chemicals, threading etc. Being in the buying group will enhance the buying power of the organisation and would enable it to get the required resources at a competitive pricing, as one can expect strong negotiation among the buying groups and the suppliers. Recommendations In any company buying and sourcing strategy is quite important. Poor negotiation and strategy with the suppliers can lead a company to purchase raw materials at a higher price. As a consequence the company could pass the same cost to their customers or other way it can enjoy a low profitability margin. Bata should do the cost benefit analysis for the outside suppliers. The aim of procurement should be to get better quality at a competitive price with a prolonged relationship with the suppliers. In such a way the suppliers would know the requirement of the organisation and can align their product features as per their requirements. Taking decisions is quite significant in this case. Decision making unit must take all the functional representatives into account, so that the decision is not taken by any specific department alone. Rather, the decisions must be in alignment with the organisational strategy. ‘Buying committee’ and ‘buying groups’ can enable the organisation to get their raw materials at a much competitive price than the competitors. So Bata must evaluate its buying and sourcing strategies to make the most out of the available resources. Conclusion Bata is the burning example of an organisation which has flourished through change. The organisation has undergone the gradual metamorphosis from being a small cobbler’s den to a larger store and with time to a huge retail stores. Though presence in high streets is quite significant for the company, still the organisation has now reached the shopping malls as well. Bata has always developed its strategies as per the region it is operating in. In Europe it is tough to trade profitably with the concept of high street stores. That is why in Asia it has most of its stores located on the high streets, while in Europe it mostly focus on the shopping malls to locate its stores. Adaptation to changes, quick response to customers’ demands has been the key factors behind the success of this renowned footwear company. Reference Varley, R. Retail Product Management. New York: Routledge, 2001. Verdict. January, 2009. UK Footwear Retailers 2009. Available at: http://www.globalbusinessinsights.com/content/dmvt0459m.pdf [ Accessed on May 23, 2010]. Zawya. May 11, 2010. Shoe companies seeking to grow. Available at: http://www.zawya.com/Story.cfm/sidGN_10052010_110549 [ Accessed on May 23, 2010]. Zentes, J., Morschett, D. & Kleinn, H. Strategic Retail Management: Text and International Cases. Wiesbaden: Hanna Schramm-Klein, 2007. Read More