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CASE

Footwear (India) Ltd. *


Reviewing Sales and Distribution Management for Performance Improvement

"Your primary task is to stop the downward movement of the company's market share in the footwear market in India," said Michael S Williams, chief executive officer, Footwear (India)Ltd.to Rakesh Tandon, newly appointed national sales manager. "Our market share was 60 per centin early 1990s and it has come down to 40 per cent in the year 2005-06. You review our distribution channel structure, salesforce management, and any other marketing area and come up withyour suggestions 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 existing distribution channel system and also how the salesforce was managed. Only after that he would consider other alternatives and decide the best alternative(s) to achieve the objective of improving the company's market share.

THE COMPANY AND ITS COMPETITORS

Footwear (India) Ltd. was a leader in footwear industry in India with five factories and two tanneries located in eastern, northern, and southern parts of India. The unorganised, small-scale footwear makers had a market share of 20 per cent. The foreign brands like Nike, Reebok,and Adidas had captured a market-share of 30 per cent in a short span of time. The balance 50percent market share was shared between the three players in the organised sector - Footwear India (40 per cent), 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 accessories like socks, shoe-polish, leather belt, wallet, school-bag, t-shirts, and trousers. Although accessories contributed only about 8 to 10 per cent of the total sales, the profit margins were high at about30 per cent. To give customers more choices and to improve its top line, the company started selling footwears of other brands like Nike, Lotto, Reebok, and Lee Cooper. This strategy was implemented from the year 2003-04.
"This case was developed by Prof. Krishna K Havaldar for classroom discussion, Narendra Saxena, MBA student of Alliance Business Academy, Bangalore. based on the case data providedby

Footwear (India) Ltd. DISTRIBUTION CHANNEL SYSTEMS

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

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

Company-owned Retail Stores


These stores were classified into four types of retail stores: (a) main stores, (b) commercial stores, (c) family stores, and (d) discount stores. Exhibit 1
Distribution Network -A Distribution Network -8

Consumers

Consumers

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Sales and Distribution Management

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

Commercial Stores
These were similar to main stores, except that they were located in cOnUnerciallocations in metro and semi-metro cities.

Family Stores
These non-airconditioned retail stores were located in metro and semi-metro cities in high traffic locations. These stores satisfied the basic footwear needs of middle income families with local brands and unbranded footwear products from small manufactures, priced at medium to high levels.

Discount Stores
These stores were located in thickly populated areas, satisfying the footwear needs of low and middle income segments. These footwears had basic and discounted prices, including old and substandard quality stocks.

Distribution Network B
This network contributed 40 per cent of the company's total sales, and balance 60 per cent came from distribution network A. Network B was built around the wholesalers and independent retailers (called as dealers). The wholesalers were independent traders, who purchased merchandise 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 footwear products of all brands, as required by customers.

Organisation Structure and Salespeople at Retail Stores


Except for large retail stores, other stores owned by the company, had an organisation structure as shown in exhibit 2. For a Large retail store, an additional position of floor manager, reporting to the stores manager, was provided. The stores managers reported to the regional managers located at the company's regional sales offices, situated at the four retail distribution centres.

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

Footwear (India) Ltd.

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In addition, a commission at the rate of 2.25per cent of sales of the retail store was paid equally to all the permanent salespeople and shop assistants. The company management tried to link commission 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 to implement the decision. The new salespeople were given on-the-job training for 30 days by the senior salespersons. The regional manager conducted the training programmes for salespeople for three days, twice a year, at the regional or state level. Rakesh Tandon also looked at the annual financial results of the company, which is briefly shown in exhibit 3. He was not surprised that the company was making losses for the past two years. Rakesh wondered whether he should focus his analysis and suggestions on the improvements in top-line, bottom-line, or both. Exhibit 2
Retail Stores Organisation Structure

Exhibit 3
Particualrs Sales

Annual Financial Results


2003 5.690 0.298 5.392 0.042 5.437 0.062 (0.065) 0.105 (0.170) 2002 5.553 0.355 5.198 0.085 5.201 0.064 (0.018) 0.105 (0.123) 2001 6.079 0.313 5.766 0.129 5.695 0.072 0.128 0.107 0.021 2000 6.080 0.327 5.753 0.008 5.312 0.070 0.379 0.112 0.267

Lees Excise duty Net Sales Other Income Total Expenditure Interest Gross Profit/(Loss) Depreciation Proft/(Loss) before Tax

Note: All figures in Rs. Million

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

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