FABINDIA STRATEGIC ANSLYSIS:

EVALUATING INVESTMENT
POTENTIAL

Pallavi Dash
Student ID - 10232705
About the Firm
Fabindia Ecommerce is a consumer lifestyle platform that boasts a rich legacy of 62 years, and is
deeply committed to promoting authentic, sustainable, and traditional Indian lifestyle products.
With a focus on preserving and promoting India's rich cultural heritage, Fabindia offers a wide
range of high-quality and ethically-sourced products that reflect the country's diverse crafts,
textiles, and art forms.

Product Portfolio

The company aces the retail experience by providing a seamless omnichannel experience to its
customers. With its own retail stores, experience centres, and franchise stores, Fabindia has built
a vast network of retail touchpoints across India. It has a strong digital presence, with its own
website, mobile application, and presence on third-party marketplaces.

On the supply side, Fabindia has a network of Contract Manufacturers who in turn engage with
artisans ( which include both weavers and craftsmen) and Supplier Communities (this includes the
farmers) across India. This allows them to source high-quality products that are sustainable,
ethical, and unique.

In terms of ecommerce sales, Fabindia has seen a significant increase in the past few years. From
online sales accounting for only 4% of total revenue in fiscal 2019, it has increased to 16% in fiscal
2021, with digital revenue of approximately Rs 931M. This growth has been majorly driven by
sales through its own ecommerce website followed by third party marketplaces. The company's
efforts to increase accessibility through third-party marketplaces while maintaining control over
the customer experience on its own website has helped its ecommerce strategy.
Strategic Analysis using the Business Model Canvas

Strengths:
• Strong network of contract manufacturers, artisans, and farmers for smooth supply chain
• Diverse customer base including traditional textile and handicraft enthusiasts, interior
design enthusiasts, Indian expatriates, and international customers
• Strong brand reputation and legacy channels for smooth supply chain

Weaknesses:
• Reliance on contract manufacturers and supplier community for product sourcing, which
can lead to supply chain disruptions
• Heavy investment in marketing and advertising costs, which can impact profitability
• Limited international presence compared to competitors

Opportunities:
• Increasing trend towards sustainable and ethical consumption, which aligns with
Fabindia's values and product offerings
• Expansion into international markets to reach a larger customer base
• Diversification of product offerings to include more home decor and lifestyle products

Threats:
• Intense competition from established e-commerce players in the Indian market such as
Amazon, Flipkart, and Myntra
• Increasing popularity of fast fashion and low-cost clothing options, which may impact
sales of Fabindia's premium-priced products
• Fluctuations in raw material prices, particularly for organic cotton, which may impact
profitability.
Micro and Macro Environment Analysis
Microenvironment
1. Supplier and Supply Chain Process

A. Obtainment and Contract Manufacturing

• Production capacity analysis is based on previous season's deliveries and quantities
supplied
• Allocation of requirements and orders placed accordingly
• Surplus capacity allocated to additional Contract Manufacturers to manage increased
demand or delivery failures
• Products obtained from across India, including wool from Uttarakhand, tussar cotton
from Bihar, furniture from Rajasthan, personal care products from Delhi, Uttar Pradesh
and Rajasthan, and organic food from various states
• Major crafts are provided by Contract Manufacturers through artisan and craft clusters
across India, with contract manufacturing agreements in place.

B. Finished Product Management

• The finished products are received and managed at a cluster or central warehouse.
• The products are then transported from warehouse to stores for D2C order and e-
commerce order fulfilment.

C. New Product Development

• Designing, sampling and cost closure involved in the process, which adds to the timelines

2. Competitors
Fabindia competes with Biba, Global Desi, and Manyavar - some of the leading brands in the
ethnic wear segment. As customers increasingly turn to online shopping, these brands have had to
adapt their strategies to remain competitive. This segment explores how these brands compare in
terms of e-commerce traffic, pricing of products, and supply chain management. It also examines
their unique positioning in the market and how Fabindia leverages its e-commerce compared to
other ventures to reach a wider audience.

Web traffic
 • Biba has the highest monthly visits, while Fabindia has more monthly unique visitors.
• Manyavar has more monthly unique visitors than Fabindia but lower visit duration
and pages per visit.
• Global Desi has the lowest number of monthly visits and unique visitors but higher
visit duration and pages per visit than all other channels.
• All brands, including Fabindia, have a bounce rate of over 40%, indicating room for
improvement in engaging visitors and providing relevant content.

Pricing

In the everyday-wear segment, most brands have similar prices, while occasion-focused designer
brands like Anita Dongre and Ritu Kumar charge a premium. However, Fabindia sets itself apart
by offering artisanal, handcrafted ethnic wear.

Value Chain Models

The apparel industry has a value chain that includes raw material procurement, spinning, weaving,
garmenting, branding, and retailing. Branded ethnic players operate using three different models.
Some players such as TCNS and Global Desi use an asset light forward integrated model that
focuses on designing, branding, and retailing. Others, like Manyavar, use a hybrid model that
includes manufacturing carried out in-house and through third party job workers. Manyavar also
procures finished products directly from third-party manufacturers. Fabindia, on the other hand,
operates a fully integrated supply chain model that manages the entire value chain by working with
contract manufacturers who are directly engaged with artisans. This model provides high visibility
and flexibility, making it easier for companies to quickly respond to changing trends.

Fabindia's integrated supply chain model is unique and difficult to replicate, as it requires a long
set-up period. The company currently works with close to 50,000 rural artisans and has the
potential to reach out to the wide artisanal base in the country, totalling over 7 million artisans.
This model enables Fabindia to have a high level of control over the production process, resulting
in high-quality products. In contrast, Manyavar's hybrid model provides additional flexibility to
cater to changing trends. Players like TCNS and Global Desi focus primarily on designing,
branding, and retailing, while outsourcing manufacturing to third-party suppliers.

3. Customers
• Fabindia's core customers are individuals who value traditional and ethnic wear,
including handmade, handwoven, and handcrafted apparel, home decor, and personal
care products. They are primarily middle to high-income, well-educated, and well-
travelled, with a majority being women of all age groups.
• The typical Fabindia customer values sustainability, authenticity, and social
responsibility. They prefer natural and organic fabrics such as cotton, silk, and linen,
and are willing to pay a premium for these products. They also appreciate the unique
and traditional designs of Fabindia’s products and the fact that they support local
artisans and craftsmen.
• In recent years, Fabindia has also been targeting younger customers, particularly
millennials and Gen Z, by introducing more vibrant and contemporary designs while
still maintaining its traditional roots.

Macroenvironment
1. Market Trends
• Private final consumption expenditure on apparel and footwear has been steadily
growing, indicating a large potential customer base for Fabindia's e-commerce
platform.
• Despite the adverse impact of COVID-19 in 2021, the apparel and lifestyle spending
is already witnessing a revival to pre-COVID levels in 2022, suggesting that there is
demand for online shopping in this sector, which Fabindia can capitalize on.
• Softened real estate prices and low commercial occupancies are expected to provide
an additional boost to the operating cost structure of warehouses. This could lead to
apparel and lifestyle companies, including Fabindia, accelerating their online store
plans, indicating a favourable industry outlook for e-commerce ventures.
• According to report published by EY, the ethnic wear market in India was estimated
at INR 1,418 billion as of Fiscal 2020, accounting for approximately 27% of the overall
apparel market, and is expected to grow to INR 1,879 billion by Fiscal 2026.
• The women's ethnic wear segment, which is the largest category, presents significant
potential for an unbranded to branded shift, which Fabindia can leverage by
establishing itself as a trusted and well-known brand in the online ethnic wear market.

2. Digital and Technological Adoption

• Growing digital landscape in India: With the increasing number of internet and
smartphone users, India has become a lucrative market for businesses to expand their
digital presence. Fabindia can leverage this growing digital landscape to expand its
online presence and reach out to a larger customer base.
• Social media as a powerful tool: Fabindia can harness the power of social media to
reach customers and influence their behaviours. With a strong brand identity and
reputation, the company can use social media influencers to boost engagement and
drive sales.
• Increasing demand for omni-channel routes to market: With the increasing usage
of smartphones for shopping, customers are looking for omni-channel routes to
market. Fabindia can cater to this demand by expanding its digital footprint, offering
customers the convenience of online shopping as well as in-store experiences.

3. Dynamics Specific to India

• Economic Regulators - India is the 6th largest economy in nominal GDP and 3rd
largest at purchasing power parity. Despite the pandemic, India's economy is expected
to grow at a CAGR of 7.6% between Fiscal 2022-2026, as per IMF estimates.
• Demographic Driving Consumption - India is expected to become the world's
third-largest consumer market by Fiscal 2030, driven by a large young population,
urbanization, employment opportunities, and increasing female workforce
participation, as projected by the World Economic Forum.
• Growing young and working age population - India's young and expanding
population is expected to drive an increase in income levels and discretionary
spending, fuelling growth and consumption, with the working-age population
expected to increase to 65% by Fiscal 2036, with an expected net addition of 12
million people each year.

4. International Environment
India has a large diaspora population of over 18 million people residing in major global
markets, promoting Indian culture and traditions. This presents an opportunity for
Fabindia to tap into this market through their e-commerce platform and cater to the needs
of Indian expatriates looking to connect with their roots.

5. Society
• Urbanization - Approximately 35% of India's population lived in urban areas in Fiscal
2020, which is expected to increase to 38% by Fiscal 2025, resulting in an additional
52.6 million people living in urban areas, and increasing purchasing power.
• Female Participation - The percentage of women pursuing higher education in India
has increased, leading to increased economic freedom and household earnings. The
women's workforce in the services sector has also increased from 17.5% to 28%.
 • Important Consumer Themes - Indian consumers are exhibiting important trends,
including a preference for convenience, value for money, and sustainability.

Financial Performance over the Years (2017 -2021)

Based on the above ratios, it can be concluded that the Fabindia e-commerce business is not
favourable for investment at the moment. The company is not generating profits efficiently, and
the ROE and ROA are negative. Additionally, the debt to equity ratio has increased, indicating
that the company is relying more on debt financing. However, the current ratio has improved, and
the inventory turnover ratio and gross profit margin are favourable, indicating that the company
is able to sell its products efficiently.

To Invest or Not to Invest ?

Verdict - NO

Even though the market analysis looks favourable, below

1. Unfavourable financials: Fabindia's e-commerce business is currently not generating
profits efficiently, with negative ROE and ROA ratios. Additionally, the company is relying
more on debt financing, indicating financial instability.
2. Highly competitive product: Fabindia's product is not unique and has strong competitors,
making it challenging for the company to stand out and gain market share.
3. Underutilized offline stores: Fabindia has yet to capitalize on its offline stores for online
sales, missing out on potential revenue streams and growth opportunities.
4. Poor social media presence: Fabindia has little to no visibility on social media, which is a
critical platform for reaching and engaging with customers in today's digital age
References -
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