Bata India Limited- A Catch-22 Situation

Abstract

AbstractThe Bata Shoe Organization (BSO), established in 1894 in Czechoslovakia, occupies a unique position in the world footwear industry operating in different countries through subsidiaries. Bata India Limited, a subsidiary of BSO, started operation in 1931 in Kolkata. Today, Bata is a household name producing and selling footwear through a network of retail stores all over the country for all segments of the market, with popular brands among middle and upper middle class customers. Despite being a mature company, it has a fluctuating record of profitability. It registered its first ever loss of Rs. 8.57 crore in 1992, made a turnaround in 1993 but again incurred a heavy loss in 1995. In 2000, sales started falling and in 2002 it went into red with an operating loss of Rs. 11.20 crore. The company continued to suffer losses till 2004 before making a profit of 1.85% and 6.18% on sales in 2005 and 2006 respectively. The company possesses a huge capacity with a high fixed cost. To recover the fixed cost, product price has to be kept at high. However the prices of products can not be increased at will due to consumer resistance against price increase. There is stiff competition from the unorganized sector, having the advantage of a low fixed cost setup meeting 60% demand for footwear in the country. These factors lead to underutilization of capaci0 and thereby in fixed cost recovery. For removing the pile of high cost stock, frequently sale at a discount is effected making it more difficult to recover cost. Despite an effort to retain customer loyalty by various innovative marketing strategies and cost reduction measures, the company management seems to be at a loss as to how to reposition itself in a price-sensitive market to bring back profitability on sustained basis.KeywordsCustomer loyalty, Indian footwear industry, Financial performance, Cost recovery.