Bata India Ltd, one of India’s oldest shoe brands, has had a rough ride. Battling rising wages and militant unions, it has made several attempts to restructure its India operations over the past few years.
The shoe maker also changed managing directors in rapid-fire succession before appointing Marcelo Villagran, a Bata veteran of 33 years who worked in markets ranging from Canada to Chile, to the top post in India. Since landing in India in February 2005, Villagran has initiated a host of measures such as keeping the stores open for extended hours and outsourcing manufacturing to Chinese and Malaysian companies.
He also plans to use Bata’s surplus land in Kolkata for real estate developments. He suspended more than 200 employees when they refused to comply with the management’s decision to make staff work in shifts in an effort to keep the stores open for extended hours. In 2005 (Bata follows a calendar year for accounting purposes), the company turned its first profit in three years.
In an interview with Mint, the 65-year-old Villagran said he hoped changing the way the company does business will help it ride the boom in an economy expanding at 9% and admitted the shoe maker was slow to change. Edited excerpts:
How is Bata trying to reinvent itself in the changing Indian scenario, especially at a time when the retail sector is booming?
We are in the process of reorganizing our company. This company was born in 1932 and we have been in India for many years. We were working in a closed economy and we had a culture and attitude according to that economy. Now, the economy is open and there are very few restrictions. That’s why we have to change totally. We started the changes in 2004 and major changes were done in 2005 and 2006.
What are the changes you are talking about?
The changes were to adapt to the present scenario, to specialize our factories. The shoes that we cannot produce or which are not very competitive, we have decided to buy them outside.
We are buying from within India as well as outside India. We are preparing the designs and we give them to suppliers to produce where they can produce more efficiently than us. We came to the conclusion that in the present scenario, we cannot produce 100%, especially for a store like Bata which is a family store, meaning there are shoes for the father, the mother, children, for everyone and for different occasions. Also, we are putting our finances in order because we lost money in 2002, 2003 and 2004.
In 2005, we rearranged our finances to capitalize on our company and today we have started renewing our stores.
We opened 37 stores last year, and this year we had opened 23 stores till last week and we plan to open 70 stores by the end of the year. The stores are of new international designs. You’ll see the Bata stores in Malaysia or Singapore and they are exactly the same. That’s our strategy to prepare for the new retail scenario. At the same time, we are closing smaller stores and opening bigger stores. We are closing 46 small stores because to have variety and compete with others, you need bigger stores.
What percentage of your production comes from outsourcing and which countries other than India are you sourcing from?
We are doing it in India, Malaysia and China. At present, we produce 62% in our factories, and in three more years, we plan to bring it down to 52%. But that doesn’t mean we have to reduce production at our factories. Our factories will continue to produce and there will be an increase in production. The situation is that we are selling more.
What was the proportion when you arrived in 2005?
At that time, it was something like 70%.
Have you been able to cut costs that way?
It’s not a question of cutting costs. We don’t see it that way. Here we go for some kinds of shoes that we can’t produce. Earlier, we did not have those kinds of shoes in our stores.
Have you been able to cut costs that way?
By what percentage?
It’s about six to seven percentage points.
What are the other changes you are planning?
Also, we are restructuring our manpower in our stores to work with more flexibility. That’s how the competitors in India are working. As we have worked for many years in a closed economy we created some inflexibility in the interiors of the company.
How do you propose to change that?
We are working seven days a week where a market requires and we are allowed. And we would increase the shopping hours. That’s what retailers in India and throughout the world are doing.
Before, we had to work 48 hours a week and everybody arrived at the stores at 10 o’clock and left by 8 o’clock. Now, we do not need every-one to start arriving at 10 o’clock.
So you have extended shopping hours?
Earlier, we were open 48 hours per week—that’s the maximum people can work as per law. People still continue to work only 48 hours per week, but now some people arrive early and go early and some people arrive late and go late.
That’s how we are able to open 50 hours, 55 hours, 60 hours per week, depending on different markets in different cities. You can’t close your stores at 8 o’clock when others are closing it at 10.
But your staff in many parts of the country didn’t seem to like the shift system and they revolted and you had to fire some people?
We are in a market to serve the customers. If you do not want to serve the customer then you can’t work in a store, not only in Bata but any kind of store. We fired those who don’t want to adapt to serve the customers.
Do you think that Bata has been slow in adopting to the rapid changes in India?
I think yes, totally so. We had to act very quickly. Our competitors worked from 10 in the morning to 10 in the evening, seven days a week for several years and we have just started to work like them now.