How Bata Is Losing Its Footing In India

Anita Suri grew up wearing Bata India Ltd.'s shoes, thanks to her mother's insistence on its durability and comfort. They may not be the trendiest, but they'll last you a lifetime, she recalls.

"No matter how much running around or playing I did, those shoes never gave up on me," the 27-year-old techie says. But quickly adds that "the brand is now only a part of my childhood memories".

Once a staple in her shoe rack, the Bata shoes are now overshadowed by flashy, short-lived trends. Bata, Suri says, is "unfashionable" and "boring".

Her sentiment mirrors a prevailing trend, where the mass-loved Bata is losing share in India's Rs 1-lakh-crore footwear market. Its reputation for comfort alone is not attracting enough consumers any longer with the rise of fast fashion and growing emphasis on aesthetics. As even loyal customers like Suri make the switch to upstart brands like Metro, Asics and a host of private label entrants, Bata's growth has come to a standstill.

Sales Slump

Bata has seen its net sales grow by a mere 5.6% on a five-year compound-annual-growth-rate basis. The household footwear giant's stumbles have paved the way for other brands to rise in popularity among tech and fashion trendsetters. Rivals Metro Brands Ltd. and Relaxo Footwear Ltd. reported a 14.4% and 7.3% growth in sales, respectively, during the same period.

While the slowdown in Bata's sales is partly due to inflation-led weak demand in the mass segment, such a steep drop is a disappointment since the brand has been trying to sharpen its image and selling more premium brands, such as Hush Puppies, often ignoring its own — the Bata.

Its current premium portfolio also includes brands like Red Label, Floatz and Comfit. These brands together contribute about 15% to sales.

Bata's valuations are also underwhelming. Its current enterprise value to the Ebitda ratio is 23.05 — the lowest among its peers.

The company trades at a discount at 54.41 times its profit compared with Metro Brands' price-to-earnings multiple of 85.83 and Relaxo's 131.38.

Bata has 1,835 stores in the country versus Metro's 826 and Relaxo's 399.

Investors seem to have taken note with most of the negatives priced in the stock. Over the last six months, Bata's shares have plummeted 16%. From a long-term lens, too, the stock is in red. It has given a negative return of over 2% in the last five years while the stock of Metro Brands is up 144% and Relaxo is up 94%.

"In the past, utility products and pricing helped Bata become the go-to brand," Abneesh Roy, consumer sector analyst at Nuvama Institutional Equities, said. "But its low fashion quotient is averting repeat purchases and, hence, the growth has been missing."

Also Read: Bata India Q3 Results Review - Softness In Operating Profitability Drags PAT Down: Motilal Oswal

Sassy Over Mass(y)

One of the main reasons why Bata is losing out to competition is the shift in consumer trends. The lack of variety in designs left customers like Suri to look elsewhere for their footwear needs. Moreover, the brand has the largest network of stores in the country, but many of them are outdated.

"I can get trendy designs and better quality at similar price points online," Suri says. She doesn't mind paying Rs 6,000 for a pair of Skechers either.

"Marketing to GenZ and Alpha is an entirely different ball game," Manu Chandra, managing partner at Sauce.VC, told NDTV Profit.

Brand salience doesn't transmit across generations. Few brands are able to grow a cult following that stand the test of time and generations, according to Chandra, who backs new-age consumer companies at their early stages through his venture capital firm. "A name that comes to mind is Royal Enfield or, perhaps, even Thums Up," he says. "Otherwise, luxury brands keep that relevance by growing themselves as status symbols or unattainable — here fashion or automobile brands are great examples."

Bata seems to have become the new victim of generational brand fatigue.

"Brands like Bata, built on proposition of value for money and durability, are losing share in segments that look at footwear with a design-led lens, causing the likes of Puma or even startups in the sneaker space like Comet to take over mindshare among the young generation," Chandra says.

To stay relevant, he said, brands need to invest on search-ad campaigns and make their social-media game strong — that's where today's generation spend most of their time. "The tonality and visual identity of new brands are very different from incumbents like Bata, which have an older DNA."

Bata, meanwhile, is attempting to address each of its pain points — brand perception, marketing and distribution expansion.

After prolonged under-investment, Bata is now ramping up ad spends. In the December quarter, the company made significant investment towards marketing campaigns, which hit margin. Although, that didn't translate into desired sales as consumer sentiment remained muted.

Among the many missteps, Bata's past marketing campaigns like 'Surprisingly Bata' and 'It's Got To Be Bata' also fell flat, failing to lift sales. The attempt to rebrand Bata as a trendy company seemed forced to many.

However, the management said it was making investments in marquee properties to improve the visibility of the brand. Bata's advertising spending is now around 4% of sales compared to 2% earlier.

Also Read: Bata Aims For 20% Online Sales In Next 3 Years, Says CEO Gunjan Shah

Beacon Of Hope

India's footwear market is highly fragmented, with the share of organised players being 40%. Within that, Bata dominates with a 10% market share selling roughly five crore shoes annually.

With the right adjustments and a focused approach, there is still hope for Bata to regain its foothold in the market and appeal to the evolving demands of today's consumers, according to analysts tracking the brand.

Both ends of the spectrum — value as well as premium — can grow once inflation softens and Bata will likely benefit, said Girish Pai, research analyst at Nirmal Bang.

After all, the country's per capita consumption is currently at 1.9 pairs annually, much lower when compared to the average for Chinese and Indonesian consumers at three pairs, he said. "Despite the disappointment on the revenue growth front in recent quarters, we continue to be hopeful of a turnaround in FY25–26."

What gives him the optimism is also Bata's conscious efforts to move to a "cooler" and "closer-to-international" positioning in a bid to appeal among the younger consumers through various means.

The company has stepped-up spending on advertising with celebrity endorsers, has been launching new designs and bringing more third-party brands into the country to cater to young consumers, improving customer experience through 'red-concept' stores and better visual merchandising. It is also strengthening its omnichannel initiatives through the franchise route.

Pai said the focus on the sneakers and athleisure apparel segment by new Chief Executive Officer Gunjan Shah would help bridge the gap between Bata's share of consumer wallet and the share of mind. He underscored that Bata's return on invested capital should see an upward trajectory in the medium term and support higher PE multiples on the back of these measures.

However, Nuvama's Roy said incremental benefit from the online channel would be limited, given Bata's current portfolio.

Similarly, gains from a widened wholesale channel will be limited as it is a value-driven channel, which is a category where Bata lacks, he said. "Same-store sales-growth uptick shall be a key growth driver."

In the third quarter, same-store-sales remained flat over the previous year as higher pricing, led by improved product mix and channel mix, was offset by volume decline.

Bata has maintained its target to renovate 30-40 stores on a quarterly basis. It has also tied up with Nine West, a new brand in the premium women's footwear and accessories segment. It plans to launch it in 50 stores initially, with an aim to take this format to the level of Hush Puppies over the next five to 10 years, given the brand parentage and visibility globally.

"We would want to see a significant democratised newness and portfolio evolution across the store network," Shah had told analysts in February. "The premiumisation journey at Bata will continue, while we'll want to ensure that the mass market becomes more competitive wherever applicable."

Also Read: Metro Brand Gets 'Buy', Bata 'Neutral' As Goldman Sachs Initiates Coverage