Name – Anubhav (0910010)

Sameer
Mohammad Suheb
Padmini Kant Mishra
Radha Rani

Metro Shoes –
Market Analysis of the leather footwear industry and
recommendations for Metro

Context & Industry Analysis

The Indian footwear market is estimated to be over Rs15,000 crore in

value terms and has grown at the rate of 8.8% over the last couple of
years. In terms of units, it is estimated at 1532 million units. Men’s
footwear accounts for almost half of the total market, with women’s
shoes constituting 40 percent and kidsʹ footwear making up for the
remainder. The market is substantially brand-driven, as is evident from
the fact that branded footwear constitutes more than 42 percent of the
total market size. About 37.8 percent of Footwear retail is the
organized segment, which qualifies it as the second most organized
retail category in India, next only to Watches.

One-fourths of the total footwear sales happen through organized retail

outlets, and this makes it the second most organized retail segment in
the country, next only to watches. Credit goes to players like Bata and
Liberty for having set the ball rolling.

In terms of volume, the market size of the footwear industry in the top
20 cities in the country is estimated to be 10 crore pairs per annum.
For the country as a whole, the annual domestic consumption of
footwear is approximately 1.1 billion pairs per annum, as per
government statistics. With a population base of 1 billion, this
translates to a per capita consumption of 1.1 pairs per person per
annum.

India is the second largest footwear manufacturer in the world, next

only to China. Nearly 58 percent of the industry, which is by and large
labour intensive and concentrated in the small and cottage industry
sectors, remains unbranded. However, as part of its effort to play a
lead role in the global trade, the Indian leather industry is now focusing
on key deliverables of innovative design, state-of-the-art production
technology and unfailing delivery schedules.
Globally, the trend towards sourcing to countries with low-cost
production continues. Overall, the Far East continues to be the key
area for footwear sourcing, but Eastern Europe (Romania and Bulgaria)
has become more important as closer proximity helps European
retailers to move faster. India and Vietnam are also considered
important for sourcing. India is especially strong in the menʹs footwear
segment though the worldʹs major production is in ladies footwear.
This not only limits the scope for footwear exports, but also points to a
huge potential in the domestic market. Proper branding and promotion
can greatly increase the domestic demand in ladies footwear.

Indiaʹs footwear exports have shown a growth of 35.2 percent over

2002-03 registering a cumulative export of US$ 608.7 million in both
the Leather and non-leather segments taken together. The leather
segment accounts for 89 percent of footwear exports.

Nature of Indian Footwear Retail – Porter 5 Forces Analysis

The footwear retail industry has been analyzed in the Porter framework
taking end-users as buyers and footwear makers as suppliers. Each of
the forces has been rated on its underlying drivers which are weighted
on a 1-5 scale. The final score for the Fs is a simple average of its
underlying drivers.

1 = weak driver ….
5 = strong driver

Buyer Power – 2.5

Drivers of Buyer Power

1. Buyer Size - 1
2. Oligopsony threat - 1
3. Low switching costs – 5
4. Tendency to switch - 4
5. Product differentiation - 2
6. Price Sensitivity - 2
7. Financial muscle - 4
8. Backward Integration - 0
9. Buyer Independence - 5
10. Product dispensability - 1

The high volume of cheaper products from China, and increasing

disposable income allow the Indian population to purchase branded
fashion footwear from domestic and overseas markets. In addition to
well-known and highly valued brands, there are more and more small
companies producing hundreds of thousands pairs of shoes. The fight
for the customer is fierce which enhances buyer power. However, the
necessity, and therefore high sales volumes, of footwear reduces the
buyer power of individual consumers considerably. As a consequence
of fashions and the variety of different functional footwear categories,
there is a great deal of differentiation within the footwear market,
which, despite increasing choice for consumers, often limits the
availability of suitable products and therefore reduces buyer power
even further. The switching costs are negligible, and often confined to
personal taste and preferences. The fact that buyers are considered as
end-users ruled out the possibility of players forward integration,
increasing buyer power which is mitigated by very slight chance of
buyers integrating backwards (unless buyer decides to enter the
industry as buyer). Overall, buyer power with respect to the Indian
footwear market is moderate.

Supplier Power – 3.22

1. Supplier size - 3
2. Switching costs - 3
3. Oligopoly threat - 2
4. Player Independence - 4
5. Player dispensability - 2
6. Substitutability - 5
7. Importance of quality/cost - 4
8. Input differentiation - 4
9. Forward integration -2

Suppliers to the footwear retail market are defined as footwear

manufacturers. Much of the footwear sold within Indian markets is
sourced from manufacturers in low-cost domestic, manufacturing
locations, especially China, and therefore domestic manufacturers lack
the ability to compete effectively within the mainstream footwear
market. Many suppliers have gained power within the market through
differentiating their offerings. They have achieved this by producing
specialist footwear for specific applications and by producing high-end
designer products as well as robust marketing and promotional efforts.
With the exception of very popular brand name manufacturers, it is
difficult for a manufacturer to establish itself in retail and therefore
forward integration is rare. However this is mitigated by the fact that
retailers very rarely integrate backward. Overall, supplier power with
respect to the footwear market is moderate.

Threat of New Entrants – 3.91

1. Low cost switching - 5

 2. Product differentiation - 2
3. Importance of economies of scale -4
4. Effect of fixed costs - 3
5. Regulatory environment - 4
6. Incumbents acquiescent - 3
7. Accessibility to distribution - 5
8. Accessibility to suppliers -4
9. Importance of IP, patents etc - 5
10. Importance of brands - 3
11. Market growth -5

Entry into the Indian footwear market is defined as starting up a new

company or by diversifying an existing company's operations or
importing the goods into the country. The fixed costs for retail
operations are relatively low and new entrants are common. However,
there exists in this market a number of large established retail groups
that wield significant economies of scale through bulk purchasing and
pooling certain back office operations. As a consequence, it is difficult
for new entrants to increase in size considerably, and new entrants
who try to enter Indian region are facing higher retaliation than
counterparts within other countries of the region. Given the large
number of low cost manufacturers supplying the market, it is relatively
easy for new players to establish the required supply chain. What is
more, new entrants can differentiate themselves from the major
players by offering professional services and advice centers. With the
exception of certain specialist types of footwear, such as sportswear
and designer products, brand recognition of footwear retailers is
relatively low, further facilitating the entrance of new players. The fast
market growth may encourage new entrants to some extent. Overall,
the threat of new entrants with respect to the Indian footwear retail
market is strong.

Threat of Substitutes – 0.67

• Low cost switching - 1

• Cheap alternative - 0
• Beneficial alternative -1
As footwear is a basic necessity, the threat of substitutes to the market
is very limited. With the exceptions of very poor areas in non-
developed countries where the lack of players pushes people towards
personal production of footwear, there are no other substitutes to
footwear market. However, there is a significant degree of substitution
between segments of the market. For example, sportswear is often a
substitute for other more traditional footwear types. Overall, the threat
of substitutes is low.
Industry Rivalry – 3.4

1. Number of players - 4
2. Competitor size - 3
3. Low switching cost - 5
4. Product differentiation - 3
5. Importance of fixed costs - 3
6. Economies of scale (ease of expansion) -3
7. Exit barriers -2
8. Diversity - 5
9. Similarity of players -3
10. Storage costs - 3

Although footwear retailing is highly fragmented, the market is

dominated by large retail groups, between whom there is a high
degree of rivalry. However, fixed costs for retail operations are not
prohibitively high and, therefore, smaller companies easily co-exist
within the market. Furthermore, this allows relatively easy expansion
and output capacity, which enhances rivalry. There is a high degree of
diversity between retailers in terms of types and designs, with
dedicated shoe retailers competing with apparel retailers and large
supermarket chains. This means that in order to be successful brand
building has to be central. The healthy market growth in India might
reduce the degree of rivalry to some level. Overall, rivalry between
footwear retailers is assessed as moderate to high.

Competitor Analysis - Key players – Bata, Liberty, Action, Lakhani,

Khadim & Woodland

2008 2007 2006 2005

Bata Sales 989 867 770 707
Margin
s 7.1% 5.7% 6.2% 1.9%
Liberty Sales 258 238 221 195
Margin
s 6.4% 8.0% 11.2% 7.6%
Action Sales na 89 96 93
Margin
s na 6.5% 6.7% 4.4%
Lakha
ni Sales 152 44 120 101
Margin
s 3.0% 4.4% 3.0% Na
Khadi
m Sales na 150 132 67
Margin
s na 3.3% 3.3% 3.3%
Rs crores; Before Tax margins

Metro Bata Liberty Khadim Woodland

Shoes ’s s

No of Exclusive 66 (in 1300 375 264 230

Retail Outlets 2007)
No of Cities 31 All All major 22 All major
cities cities
Model of Exclusive + Exclusive + Exclusive + Exclusive Exclusive +
Distribution Multi-Brand Multi-Brand Multi-Brand + Multi- Multi-Brand
Outlets in Outlets in Outlets in Brand Outlets in
malls malls malls Outlets in malls
malls
Sales Volumes na 989 Cr 240Cr 200+ 330cr
Network None Reliance Pantaloon None None
Alliance Retail retail
Foreign brand Florsheim Bata Global None None None
alliance (Hush
Puppies),
Reebok
Horizontal None Plan to None Lifestyle Apparels
Diversification launch +
Apparel jewellery
Product Range Formal and Formal, Formal, Formal Mainly
Casual casual and casual and and outdoor and
sports sports casual casual

BATA (Market Leader):

• 1300 retail outlets all over the country;

• Serves 1 million customers per day;

• Employs more than 40,000 people;

• Operates 4,600 retail stores Worldwide;

• Manages a retail presence in over 50 countries;

• Runs 40 production facilities across 26 countries;

Key Elements of Bata’s Retail strategy:

• In 2006 Bata decide to create its presence in the shopping malls

on one hand and explored the franchisee model on the other hand.
 • Bata’s new stores are based on the international format of Bata
Stores and have a minimum area of 3000 sq. ft

• It unveiled a 10,000 sq ft Mega Store at Vadodara (in the western

Indian state of Gujarat). This store was spread across 4 floors and
displayed a range of 800 designs.

• By 2010 Bata aims to open 200 new stores and explore

institutional markets such as hospitals, hotels, and defense
establishments.

• Network Alliance: In January 2008, Bata and Reliance Retail

announced a tie-up that would enable Reliance to retail its labels
through the 1200 Bata stores in the country. Bata on its part would
be provided with exclusive space in all reliance stores which were
being rolled out in the country.

• It also launched its new Spring Summer Collection in its stores,

offering several new trendy designs targeted at the young
customers, under its famous brands such as Marie Clair, North Star,
Power and Weinbrenner.

• Diversification: Bata intends to launch clothing products.

LIBERTY: (Market Challenger)

• 375 exclusive Retail Stores and over 6000 multi-brand outlets.

• 2008 winter collection for men from Liberty Shoes.

• Spring-Summer Collection 2009 enters with a favorable response

in the market.

• The range included very stylish shoes in the Fortune range and
the most popular amongst the new products on display were the
stylish and colorful Gliders range priced at just Rs99 onwards.

Promotional activity: Liberty Shoes has become part of a major

initiative to promote fitness culture in the country with the theme
being “One needs to be healthy to be happy.” The program, aptly
called “Fit Reh India”, invites people of all age groups to
participate in a host of fitness and sporting activities including
 jogging between 5.30 a.m. and 9.30 a.m. For this purpose 70
different parks have been identified as Jogger’s Parks in 10 cities
around the country. They include Delhi, Mumbai, Ahmedabad,
Lucknow, Pune, Baroda, Kanpur, Nagpur, Banglore and Ludhiana.

Channelizing opinion leaders - Running for over a month now

the program has not only drawn a tremendous response from the
early morning regulars but it has also motivated others to adopt
the fitness regime.

The fitness enthusiasts have also been visiting the Liberty Shoes
stalls at the program sites showing keen interest in the Liberty’s
range of trendy sports shoes further strengthening the brand’s
association with a sporty health conscious image that appeals to
the young as well as the young at heart.

Innovation: AC shoes - as the name suggests, are shoes that

keep the feet cool and comfortable even in the most trying
conditions. Thanks to an innovative ventilation system in the
footwear's PU sole that allows free passage of air in and out of the
shoes at every step. This unique innovation ensures that the feet
never sweat, is also the reason why these are also known as
"Shoes that breathe." Designed for 24x7 wear they are also
extremely stylish in looks with leather uppers and special fabric
lining which also help ensure that the feet get the right amount of
extra cushioning. It is available in multiple designs and colors.

WOODLAND (Market Follower)

• 230 exclusive Retail Stores with each stories on an average of 1500

square feet

• Plan to start large format stores of around 1,500 square feet in size

• Plans to open 50 more exclusive stores in next two years

• 1600 dealer base and plan to increase it by 20% in next two years

• Started in casual footwear category but now has ventured into apparel
and formal footwear category

• Apparel business now contributes to 35% of the company’s annual

turnover

• Production capacity of 12000 shoes per day

• Targeting a yearly growth of 35%

 Brand Positioning – Woodland has created a niche for itself for
casual and stylish shoes catering to the segment which is style
conscious at affordable prices. Though data for quantitative
comparison was not available, the brand’s image and message
has been received well in the market.

Diversification – Woodland has embarked on horizontal

diversification and sells casual apparels in its stores in the same
brand. The details of its revenue or bottom-line growth were not
available, but the strategy of increasing wallet share from its
existing customers seemed to have worked well, forcing Bata to
announce similar plans.

Competition from International Players:

Competition in the domestic shoe market changed with the permission for 51
per cent Foreign Direct Investment (FDI) in single-brand outlet in early 2006
that allowed foreign footwear brands to enter India.

It also strengthened the organized retailing in footwear. The affluent

customers in India today will have a wider choice in buying stylish and
comfortable shoes. However the leading foreign brands have entered the
market through sales & distribution tie-up with local players in the leather
segment. This is in stark contrast to the trend in the sportswear segment
where Nike, Adidas & Reebok have significant presence on their own.

Customer Analysis

We have conducted a paper based survey to collect primary

information about customer behavior and preferences. Our response
set consists of 100 usable responses. The sample was the various
programs in IIMB. Hence this sample cannot be representative of the
population. However, it could be fairly accurate in representing the
young to middle-aged male consumers of medium to high income
category.

Footwear purchase has been assumed to be a high customer

involvement because of intimate nature of the product, and its affect
on customer in case of bad quality. This has implications for brand
commitment from consumers and also on the purchase decision
making process.
Warrington and Shim in their research paper in 2000 hypothesized that
(a) product involvement and brand commitment may not be highly
correlated and if so, (b) product involvement and brand commitment
will differentiate a product category market into four distinct consumer
groups: high product involvement/strong brand commitment (HP/SB),
high product involvement/weak brand commitment (HPAA/B), low
product involvement/strong brand commitment (LP/SB), low product
involvement/weak brand commitment (LP/WB). Given the classification
model proved to be successful with their college student sample
(n=615), it was further postulated the four groups would display
different consumption attitudes or behavior for a specific clothing
product category.

Product Involvement
Brand Commitment

High Low

Stron interest in market & personal sources less engagement in large

of information; amounts of decision making data
g importance on functional and non- processing; habitual buyers; low
functional product attributes focus on functional attributes
interest in market & personal sources less engagement in large
of information amounts of decision making data
Price Sensitive; low fashion processing; apathetic buyers
Weak orientation; low brand consciousness;
low focus on non-functional attributes

Though our survey was not equipped to segregate the low involvement
customers from high involvement, the involvement of spouses in
footwear purchase was prevalent in over 80% of the cases. This
suggests that the general nature of footwear purchase is complex and
involves significant to high involvement.

The survey also attempts to capture characteristics of media

consumption behavior of the consumers. This we believe would provide
cues on what communication platforms would be optimal to reach this
group of consumers. Finally, a comparative brand study of Metro Shoes
with other leading brands was also done to assess the current
performance of Metro.

Footwear Consumption Patterns

• No & Type of Products owned

Findings –
 • % of people having formal/office shoes

o 1 pair – 53%
 Of which having casual shoes
• 1 pair – 56%
• 2 pairs – 21%
• 0 pairs – 20%

Of the group which owns 1 pair of formal shoes, 58% of them had
heard about Metro, and 23% had bought Metro.
Favorite brands for this group of customers –
Bata – 21%
Woodlands – 45%
Florsheim – 11%
Hush Puppies – 22%

o 2 pairs of formal shoes– 36%

 Of which having casual shoes
• 1 pair – 33%
• 2 pairs – 39%
• 0 pairs – 17%

Of the group which owns 2 pairs of formal shoes, all of them had heard
about Metro, and 36% had bought from Metro.
Favorite brands of this group of customers –
Bata – 17%
Woodlands – 25%
Florsheim – 14%
Hush Puppies – 39%

Metro was placed at the bottom (single digits) as favorite brand by

both sets of customers. Metro has positioned itself as a high end
product; hence it has enjoyed better patronage from customers who
own multiple pair of shoes. However the brand-connect with customers
is significantly weak compared to competitors.

• Brand Commitment

No of respondents who responded in affirmative to whether they

switch brands – 88%
No of respondents who confirmed that they don’t care about brand if
they find a shoe of their liking – 66%

For the subsection of respondents who owned more than 2 pairs of

shoes lack of brand commitment was 89%. This leads us to believe
that in the footwear market customer involvement and brand
commitment have low or negative correlation. This also might reflect a
broad failure of marketing strategies of the incumbents.

• Purchase frequency

In a question on frequency of purchase, 95% respondents had a

purchase frequency of over a year or more. In yet another related
question, 47% respondents answered having bought a shoe a year ago
or more.

• Purchase cycle

In a question of when do people consider footwear purchase; wearing

of old shoe had a 78% response.

• Purchase Influencers/decision makers

With an average age of over 27yrs for our respondents, 48% of them
purchase their footwear with their spouses. This has very important
implications in designing communications strategy for any shoe maker.
While our survey covered only male population, it is expected that
purchase frequency of women could be higher for footwear. A shoe
maker could strive to increase purchase frequency for males by
targeting the spouses and probably have innovative joint
incentives/promotions.

• Aspiration Brand –

In a question asking their most coveted brand of shoes, with options

listing the global prestige brands like Gucci, Louis Vuitton etc,
respondents showed overwhelming trend of not being aware of these
brands. 93% of respondents were not aware of the top 5 brands
mentioned in the questionnaire. This further gives cue, that while
customers might have expectations on quality and style in a shoe, the
affinity to a brand is minimal. We believe that a majority of our
respondents would be aware of luxury brands in apparel, sunglasses or
automobiles, though we did not test this hypothesis in our survey.

Footwear characteristics –

An attempt was made to capture important product attributes that play

an important role to determine feelings as a motivation toward product
attributes. Attributes used to gauge feelings –

• Extrinsic
o Price
Below Rs1000- Rs2000- Rs3000- Rs4000-
Rs1000 2000 3000 4000 5000
12% 48% 32% 5% 1%

o Access

46% correspondents expressed that accessibility to a store was an

important element in their purchase decision.

o Brand

78% correspondents paid attention to the brand while purchasing their

shoes. For the ones for whom brand was very important variable in
purchase decision, Bata and Woodlands were the favorite brands, both
faring equally well. The other brands had far less or insignificant share.

• Intrinsic
o Style

72% correspondents expressed that style was important or very

important in shoe purchase decision. Another 14% placed style as
being somewhat important in their decision. The favorite brands for
this group is as follows -
Bata – 21%
Woodlands – 42%
Metro – 6%
Florsheim – 13%
Hush Puppies – 32%

o Style Flavors
 Lace vs no laces– 54%
 Broad vs Narrow Toe – 53%
 High vs Low Heel – 14%

Implications for Product Mix –

While the shoe maker would need to display an assortment in lace/no

lace and broad/narrow toe category, higher heels had very low
preference. This will have implication in designing production batch
runs to optimize cost for the right product mix. This also has distinct
implications for sole production, design and R&D. In the following
section, respondents placed heavy emphasis on comfort and durability,
for which the sole again is the key element in footwear.

o Comfort
As expected, shoe being a high involvement product because of nature
of use, 88% customers mentioned comfort being somewhat important
to very important. While elements of comfort were not probed in the
survey, quality of sole is a key element in determining comfort in
footwear. Firms like Bata and Dr Scholl’s, have designed marketing
campaigns around their superior soles to differentiate themselves. Dr
Scholl’s is able to command almost 100% premium in the market for
its superior soles and comfort factor.

o Durability

Durability also garnered 88% responses of somewhat to highly

important. This has implications for the limit on increasing footwear
purchase frequency by shoe makers. People demand durability and
they go to purchase when their old shoe wears out.
An innovative marketer would have to show value/savings on its
product over a horizon of 2-3 years, and should strive to adopt a value
based pricing.

Personal Characteristics

• Average age – 27.27 yrs

• Internet access – daily
• Favored Newspaper – Times of India (82%); Hindu (21%)
• Television viewing patterns –
o Sports Channels – 54%
o News Channels – 76%
o Bollywood Channels – 33%
o Discovery/Animal Life related – 45%

For our respondents, internet and English dailies seem to have heavy
penetration with Times of India enjoying overwhelming patronage. As
expected news channels, also have high penetration with a substantial
patronage enjoyed by wild life, history and discovery channels. While
media strategy may be build keeping the above trends in mind, it
should be noted, that spouses who are important influencers in the
purchase process may not be exhibiting the same characteristics in
terms of patronage of media vehicles.

Customer Value Analysis

• The average price for the product category in which Metro is

taken as Rs 1500. 80% customers’ response for average price
was in the 1000-2000 and 2000-3000 price range.
 • Variable Cost estimates – from the last 5 yrs P&L statements of
the listed firms (Bata & Liberty), Fixed costs are 35% of the sales.
The net profits are 9% of sales.
Variable Cost = Sales – Fixed Cost – Operating Profit = 56%
Contribution margin = Sales – Variable Cost = 44%.

• Cost of Capital - Based on average cost of capital of Bata &

Liberty, Metro’s cost of capital is assumed to be between 17-
20%. We have assumed a rate of 18%.

• Retention Rate – we came across significant customer

complaints on www.mouthsut.com. For lack of customer
defection data, we have assumed the average defection rate to
be 30%, giving a margin multiple of 0.28.

• Purchase Frequency – for Metro is assumed to be 2 years.

Therefore 18% annual cost of capital becomes approximately
39% for a 2 yr period. The cash flow from sales to a single
customer is assumed to be occurring every 2 yrs because of the
purchase frequency.

Discount Rate
30% 32% 34% 39% 40%
30% 0.30 0.29 0.29 0.28 0.27
Retention

40% 0.44 0.43 0.43 0.40 0.40

Rate

50% 0.63 0.61 0.60 0.56 0.56

60% 0.86 0.83 0.81 0.76 0.75
70% 1.17 1.13 1.09 1.01 1.00

If an average price increase of 5% is assumed over every purchase,

then effective discount rate becomes i – g, making it 34%

CLV of a customer = m* r/(1+i-g-r) = 44%* 0.29 = 13%

At an average price of purchase of Rs 1500, the CLV is approximately
Rs 190

While this is on the lower side, we have been conservative in assigning

a purchase frequency of 2 years, a very low retention rate of 30% and
a very high proportion of variable costs for lack of data. We have also
assumed no increment in price of the shoe. The CLV above can be
taken as a base case to compare customer acquisition cost.

Customer Acquisition Cost-

The average Selling/Admin costs (as a ratio of sales) for Bata for the
past 3 yrs are 16%. Its average turnover growth for the same period is
16%.
Assumption –
• Bata spends 25% of its selling expenses on customer acquisition
and remaining on retention
• 30% of sales growth is from new customers (approximating for
30% defection rate of existing customers)
Net customer acquisition cost per customer = (25%*16%)/(30%*16%)
= 83%
For an average price of Rs1500, it amounts to Rs1250

Note – while the absolute nos indicating customer acquisition cost

being more than customer value, the relative nos rather than absolute
nos should be considered for a comparison of split of focus between
customer acquisition and increasing wallet share from existing
customers.

Company Analysis – Metro Shoes

The focus has been to do a comparative analysis of Metro with the

dominant players in the industry.

Product –

Men’s range- through tie-up with Florsheim and through its own
products, Metro has present in the men’s segment in all the price
ranges.

Brands –
• Formal – Florsheim; Metro; da Vinci
• Casual – GenX
• Low Cost - Mochi

In the women’s range too, it has presence in all the segments. Metro
has historically enjoyed much higher brand equity in the women
segment.

Metro does not have any presence in the kid’s range.

Price –
Though Metro has presence in all the price segments, it is not
considered the best value provider, on which Bata scores very high
customer equity. Metro has been facing quality problems in the
market, and being largely present in tier I cities, its unhappy customers
have been quite vocal. Below are the excerpts from
www.mouthshut.com, which one sees on search for Metro –

“We recently purchased a sandle and the quality of the product

was so bad that within just 2 days the leather started coming out.
We took it to the shop who claims to say it was a manufacturing
defect and...”

“Buy some basic models - do not expect anything of comfort and

high quality - you may get cheated. Recently got a series of
shocks….”

“Metro used to have a sale very rarely. Then it became an annual

affair. Now it is twice a year. In case you are wondering why, it is
simple. Their footwear lasts only 6 months….”

The above are comments from the last 3 months.

Place –

Metro has a decent coverage of tier I towns nearing 70 dedicated

outlets. However it has a long way to go to match Bata or even a
relatively younger company like Khadim’s.

Channel Margins & Logistics costs –

46% of our survey respondents laid emphasis on accessibility in their

purchase decisions making distribution strength a key factor of
success. Due to lack of data availability on margins availed by
dedicated franchisees of different retailers, we could asses the relative
strength of the players. However, in and outbound logistics costs for
Liberty shoes in the past 3 years have been 2.6% of sales whereas for
Bata the average has been 1.8%. We believe that this cannot be
completely accounted from by differences in yield per floor area of
shops and economies of scale in logistics do play an important factor.
Metro being much smaller in size could be seeing logistics expense of
over 3%.

Promotion -

Metro has launched a plethora of brands, which appear to be quite

daunting for a consumer to comprehend, especially when he enters the
shoe market once in 1.5 years. They also sell brands of other outfits in
their stores, a practice followed by other retailers.
 • In House Brands
1. Metro
2. Gannuchi
3. Da Vincci
4. Mochi

• 3rd Party Brands

1. Florsheim
2. Richard Brinsley
3. Red Tape
4. Crocs
5. Franco Leone
6. Homme

A similar list exists for women brands. This puts a strain both on the
small communications budget of Metro and also increases brand
clutter in an environment where customer anyway shows little brand
loyalty.

Tie – Ups with High End designers –

Metro has tied – up with designers like Manish Malhotra and some
others to sell their designs and signature products. We could not
measure the effect of this strategy on the market.

TV Ad Campaign – ‘Happy feet make Happy Feel’

While our survey did not address response to Metro’s lone TV

commercial which was launched in 2006 (and has been off-air for quite
some time); we did a dip-stick study on consumer’s ability to recall the
campaign, right outside Metro’s flagship store at their corporate
headquarters in Mumbai. Over 80% of shoppers from the 35
respondents (random mix of men & women) failed to recall the ads.
The break up of customer response is below -

• Loyal – 5.7%
• Unaided – 8.6%
• Aided – 34.3%
• Switcher - 42.9%

Promotional Spends in the Market –

FY 07 FY 08 FY 09
Advertis
er Print TV Total Print TV Total Print TV Total
Action 0.22 20.72 20.94 0.72 11.85 12.57 0.30 11.62 11.92
Relaxo 0.63 3.82 4.46 2.44 3.99 6.43 5.56 9.51 15.08
Khadims 0.76 7.97 8.73 1.61 4.39 6.00 2.70 0.00 2.70
Liberty 1.37 6.43 7.80 4.01 2.45 6.45 2.90 0.00 2.90
Paragon 0.17 2.98 3.15 0.30 4.45 4.75 0.16 8.19 8.35
Bata
India 0.47 0.03 0.50 0.77 0.21 0.98 0.72 2.04 2.76
Caron 0.37 0.20 0.57 0.08 0.86 0.94 0.07 2.47 2.54
Lakhani 0.79 0.00 0.79 0.74 0.00 0.74 0.25 0.00 0.25
Citi Walk 0.66 0.00 0.66 0.22 0.00 0.22 0.31 0.00 0.31
Metro 0.00 0.89 0.89 0.01 0.00 0.01 0.00 0.00 0.00
Figures in Rs crores; Source – Tam/AdEx

Metro is an insignificant spender. If we include global sportswear giants

like Nike, Adidas & Reebok, the ad-budgets requirement for Metro to
gain any credible noise space in the market would be humongous.

There is a dominance of TV in this category. Footwear having traits of

consumer durables and also fashion lifestyle category, both TV and
print can be effectively deployed for promotions. Radio, if used
intelligently can also be a powerful medium. We have addressed
Metro’s possible media strategy in later sections.

Out Doors & Internet –

Details on ad spend in outdoor and internet was not available. On a

search on the internet we could not find any advertisement on internet
for Metro. Its website www.metroshoes.net is also under construction!
All the other players have sophisticated homepages.

Summary of Comparative analysis –

Metro appears to be in a weak position on all comparative metrics. It

has an upper edge only in the women’s range.

Problem Areas –

• Low product quality vs price –

While the 3rd party, Florsheim range, has a good brand
awareness and commitment from customers who own over 3+
pairs of shoes, Metro’s own brands fair poorly
• Product range – lacks presence in
o Sports segment
o Kids segment
o Clothing
• Distribution reach – lack of network alliance with any retail major
 • Low brand awareness
• Low brand commitment from customers who are aware
• Innovation – Metro is not known for breakthrough products or
being the style initiator in an industry where predicting new
styles is the key to success
• Communication – no homepage or visible internet presence

Relative Strength

The only area in which Metro enjoys a comparative advantage is in the

women’s range. It has a higher brand awareness and patronage from
women. However, due to constraints we could not conduct a
comprehensive survey to assess its strength’s from women
respondents.
We expect the following key behavioral patterns that differentiate
women customers in their purchase –

Women vs Men

• Higher purchase frequency

• Shorter purchase cycle – women do not wait till their shoe wears
out for a new purchase like men
• Higher product involvement
• More receptive to style
• Comparatively less conscious of durability
• Significant involvement in decision making for the opposite sex
 Market Opportunity & Marketing Strategy

Market
1532 mn
units

Branded Unbranded
(@ 42%) (@ 58%)
643 mn units 889 mn units

Women
(@
Men 40%) Kids
(@ 257 (@
50%) 10%)
Age – 20-30 (@24% from
322 64
No of survey)
Shoes Age – 30-
owned- 40
4+
Age – 40-
50

Age – 20-
No of
30
Shoes
owned- Age – 30-
4+ 40
 Age – 40-
50

Focus Group – Men & Women owning more than 4 pairs of

shoes (belonging to High Involvement & Low Brand
Commitment), in SEC A, B, C

Assumptions –
• A broader survey on the lines of the one conducted can be
conducted across gender and geography to estimate the market
size (which is 24% for the average age of 27 years)
• SEC A,B,C represents the entire branded market
• Customer Value to Acquisition cost ratio will remain comparable
in SEC A, B & C segments
• Higher no of shoe ownership is a proxy of high involvement. We
are assuming this because respondents’ focus on the
extrinsic/intrinsic attributes in the survey did not show any
significant change with no of shoes owned
• High brand switch tendency (as shown in our survey) is indicative
of low brand commitment

Characteristics of focus group – males

• High possibility of habitual buying

• High possibility of brand switching  helps Metro attract new
customers
• Relatively less focus on brand attributes  helps Metro attract
new customers
• Style is an equally important attribute as comfort and durability
for this group. Launching styles that are successful in the market
has been found to be a strategy involving low cost with better
returns in the Indian market

Characteristics of focus group – females

• Apart from the above qualities of males, Metro having a better

traction with women would require less new customer acquisition
 • Women group would also be target for purchase for their spouses

Overall Growth Strategy

Short Term objectives –

1. Make a good homepage!!!!
2. Reach turnover of 100 crores (based on no of stores, we assess
Metro’s current turnover to be between 60 to 70 crores)
3. Double the no of styles launched every year

Medium Term Objectives –

1. Strive to attain a bottom-line margin of over 5% with a top-line

YoY growth of double the industry growth  with a focused split
of growth between same stores sales and new stores sales
2. Increase the no of own/franchisee stores to 100 (currently at 66)
3. Reduce the brand clutter
4. Reduce no of sales/discount offers – focus on inducing purchase
for style rather than discount sales or any other factor
5. Invest in R&D in design

Market Harvesting Strategy –

Current New
Products Products
Market
Current Penetration
Markets (focus on
women) -

New Market
Markets Development
(focus on men
& women) -

1. Market Penetration with focus on women

2. Market Development with focus on men & women with low brand
commitment

Overall Metro should embark on selective specialization with focus on

style as the centre of product attribute.

Rationale for the above strategy –

• Metro cannot compete on distribution with market leaders

 • Bata and Liberty already have alliance with Reliance and
Pantaloon Retail

• Metro has a low brand recall & commitment. New customer

acquisition will be function of low brand commitment in
consumers for other brands, rather than Metro’s ability to attract
and retain customers

• Metro has no production facility of its own. Given its existing

structure, it is most suited to fight on style & design which
changes every season than comfort or durability which would
require fixed investments in better technologies. Compared to
that launching a new style entails lower costs. By focusing in this
fashion, Metro negates the size and capital advantage that the
dominant players have

• With the larger players vertically integrated and well entrenched

with distribution networks in the market, Metro has to focus on
competing on variable costs advantages and avoid situations
which will demand fixed costs commitments. At the generic
strategy level Metro cannot follow low cost strategy with
outsourced production. It has to focus on selective differentiation
build around ‘style’ as its strength

Dealing with Competition – Market Follower & Market Challenger

Metro should follow a mix of market follower & challenger strategy. It

should invest in developing strengths around style prediction and style
imitation of market leaders. Its focus should be to outsmart the bigger
players on style.

Key elements of Competitive Strategy –

• Strive to shorten the lifecycle of a new style:

Though the footwear industry also has similar cycles of styles like the
fashion and apparel industry, its cycle extends over a year compared
to 3 cycles in a year for fashion industry. Metro having low Fixed Costs
can launch new styles relatively cheaper compared to the large players
which have their own production facilities where new styles would
involve time and dedicating fixed costs.

• Reduce time to bring a competitor’s successful style in the

market:
Because of consumer’s adherence to the product on shelf than brand,
Metro’s ability to imitate a successful style at low cost can provide
returns.

Example of shortening purchase cycle – Titan

Titan’s ‘fastrack’ has significantly reduced watch purchase cycle in an

era of cell phones where style rather durability or utility is the key
driver of purchase.

Example of successful leadership in Style – Sport Obermeyer

A US firm in ice skiing accessories, with annual cycles of fashion,

Obermeyer has outsourced its production to Asia, and has invested
heavily in design and style prediction. Through continuous style
innovations, it has kept its low cost imitators guessing, and providing
itself time horizon to undertake market skimming at the time of launch
of new season every year.

Pricing Strategy –

New Style launch – Cost+ pricing

Since Metro would have low fixed investments, it should price its
products based on its costs with a target mark-up, compared to a ROI
based pricing.

Imitator Style launch – Going Rate Pricing

Metro should develop ability to imitate and launch competitors’ styles

at a cheaper price. Competing on its variable costs strengths and lower
market share, lower prices would hurt the larger players more. For its
target market of low brand commitment consumers, price differential
would be an important element in attracting consumers.

Customer Relationship Strategy-

Internet based Interactive Communication –

Product review website like www.mouthshut.com has scores of review

comments by consumers on Metro and all the other players. Metro
should develop a comprehensive web-site with blogging capabilities, so
that it can have a dialogue with its consumers directly rather than be
criticized on other websites and lose precious time to respond. It
should also encourage design competition and product reviews on its
website and enable e-commerce facilities. Key features of its proposed
website –
1. Customer blogging and product reviews
2. Key management blogging about new products and activities at
Metro – eg- Robert Lutz, Vice Chairman at General Motors used
to write a blog along with other very senior GM executives at –
http://fastlane.gmblogs.com
3. Product description and intricate details of its products on
website Metro has better chance of success with high
involvement customers who own multiple pairs of shoes. Sharing
product details on website, creating design competitions and
engaging customer will increase its chances of success.

Managing the Moments of Truth –

Sales executives at footwear retail stores are 2nd in customer

interaction disaster only to Banking call centre executives. Over the
years, players in most other retail formats – apparel, durable goods etc
have been able to show improvement in their sales executives. Metro
should lay extra emphasis on its sales management process.

Metro has invested in deploying SAP recently to integrate data from its
various stores. It needs to develop significant capabilities in data
mining and studying current trends of its own customers and of
competitors. Given the fact that the effort is in shortening purchase
cycle, knowing customer details is crucial. The challenge however is in
implementing a successful CRM information system by training
employees.

Internal Communication-

To implement a successful external and interactive communication

strategy, a firm first needs to develop a robust and consistent internal
communication environment. Metro has to take strong organizational
level activation including its franchisees and suppliers for an effective
customer engagement strategy.

Branding Strategy –

Metro should avoid any advertising war that can lead to any
competition on fixed costs deployment. Its focus on advertising should
be events/launch based rather than long-term corporate brand building
advertising.

Assumption – Fundamental traits of consumers:

 1. Focus on shoe rather important than brand
2. Comfort and Durability are a must. Given that, style rather than
brand will decide what will be bought
3. People buy when their shoe wear out

Out of these 3 fundamental traits, we are attempting to challenge the

last trait of the customer. Challenging the other 2 would involve fixed
costs commitment, which can, given relative smaller size of Metro,
cause substantial survival risks to the company.

Brand Map Template –

• Brand Substantiators – Points of Parity  Comfort, durability

• Brand Differentiators – Points of Difference  Style, Design
• Brand Benefits –
o Functional – Value in style & design; be the first to bring
the latest in style to customers
o Emotional –
 Source of confidence
 Source of attention from the opposite sex
• Brand Personality –
o Attractive
o Handsome
o Not pricy
o Confident
o Loses interest in things – gets bored fast – needs
excitement
o Not a daredevil, just cool
o Doesn’t care which car he drives

Advertising & Promotion Cues -

Focus on subtle attacks on consumers’ trait to buy new shoes when old
ones wear out –
a. Encourage gift vouchers for special occasions like
birthday’s/Diwali/New Year/Christmas etc.
b. Address communication to women for both men & women
shoes.
c. Devise promotional pricing for women & men package
purchase.

Mass Media Strategy –

• Increase spending from current negligible levels

 • Avoid TV due to heavy spillage (Metro has already stopped its TV
commercials)
• Deploy print and out of home for product descriptive/informative
ads during launch of a new style
• Deploy radio for creation of buzz around launches – sponsor
radio talk shows and competitions
Radio and Print because of their localized circulation/reach unlike TV
which has a regional or national coverage can be cost effective for
Metro because of its smaller distribution network
• Encourage franchisees and regional distributors to develop their
own media spending plan (with tight control on content), which
Metro may reimburse  benefits
o More focused spend delivery, more bang for the buck
o Reimbursement of the spends by Metro implies franchisee
and distributors spend their own capital thereby putting
their skin in the game
o Ease on working capital. Metro’s cash spending cycle on
media splash will be eased because of delayed payment
cycle

Risks

• Risks in style prediction

• Rationalizing cost structure for quicker style launches and
imitation easier said than done
• Reduction in no of brands may lead to loss in sales
• Assumption of changing purchase cycle of consumers may not
hold true
• Investment in R&D in style may have a long gestation period

Alternative Strategy

Focus on the high end segment – rich household (estimated population

of 30 million)

Short Term objectives –

 1. Reach turnover of 100 crores

Short – term steps –

1. Re-evaluate the efficacy of its existing brand portfolio

2. Roll back the no of stores – concentrate on SEC A cities
3. Strengthen tie-ups with celebrity designers
4. Use celebrity endorsers
5. Make a good homepage!!!!
6. Invest in PR

Medium Term Objectives –

1. Target a double digit profit margin

2. Establish Metro as an aspirational or luxury brand
3. Establish tie-ups with celebrity international designers (example-
from Italy)

Medium – term Steps –

1. Become a member of the luxury marketing council, an umbrella

for marketers of luxury goods
2. Consider rebranding and redesign of its brand portfolios

Long-term Steps –

1. Evaluate viability of diversification into a leather fashion house

with products like hand bags, jackets, belts
2. Or else evaluate tie-ups with leather accessories houses like Hi-
Design
3. Develop capabilities in the fashion, fashion-show industry

Risks

1. While Metro has been traditionally in the higher price segment, it

has launched Mochi as a lower price range. Moving up into the
premium segment after covering lower range might be confusing
to consumers and might not be accepted
2. While there is a thriving eco-system of high end apparel
makers/designers in India, a similar eco-system for leather
products is not yet developed. High end leather footwear eco-
system is underdeveloped and there might be considerable
people constraints in developing capabilities in high end design
and style
Reference:
• A thesis in Clothing, Textiles, and Merchandising – Leslie
Everson
• Zaichowsky – Measuring the involvement construct
• Zaichowsky – Conceptualizing involvement
• Warrengton & Shim – Empirical investigation of the
relationship between product involvement & brand
commitment