Blackbook Bata

INTRODUCTION
In August 2003, Doug Hearns, CEO Bata Pakistan, was considering the
efforts necessary to realign Bata Pakistan’s manufacturing outsourcing,
distribution, and brand strategy in the light of increased local competition
and Chinese imports. Doug had joined Bata as CEO in January 2002,
with 19 years of experience in the company including 1½ years as Head
of Marketing in Bangladesh, and another 2½ years in the same capacity in
Pakistan. Traditionally, Bata had catered to the lower middle and middle
class market. In 2001, however, Bata decided that instead of competing at
the lower end of the Pakistani market, it would concentrate on the higher
end, through new fashion brands such as Marie Claire and licensing
global brands such as Slazenger and Hush Puppies.
This decision entailed increasing manufacturing outsourcing from 17 per

cent to 70 per cent, building up a premium retail network including mega
stores, and most importantly building up a new cadre of management
capable of leading Bata into the twenty-first century. Doug realized that
in the rapidly changing Pakistan shoe industry, key players such as Servis,
Shafi and Firhaj and the Chinese exporters would all be realigning their
business strategies to compete effectively with each other, and possible
new entrants.
Thus, it seemed critical that Bata should take some bold decisions to
prepare for the strategic landscape ahead. In 2002, Pakistan, with a
population of 140 million and about 3 per cent annual growth rate, had a
footwear market of above 150 million pairs per year. There were two
distinct classes of suppliers to this market. The informal sector with about
80 per cent market share comprised over 17,000 units, each with an
average of two employees. Firms in this sector generally paid no taxes,
and predominantly sold non-branded shoes through cobbler shops.
The Bata Shoe Organisation was originally established by Thomas Bata

in 1894 in Czechoslovakia. During a visit to Michigan, he observed the
use of assembly lines to massproduce automobiles at the Ford Motor
Company. He saw how all the components were made in different
departments and assembled at one place. He took this idea back and
started Bata on the same lines, and in doing so revolutionized an age-old
industry characterized by individual cobblers who made a complete shoe,
to teams of workers who assembled shoes using a conveyor belt. In 2002,
Bata, with headquarters now in Canada, was the largest footwear
manufacturing and marketing organisation in the world, having sold over
14 billion pairs of shoes over the previous century.
The company had a network of 75 shoe factories and tanneries in 95

countries, 6,300 company owned retail stores, 10,000 franchised outlets
and another 40,000 independent dealers. In Pakistan, Bata began with the
establishment of a plant in Batapur (about 20 km from the provincial
capital of Lahore) in 1942, especially to produce leather boots for the
army. In the early 1940s, there were hardly any tanneries capable of
producing consistent, quality finished leather. Therefore, the company
established tanning operations within the Batapur factory.
Doug Hearns, Bata’s MD, commented that setting up tanneries was
consistent with Bata’s policy that, “wherever we went globally, we were
fully integrated to feed our distribution”. Bata developed as a vertically
integrated firm, with company owned leather tannery, shoe
manufacturing, and an extensive retail network.
The other vertically integrated firm was Service Industries1 which was
established in 1954 and owned a tannery and shoe factories in Muridke
and Gujrat. During the 1960s and 1970s, Service followed the practice of
opening a store wherever Bata opened a store.
The retail outlets were mostly in rented properties, and both firms
benefited from an inefficient property market, which allowed low rents to
continue for decades despite double digit inflation. Both brands were
extensively advertised particularly during Eid festivals and school
openings, and became known for providing reliable quality shoes at
affordable prices.
By 2001, Bata had invested Rs 430 million2 in its factories and about Rs
150 million in stores and fittings (see Exhibit 2 for an organisation chart
and Exhibit 3 for financial statements). Smaller non-integrated
manufacturers with limited access to quality raw material, reliable
distribution networks, low cost capital and imported technology, were
unable to compete against Bata and Service.
Smaller players lacked access to low cost capital and imported
technology available to the larger players in the 1960’s. At that time, the
government through an extensive industrialization plan provided selected
access to capital and licenses which were required for importing
equipment. The smaller players neither had the political clout of the
Service Group nor the multinational influence wielded by Bata to benefit
from government policy.
An industry expert compared the advantages of being a large player

versus a small player: The larger players have been able to benefit from,
and at times influence, government policy. Recently for instance, import
duties on outsoles, which many of the smaller manufacturers need to
import since they cannot produce them inhouse, was reduced to 10 per
cent. But then after six months, the duty was raised back to 25 per cent.
At the same time the smaller manufacturers prefer not to grow too large.
They want to remain just under the Central Board of Revenue (CBR)
screen. They can save on a number of duties, particularly on the 15 per
cent sales tax, which is the responsibility of the manufacturer.
This allows retail chains, who are sourcing from such manufacturers, to
make 20 per cent higher margins than is possible at stores owned by Bata
and Servis. Throughout the six decades since its establishment in 1942,
Bata remained the country’s largest shoe manufacturer, with a share of 11
per cent of the 150 million pair shoe market. In 2002, Bata had two plants,
350 retail outlets, over 3 thousand employees, sales turnover of Rs 2.3
billion, and profits before taxes of Rs 79 million. Bata produced 14
million pairs and procured another 3 million from outside suppliers.
Bata’s closest competitor was Service with local sales of 5 million pairs.
A major expansion in the leather and footwear industries took place

during the 1980s. Remittances from migrant workers in the Middle East,
together with the Afghan war, resulted in a 6 per cent annual GNP growth
and increased consumer spending. The increased market size was
accompanied by a threefold increase in shoe retailers and this catalyzed a
threefold growth in the number of footwear manufacturers.
The number of tanneries tripled during the decade from 180 to 509,
making quality finished leather widely available to footwear
manufacturers. The increase in tanneries was a direct consequence of
increased leather exports, caused by the widespread closure of tanneries
in Europe resulting from ecological concerns. Changes in the global
leather industry provided local tanners access to inexpensive used
equipment and technology from their international customers.
Furthermore, both tanners and footwear manufacturers gained from

government deregulation which decreased tariffs on imported equipment
and raw material and gave increased access to capital. Incentives for the
manufacture of leather garments and footwear were provided, including
duty rebates and duty-free import of machinery, and decreased rebate on
finished leather exports. Many tanners set up leather garment and
footwear stitching units, and by the end of the decade 60 per cent of the
tanneries had integrated forward into stitching units.
BRANDING AND MERCHANDISING
In 2002, Bata’s product line included about 1,500 SKUs. Bata marketed
these SKUs under international brands licensed from the parent company.
Some of these international brands which had been introduced in the
early 1980s and even earlier included North Star, a unisex brand of
joggers aimed at teenagers; Power, a brand designed for specialized
sports footwear such as football, tennis and cricket; Bubble Gummers,
which were fun shoes for children; Marie Claire, fashion shoes for
women; Sandak, trendy low-cost plastic shoes worn as casual footwear in
the summer; and Safari casual footwear.
Over the years, new lines were 04-2360-2008-1 - 7 - introduced within

each of the main brands, such as Glow shoes, Light shoes, Compass, and
Music shoes within Bubble Gummers. Bata also increased advertising of
its Hawaii slippers, Emozioni line of women’s fashion footwear, and
Toughies, a school shoe brand.
Bata’s aim is to cater to the middle and upper middle class segments. Our
core customer is a family with four children. We do not want to compete
head-on with Servis, which caters to a somewhat richer segment. During
the late 1990s, Servis had a strong brand Calza in the PU slipper segment,
and Cheetah in joggers. With help from our development centre in
Padova Italy, Bata developed Plaza, which was a house brand aimed at
competing with Calza.
Plaza was a great success and captured a major market share of this
subcategory. We then looked at our jogger brand Power. Our
merchandising department said that Power could not sell as it was just not
competing with Cheetah. The management decided to take a period of
three years from 1999 to 2002 to develop a new product range.
At the same time, with the help of our design consultant in Taiwan, we
obtained training in new technology and designs. We are importing
complete finished shoes, and in 2003 are launching Power with a variety
of product lines. In the meantime, we introduced the Slazenger brand to
compete against Cheetah.
We had expanded from 4 brands in the early eighties to 40, and now we
are coming back to 5 global brands, i.e., Bata, Marie Claire, Power,
Bubble Gummers and Weinbrenner, in addition to our local brands such
as Sandak and Hawaii. We have decided to discontinue several brands
including Emozioni in women’s fashion, King Street in men’s, and North
Star in joggers. In the future we will go for global brands, using BIG
(Bata International Group). These could include Barbie a fashion shoe for
young girls, Hush Puppies for men, and Dr Scholl’s for women.
.
The merchandising department acted as a liaison between the sales,

factory production, purchasing and advertising departments. The
merchandising manager acted both as a merchandiser and brand manager.
In 2002, the department had three brand managers, one each for Hush
Puppies, sports shoes (Slazenger, Power), and women’s shoes (Marie
Claire), and also four merchandising officers, one each for other shoe
categories such as men’s formal shoes, children’s shoes, PVC, and
Sandak. Another position being considered was for non-footwear items
such as clothing.
BATA RETAIL DISTRIBUTION

Bata marketed shoes through three main distribution channels; retail,
wholesale, and government and export. In 2002, the retail department
operated through 256 company owned stores, 25 K-scheme stores and 91
agencies. A company owned store was owned, managed and run by
company employees. Typically, shoes sold through retail outlets carried a
42 per cent gross margin.
Expenses averaged 28 per cent of sales and included fixed salaries,

commissions, utilities and rent. Store managers received about 20 per
cent of their pay as fixed salary and 80 per cent in commission. An
agency was similar to a company owned store because it carried only
Bata brands. Bata provided shoe racks and some other furnishings.
In Bata has maximum control in its own company owned stores. We

provide training and service levels are high. However, union rules such as
overtime apply, which affect the store timings. Service levels are
generally poorer in agencies. Salesmen get low salaries, and there is high
attrition.
Every time we go in for training, we find a new set of people to be

trained. Promotional activities are also less uniform. Agencies often hurt
the Bata image. We took serious action recently when we found an
agency with dusty displays. At times, an agency with a good location will
try to blackmail us, by threatening to become an independent shoe store.

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INTRODUCTION

This decision entailed increasing manufacturing outsourcing from 17 per

The Bata Shoe Organisation was originally established by Thomas Bata

The company had a network of 75 shoe factories and tanneries in 95

An industry expert compared the advantages of being a large player

A major expansion in the leather and footwear industries took place

Furthermore, both tanners and footwear manufacturers gained from

BRANDING AND MERCHANDISING

Over the years, new lines were 04-2360-2008-1 - 7 - introduced within

The merchandising department acted as a liaison between the sales,

BATA RETAIL DISTRIBUTION

Expenses averaged 28 per cent of sales and included fixed salaries,

In Bata has maximum control in its own company owned stores. We

Every time we go in for training, we find a new set of people to be

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