CASE

2Footwear (India) Ltd.*Reviewing Sales and Distribution Managementfor Performance Improvement

"Your primary task is to stop the downward movement of the company's market share in thefootwear market in India," said Michael S Williams, chief executive officer, Footwear (India)Ltd.toRakesh Tandon, newly appointed national sales manager. "Our market share was 60 per centinearly 1990s and it has come down to 40 per cent in the year 2005-06. You review our distributionchannel structure, salesforce management, and any other marketing area and come up withyoursuggestions on how to reverse the market share movement from going down to moving up,"Williams added further details to clarify his viewpoint to Tandon.

Tandon thought, after meeting his CEO, that he should first try to understand the existingdistribution channel system and also how the salesforce was managed. Only after that he wouldconsider other alternatives and decide the best alternative(s) to achieve the objective of improvingthe company's market share.

• THE COMPANY AND ITS COMPETITORS

Footwear (India) Ltd. was a leader in footwear industry in India with five factories and twotanneries located in eastern, northern, and southern parts of India. The unorganised, small-scalefootwear makers had a market share of 20 per cent. The foreign brands like Nike, Reebok,andAdidas had captured a market-share of 30 per cent in a short span of time. The balance 50percentmarket share was shared between the three players in the organised sector - Footwear India (40 percent), Liberty (6 per cent), and Paragon (4 per cent).

The company sold footwear products of different designs and sizes of shoes, chappals, sandals,sports shoes, sports sandals, and hawai chappals. In addition, the retail stores sold accessorieslikesocks, shoe-polish, leather belt, wallet, school-bag, t-shirts, and trousers. Although accessoriescontributed only about 8 to 10 per cent of the total sales, the profit margins were high at about30 percent. To give customers more choices and to improve its top line, the company started sellingfootwears of other brands like Nike, Lotto, Reebok, and Lee Cooper. This strategy was implementedfrom the year 2003-04.

"This case was developed by Prof. Krishna K Havaldar for classroom discussion, based on the case data providedbyNarendra Saxena, MBA student of Alliance Business Academy, Bangalore.

• DISTRIBUTION CHANNEL SYSTEMS

Footwear (India) Ltd. .....=C::.:.7:..-.... __ .•• 1

Theobjective of the distribution channel was to make the company products available to consumersin every town across India. For achieving this objective, the company had adopted a strategy ofvertical marketing system (VMS). The company had two types of VMS : corporate verticalmarketing system with both production and distribution under the company's ownership, andcontractual vertical marketing system by appointing retailers as the company's franchisees. Thecompany called its VMS, consisting of company owned retail stores and franchise retailers, asdistribution network' A', as shown in exhibit 1.

Distribution Network AIt consisted of 1500 retail outlets, which included the company-owned retail stores and franchisestores. The franchise stores, which were 150 and mainly located in rural markets, had contractualagreements with the company to sell only the company's products. The franchisees were localentrepreneurs, who had familiarity with local communities and conditions. They invested theircapital to set up stores as per the requirements of the company. These franchisees paid five per centof sales as royalty for using the company's brand, and the proven business format. The franchiseesalso received the services and support from the company (franchisor) for site selection, planning,training salespeople and promotion.

Company-owned Retail StoresThese stores were classified into four types of retail stores: (a) main stores, (b) commercial stores,(c) family stores, and (d) discount stores.

Exhibit 1

DistributionNetwork -A

Consumers

DistributionNetwork -8

Consumers

___ C=.8_ Sales and Distribution Management

Main StoresThese were air-conditioned, modem and full-service stores located in major metro cities in poshareas. The stores carried medium to high priced products for men, women and children. Thecollection included fashionable products with local and international brands to meet the needs ofupper-class consumers. Mobile display units were used for brand promotion.

Commercial StoresThese were similar to main stores, except that they were located in cOnUnerciallocations in metroand semi-metro cities.

Family StoresThese non-airconditioned retail stores were located in metro and semi-metro cities in high trafficlocations. These stores satisfied the basic footwear needs of middle income families with localbrands and unbranded footwear products from small manufactures, priced at medium to highlevels.

Discount StoresThese stores were located in thickly populated areas, satisfying the footwear needs of low andmiddle income segments. These footwears had basic and discounted prices, including old and sub-standard quality stocks.

Distribution Network BThis network contributed 40 per cent of the company's total sales, and balance 60 per cent camefrom distribution network A. Network B was built around the wholesalers and independentretailers (called as dealers). The wholesalers were independent traders, who purchasedmerchandise from the company's wholesale depots to resell to independent retailers (or dealers),who were located in rural areas, and markets of major cities and towns. These dealers sold footwearproducts of all brands, as required by customers.

Organisation Structure and Salespeople at Retail StoresExcept for large retail stores, other stores owned by the company, had an organisation structure asshown in exhibit 2. For a Large retail store, an additional position of floor manager, reporting to thestores manager, was provided. The stores managers reported to the regional managers located atthe company's regional sales offices, situated at the four retail distribution centres.

Stores SalespeopleThe company recruited salespeople for their retail stores with minimum qualification of secondaryschool leaving certificates (SSLC).These sales people were initially recruited as temporary staff forabout 6 to 12 months after which they were asked to take product and selling skills tests, and thepersonal interview by the regional manager and the stores manager. Only when the temporarysalesperson performed well in the tests and the personal interview, he was given the permanentposition of a salesperson and was paid a salary, in the scale of Rs. 3000-150-10,000-300-15,000.

Footwear (India) Ltd. C.9

In addition, a commission at the rate of 2.25per cent of sales of the retail store was paid equally to allthe permanent salespeople and shop assistants. The company management tried to linkcommission payment to the individual salesperson's performance against the sales quotas, but the'strong union, controlled by Communist Party Marxist (CPM), did not allow the management toimplement the decision. The new salespeople were given on-the-job training for 30 days by thesenior salespersons. The regional manager conducted the training programmes for salespeople forthree days, twice a year, at the regional or state level.

Rakesh Tandon also looked at the annual financial results of the company, which is brieflyshown in exhibit 3. He was not surprised that the company was making losses for the past twoyears. Rakesh wondered whether he should focus his analysis and suggestions on theimprovements in top-line, bottom-line, or both.

Exhibit 2 Retail Stores Organisation Structure

Exhibit 3 Annual Financial Results

Particualrs 2003 2002 2001 2000 ISales 5.690 5.553 6.079 6.080Lees Excise duty 0.298 0.355 0.313 0.327Net Sales 5.392 5.198 5.766 5.753Other Income 0.042 0.085 0.129 0.008-Total Expenditure 5.437 5.201 5.695 5.312Interest 0.062 0.064 0.072 0.070Gross Profit/(Loss) (0.065) (0.018) 0.128 0.379Depreciation 0.105 0.105 0.107 0.112Proft/(Loss) before Tax (0.170) (0.123) 0.021 0.267

Note: All figures in Rs. Million

Question1. If you were Rakesh Tandon, what suggestions would you give and why?