Vembu Muthukumaran has a fondness for simplicity and it comes through clearly in what he says and does. That may explain why the chief executive officer of Bachi Shoes — a subsidiary of Tata International (TIL) and part of the company’s leather and leather products business — believes that the simplest shoes make for the biggest sellers.
Mr Muthukumaran knows plenty about footwear of the kind that can attract attention and buyers in demanding markets. Bachi Shoes, acquired by TIL in 2010, is an export-oriented manufacturer that ships out the vast majority of the footwear it makes to European brands.
Mr Muthukumaran joined Bachi Shoes as a manager in 2002 and rose through the ranks to become chief executive in 2015. He speaks here to Philip Chacko about what it takes to keep his clientele satisfied. Excerpts:
Back in 2010, Bachi Shoes was making close to 6,000 pairs of shoes a day. That number has gone up to 10,000 a day. Our current capacity is about 2.5 million pairs of shoes a year and we create approximately 800 styles every year.
Our turnover has also jumped, from ₹1 billion a year to ₹3.2 billion. We have met our profit targets consistently over the last five-six years through better capacity utilisation and increases in productivity. We keep costs under control and that leads to profitability.
We concentrate on the costliest part of a shoe. Up to 70 percent of the price of a shoe is the cost of the material. We focus on minimising this cost. The second-biggest cost component is labour, which constitutes about 20 percent of the shoe price. Here, too, our effort is to stay within budget and, if possible, go below it.
About 95 percent of what we make is exported to the UK and continental Europe, and 2-3 percent sells in the American market. We are specialists in the manufacture of children’s shoes and we manufacture a lot of varieties of winter shoes, as also products for other weather conditions, such as sandals for spring and summer.
We try to balance our output to match the volumes for any given season. We have a British customer, Clarks, which takes 40 percent of our products in autumn-winter and 30 percent in spring-summer. We supply to a German brand called Elefantan, which takes over 40 percent of our shoes in spring-summer and 20-22 percent in autumn-winter. We have four other customers in the European market and they account for the rest of our capacity.
The quantities we export to America are small as of now but we expect to increase this down the line. We are sending some 200,000 pairs of shoes a year to America; we want to take this figure to 500,000 over the next three years. The potential is there.
Market conditions in Europe and the UK have been challenging post the 2008 recession. That has meant we have to look elsewhere for growth. In the circumstances, you cannot ignore India.
We believe we can sell a lot of shoes in the Indian market and we have made a start with our in-house brand, FeetScience. We are promoting this brand as an institutional business, with a target of 20 percent sales directly to schools. We have a website for the brand — www.feetscience.in — and a separate marketing team for it.
FeetScience is a superior offering, similar in comfort and crafting to our shoes for the exports markets of Europe. The name itself indicates our thinking on the brand. Many people, especially school-going children, wear shoes for six-seven hours at a stretch. We are banking on science to ensure that their feet remain comfortable during this time.
We are not competing here with the cheaper brands and we are not planning to make millions of these shoes. We have used lighter material, made the shoes flexible and ensured premium quality. FeetScience is one way we are looking to reach our target of 1 million pairs of shoes in the Indian market. We sell only about 2 percent of our shoes in the country currently, but that will change. We could touch 15-20 percent in five years.
Our experience and expertise are in manufacturing; we don’t have the infrastructure or the wherewithal to sell retail. What we are aiming for is to sell online in the first phase and then explore the possibility of tying up with other Tata concerns to sell through their outlets, but this is not in the plan for the next two years. What we are planning now is slow and steady growth: 50,000 pairs of shoes in the first year and 200,000 in the second to third year.
The first challenge at this point is price. Take, for example, the UK, to which we export 35 percent of our shoes. After the Brexit vote, there has been a drop of almost 20 percent in the value of the pound. This translates into trouble for our British customers in protecting their margins. They have to keep their business sustainable and that means negotiating on price with suppliers like us.
There will be pressure on us to reduce our prices and there may even be a pricing crisis. We will have to absorb whatever escalation of costs there will be. We will have to increase productivity and do a whole lot more, besides, to tide over the situation. Simply put, we will have to deal with cost increases without compromising on quality.
Retention of employees is another challenge. We have some 4,000 people in the organisation now and we will have to up that number over the next two-three years. Nearly 80 percent of our workforce is female and that makes it incumbent upon us to hire locally. The reason we favour hiring women is because they are more dexterous and soft with their hands when it comes to stitching the leathers. That’s an advantage when you are making shoes for kids and infants.
We are seriously considering greater automation wherever feasible at our facilities. We have automatic sewing machines in our factories and they are a big help; you don’t have to worry about issues like ergonomics. Having said that, a skilled worker is a precious resource. We can get any number of helpers, but it takes time and training to groom an employee into a skilled technician.
We have to keep running to stay where we are and that, basically, is what we are doing. We are not expecting significant growth over the next one year because of the conditions I spoke about earlier. What we are trying to do is protect our bottom line; there’s no point increasing your top line if you are unable to guard your bottom line. But two years ahead we are hoping to clock 14-20 percent growth, and three years year down the line we expect to make 3.5 million pairs of shoes per annum.
In my experience, the simplest shoes are always the best sellers. Too much of loading on a shoe — lace, zippers, Velcro and all the rest — takes away from that simplicity.