Bata India’s margins being affected by e-commerce

The e-commerce market has majorly affected Bata India’s sales. In recent past, online sale of shoes has gone up, impacting the revenues of Bata India. Its net profit margin has declined by about 600 basis points (bps) since 2011. The main reason for this are subdued consumer interest and lack of investments in brand building.

What further impacted Bata’s sales is the government’s new policy of 100 per cent FDI in single brand retail. Footwear brands have been making the most of this new policy. India already has three major global footwear brands – Reebok, Nike and Adidas. Bata lost out to the foreign brands because they continue to ‘reap benefits of disintermediation’. The latter is a process under which less number of intermediaries such as distributors and dealers are involved to reduce costs. Presently distribution margins are at 55 per cent of the total selling price of shoes for companies like Bata which depends majorly on its established retail outlet for offtake. Also, its investment in branding was at Rs 110 crores during 2009 and FY15, much lower when compared to the investment in the brick-and-mortar store – Rs 500 crores. This underinvestment in branding has cost Bata from becoming an ideal omni-channel beneficiary.

Bata’s rental cost has grown at a compound annual growth rate (CAGR) of 24 per cent, compared with 14 per cent revenue growth between 2010 and 2015-16. This will keep its rental costs stable. In 2014-15, rental costs formed 13.9 of sales – up by 390 bps from 2010 at nine per cent.

Analysts have suggested a reduction in distribution costs to improve its financial performance. Already, Bata has started adopting a calibrated approach in widening its retail footprint.