Fabindia Overseas Private Limited*

B. Mohanty1 & Rajeev Roy2

* Received January 29, 2008; Revised March 3, 2008; Both authors have contributed equally to thedevelopment of this case.

1. Professor, Xavier Institute of Management, Bhubaneswar, email: brajaraj@ximb.ac.in2. Associate Professor, Xavier Institute of Management, Bhubaneswar, email: rajeev@ximb.ac.in

1.0 INTRODUCTION

In July 2007, a TNN reporter broke thenews that a private investment fund ledby the former World Bank PresidentJames Wolfensohn, had picked up a 6%stake in Fabindia, an Indian ethnic wearcompany, for $11 million. That put thevalue of the company at around $183million or Rs.730 crore. Fabindia, in fact,was approached by a number of potentialinvestors but they chose to go with theinvestment vehicle promoted byWolfensohn because they were keen tochoose an investor who shared theirvalues.

Various reports mentioned that the fundsso raised by Fabindia would be used forfinancing the expansion plans of thecompany. The fund would also be usedto develop support structure particularlyfor providing advanced technology andtraining to the artisans, who were theprime suppliers of fabrics and other rawmaterials to the company.

2.0 ORIGIN

John Bissell who founded Fabindia wasborn in Hartford in Connecticut and was

educated at the Brooks School in NorthAndover, Massachusetts, and at Yale. Hewas introduced to India by his father,who told him stories of his time in Indiawhen he was posted there during theSecond World War.

John Bissell worked as a buyer for theAmerican departmental store, Macy’s. In1958, under a programme run by the FordFoundation, he came to India to advisethe Central Cottage IndustriesCorporation which was formed by theIndian government mainly to showcaseIndian handlooms and handicrafts. Hisrole was to advise on issues relating tomarketing Indian handicrafts.

He was new to India and he did not knowany Indian language. In spite of theseinconveniences, he travelled extensivelyover India and met several craftsmen. Hecame across a lot of skill, but he couldsee that the talented craftsmen had noidea about marketing their products andthey were in no position to access distanturban or international markets. He likedhis experiences in India and kept comingback.

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His experience in the retail businessallowed him to recognize anentrepreneurial opportunity and hedecided to set up a business based onIndian crafts, particularly traditionalweaving and handlooms.

Initially his goal was to export to theUS and to other western countries.With that aim in mind, he incorporatedFabindia in 1960. The companyoperated from Bissell’s residence in theposh Golf Greens locality in New Delhi.The company was mainly intoexporting and initially its business wasconcentrated on upholstery fabrics,durries and rugs. Growth was slow forthe company and in 1965 the companymoved out of his house and into aproper office. By then, Fabindia had anannual turnover of rupees 20 lakh. Mostof this turnover was accounted for bya single buyer and a single supplier. A.S. Khera made durries and other homefurnishings in his workshop in Panipatand most of the output was purchasedby the UK based Habitat, which wasfounded by a famous interior designer,Sir Terence Conran.

On the personal front, Bissell marriedBimla Nanda, who served as the socialsecretary to the American Ambassadorin India. Soon, they had a daughter,Monsoon, and a son, William.

3.0 THE START OF RETAIL

Bissell’s business continued without muchof change in its approach till about 1976,when he opened the first Fabindia retail

outlet in the Greater Kailash market, anupmarket shopping area in South Delhi.During the early days, merchandisingwas not a planned activity. WheneverBissell saw something of interest, heprocured it for display at the store.Sometimes he would invite the craftsmenalso, to display the products and assistin the sale. This orientation of customerrelationship later became a part of theculture in the company.

Bissell’s Greater Kailash shop was asuccess and he attracted a distinct typeof visitors to his shop. But in spite ofsuch success in its direct retail business,Fabindia remained dependent onexporting and Habitat continued to betheir single major buyer. In the early80’s, Fabindia made a significantaddition to their range by adding readyto wear garments in their retailofferings. From late 70’s, Bissell hadthought of marketing readymadegarments. In an interview in 1977, hehad said, ‘’The greatest thing thathappened to our business was the movein Europe and America a few years backto the natural look - natural textures,natural fibres - and away from thingslike polyester and nylon’’. Similarly, inIndia, a distinct group was emerging likein Europe and America. Some of India’snew young politicians patronizedFabindia and were able to provideFabindia with nationwide exposure forits products. In spite of all that, theirdomestic retail business grew slowly andthey continued to focus their primaryefforts on their export business.

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4.0 BREAK-UP WITH HABITAT AND SUBSE-QUENT GROWTH

All that changed in 1992. An unexpecteddevelopment came as a shock to Bissell.Habitat, with whom a close businessrelationship had grown over the lastmore than 30 years, was acquired by alarger firm and the new entity abruptlyended the long buying arrangement withFabindia. Fabindia had not tried todevelop any strong relationships withother foreign buyers and even in the faceof such a crisis, it was unable to find anybulk buyer, who could provide analternative buying support.

One viable option was to aggressivelydevelop their domestic retail operations.But, before Bissell could come up with astrategy for his business, he suffered aparalytic stroke. This led to WilliamBissell, his son, to step in to run Fabindia.Very quickly, he was able to set Fabindiaon the path towards domestic expansion.Eighteen years after opening their firststore, Fabindia opened their second storein Delhi in 1994.

John Bissell’s bad health continued andin 1998, he succumbed to aneurism - adisease related to blood vessels. In 1999,at the age of 32, William formally tookover as the Managing Director ofFabindia. The Company’s domesticexpansion had been spectacular afterWilliam’s taking over. By 2001, Fabindiahad six stores concentrated in the metrocities. By the end of 2004, these hadincreased to 20, and the company wasseriously considering expanding its

stores into the tier-II and tier-III cities aswell as overseas. By the end of 2007Fabindia had 75 retail stores across Indiaand in addition stores in Dubai, Romeand Guangzhou in China.

5.0 PRODUCTS AND PRODUCT MIX

The products of Fabindia in the initialyears consisted of only upholstery fabricsfor export to overseas markets. Then inthe early part of 1980s readymadegarments were added to its product lineand in 2004 organic products were added.In 2006 body care products wereintroduced. Thus, the product mix ofFabindia could be divided into threebroad groups, namely Garments, HomeProducts and Organics.

Garments

Though Fabindia was the supplier ofupholstery fabrics initially, it gainedpopularity as a retailer of readymadegarments. It started with men’s wearwhich occupied a shelf in some selectstores. Gradually a whole corner wasoccupied with men’s wear, women’s wearand kid’s wear in all the stores. InOctober 2007 teen’s wear was alsolaunched which comprised camisoles inbeautiful prints, khadi salwar sets invibrant colours and kalamkari skirts. In2006 70% of the Fabindia’s revenue camefrom garments segment. Along withreadymade garments Fabindia storeshave a wide collection of accessories likedupattas in a variety of colours, weaves,fabrics and prints, scarves and stoles insilk and cotton ,neck ties and shawls.

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Fabindia’s garments were known fortheir ethnic look. These garments usedvegetable-based and other natural dyesand were generally in soft colours. Therewas a fine-tuned balance betweentradition and modernity. Hand blockprinted short kurtas, mix and matchchuridar kurta sets with or withoutdupattas, straight skirts in raw cotton,long crinkled skirts and white cotton orchanderi dupattas were some of the verypopular items among garments. SomeFabindia customers who used Fabindiagarments said that these were verycomfortable to wear and were finecombinations of Indian aesthetics andwestern design sensibility.

Home products

In India there were hardly any organizedoutlets for home furnishings be itupholstery, curtains, linens or homefurniture. Mostly the local carpenters dealtwith the local demand where furniturewas made as per customer specification.Similar was the case with curtains andlinens. There were local showrooms whichcatered to the need. Fabindia was one ofthe first retailers in India that offered a“complete home solution”. The Fabindiarange of home products comprisedupholstery, curtain fabric and readymadecurtains and bed linens. Home furnishingscomprised furniture made of only woodand metal, which went well with thephilosophy of Fabindia.

Fabindia was into almost all elementsof home décor and furnishing. A webstory on a website popular in the Middle

East rated Fabindia very highly, saying‘If I can tempt you away from the mallsfor just one visit – then I urge you toput Fabindia on your l ist’(www.7days.ae, 2007)

Organics

Fabindia entered into the Organicproduct market with full commitment in2004. Its product range comprised readyto eat items like dry fruits, cereals,honey, jams, pickles and coffee. In 2006it added a range of body care productsto its product mix. It included shampoos,soaps, hair oils, moisturizers, bodyscrubs, face packs, hair conditioners andskin care products.

Fabindia promoted its products, mostlythrough posters, word of mouth andevents. The youth leaders whopatronized Fabindia garments were likebrand ambassadors for Fabindia. Thenews reports also to a certain extentworked as advertisement for Fabindia.One such news item which described theorganic products is given in Box 1.

6.0 STORES AND THEIR MANAGEMENT

Most Fabindia stores are owned or leasedby Fabindia and Fabindia operated thestores. There are a few exceptions likethe joint venture in Rome and thefranchise outlet in China. The number ofFabindia stores has increased over theyears, particularly under William Bissell.From three stores in 1996 it has gone upto 75 stores in 2007. The growth can beseen from Figure-1. The growth in salesand profit are shown in Figure 2.

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Box 1: News Item on Fabindia Organic Products.

Saturday, March 5, 2005, The Indian Express.Fabindia has launched organic foodproducts after due certification as per the standards set by the International Federationof Organic Agriculture (IFOAM) and the National Programme for Organic Production(NPOP). This latest initiative by Fabindia, the pioneers in the field of promotion ofcottage industry on a mass scale, has made available organically grown and certifiedvarieties of rice, flour, pulses, beans, teas and coffees, sugar and jaggery, honey, cashew,groundnuts, walnuts, salts, peppers, and herbs at Fabindia stores across the country,including the Sector 9 outlet at Chandigarh. Organic food is better due to its nutritionallevels and exclusion of toxic chemicals and GMOs and contains higher levels of essentialminerals, vitamins and anti-oxidants. Worldwide, the demand for organic goods istremendous. Statistics are predicting that the global market was only $17 billion in theyear 2000, may touch the $31 billion mark by 2005 and India’s current share is only0.001 percent. In 2002, according to government statistics, from a total food productionof over 200 million tonnes, the country produced only 14,000 tonnes of organic foodproducts.According to Dilraj, manager, Fabindia, Chandigarh, “Through thecertification process, we have ensured that the customer actually gets organic food. Wehave worked to build relationships with farmers and farm cooperatives, ensuring thatour fair trade policy is maintained. From the pristine slopes of Himachal Pradesh andthe fertile valleys of Punjab, right across India to the natural forests of Coorg region inKarnataka and the plains of TamilNadu, farmers are supplying us with organic varietiesthat are ideally suited to their own local conditions. Our policy of fair trade makestraditional organic farming a viable modern economic option. We believe in givingfarmers a fair price for their produce, and in supplying the very highest quality food toour customers,” she added.

Figure 1: Growth of Stores since William tookover as MD

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Figure 2: Profit and Turnover in RupeesCrores (2002 to 2006)

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Fabindia has primarily three differentkinds of stores, namely, premium stores,regular stores and concept stores. Bothpremium and regular stores carried thefull range of merchandise but in premiumstores, the proportion of high end goodsis much more than in the case of regularstores. Concept stores have been openedto test new markets. These are typicallysmall stores with very few types ofproducts in stock. Overall, Fabindia dealtin over 150,000 stock keeping units(SKU’s). However, no single store carriedall the items.

Fabindia stores focused on creating theright ambience. Many of these stores arelocated in famous historical landmarks,such as in Jeroo in Mumbai, Ilford Housein Chennai and Charles Correa’s housein Bangaluru. The stores themselves havedécor and layouts that highlight theirtraditional and natural focus. Even storepersonnel are encouraged to wear clothesthat reflect the Fabindia ethos oftraditional and natural look.

With regard to the management of stores,the managers are given a lot ofindependence in the way they operate.They are given budgets for buying andfor operational costs. Store budgets areset centrally after consultations with thestore managers. Budgets are determinedprimarily on the basis of previous year’ssales, next year’s forecasts and otherexternal factors.

Store managers interact continuouslywith merchandisers to stay abreast ofanticipated new styles and trends.

Managers regularly go for field visits toexplore new possibilities. They alsoattend regular training programmeswhere the accent is on learning modernmethods of retail management as well asremaining true to Bissell’s vision for thefirm. The ‘mystery shopper’ technique isused to keep a watch on operations instores.

7.0 DESIGN

Fabindia made its first foray towardsincorporating contemporary design in1977, when it invited the designer, RitenMazumdar, to design and make acalligraphy-based home furnishingscollection. This was a highly successfulendeavour and it encouraged thecompany to bring about new innovationsin its products. This practice of invitingdesigners has continued to this day. Veryoften, weavers and craftsmen are invitedto interact with the designers and to holddemonstrations and exhibitions inFabindia stores.

In a recent buyer-seller meet in Varanasi,representatives of Fabindia met localweavers and traders. A small display anddemonstration of local weaves and craftswas organized. The Fabindiarepresentatives gave inputs on currentmarket trends and emerging designs.They stressed on the importance ofproduct innovation and diversification.

Taking this further, Fabindia suggesteda prototype development project.Merchandisers from Fabindia indicatedtheir preferences and the local weavers’

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cooperative worked with a designer fromthe National Institute of Design (NID) todevelop samples as per Fabindia’sspecifications. The project was verysuccessful and Fabindia placed an initialorder for fabric worth Rs.24 lakh.

8.0 SUPPLY CHAIN

Fabindia’s supply chain is uniquelydesigned keeping in mind its uniquebusiness model and its ideology. Mostof its suppliers are based in rural India.For fabrics, the suppliers are mainlyweavers but there are also a few largerfabricators. Fabindia sourced its organicproducts from farmers, small scalemanufacturers and non governmentorganizations (NGO).

As many of its suppliers are uneducated,much of Fabindia’s purchasing is carriedout without written contracts. The systemoperates on trust and verbalcommitments.

On the other hand, Fabindia is far moreflexible and forgiving than many otherprocurers, especially from the West.Fabindia understands the limitations ofits weavers and small suppliers. So ifthere are some minor changes in theoriginally agreed upon design, the goodsare not rejected or returned. Theprocurement team talks with others inthe organization and tries to find someway to gainfully use the fabric.

Also a number of times the supplies aredelayed. This can play havoc withcentralized planning, especially whensales and demand patterns are heavily

dependent on the prevailing season.Getting a delayed supply of fabric, meantfor winter, could mean storing it foralmost a year, that is till the next winter.In spite of such issues, Fabindia does notturn away suppliers who deliver late.

Till recently, Fabindia used to make spotpayments for all deliveries. Now theypay within 15 days of delivery. Many oldemployees at Fabindia resented thismove and said that this is not in keepingwith the ideology of Fabindia. Williamwas able to convince them that for sucha large organization, business sensedictated a change in their establishedpractice. He reiterated that Fabindia wasa ‘for profit’ organization with socialmotives.

There are some practices in Fabindiawhich might seem like ad hoc procedures.Weavers sent their fabric in ‘thaans’. Athaan was a roll of fabric that could be20 to 25 metres long. The weaver’sstatement regarding the length wasgenerally accepted and only randomchecks were occasionally carried out tocross check the statements.

9.0 PHILOSOPHY

Fabindia believes that it does more thanjust collect and sell handicrafts. It seesitself as an enabler of a certain way oflife. By doing its business in a certainway, it is trying to demonstrate thatthe urban living model is not the onlypath to development for a society. It istrying to prove that old patterns ofliving do not have to be sacrificed for

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the sake of modernization anddevelopment.

Gandhiji had a vision of an India builtaround its villages but the model ofdevelopment followed in India andelsewhere led to the growth of an urbancentric economy. Fabindia is trying topresent an alternate vision. Growth ofurban areas does not necessarily meanthe death of the village. One is notnecessarily better than the other. Bothneed each other. There exists a symbioticrelationship.

Long before corporate socialresponsibility and eco-friendly businesspractices were seriously talked about inmanagement, Fabindia practised theseconcepts. Production of organic products,bringing out the village based skillswhich were hitherto hidden from theworld, providing equitable employmentto traditional artisans and market fortheir products, enabling the ruralcraftsmen to form self sustainingcommunity based organizations andpromoting natural dyes, natural fabrics,etc, were some of its activities symbolicof its socially responsible and eco-friendly practices.

10.0 COMMUNITY-OWNED ENTERPRISE

Fabindia is trying to establish communityowned enterprises in which artisans willbe the shareholders of newly formedcompanies. The small and medium scaleartisans, who quite often run short of fundscould trade their shares to obtain funds forrunning their businesses in the times of need.

This is in line with the companyphilosophy and mission.

The company has tied up with ICICIBank’s Sandhi Craft Foundation, whichwill provide Rs.100 crores over five yearsto Artisans Micro Finance Private limited(AMFPL), which will help establish thesecommunity owned companies. Fabindiawill guarantee 8% of the 100 croresthrough a bank guarantee of 4% and anFDR for the other 4%.

The companies will be of varying sizesand 49 % of their equity will be held byAMFPL, 15% by outside investors andthe balance 36% by the local craftspersons.The companies will have access to amaximum investment of two croresrupees and they can avail a loan ofanother one crore rupees. AMFPL willalso work to establish a new tradingsystem, to enable shareholders to buy orsell their shares a few times a year.Providing a market for trading shareswill enhance the value of theirshareholding. A corporate structure willhelp artisans to raise funds for workingcapital.

AMFPL has a long term goal ofestablishing 100 community ownedenterprises. The first 20 are targeted tobe set up in the first 18 months itself.Within a few months of its launch in 2007,AMFPL had already established ninecompanies in Faridabad, Jodhpur, Jaipur,Bikaner and Bhuj.

Apart from finance, Fabindia also hopesto improve quality standards and supply

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technological know-how. A design panelwas to be set up to help artisans to createdesigns in sync with market demand.Also, heads of the companies were toundergo a course on businessadministration in a leading businessschool.

The inspiration to set up AMFPL camefrom the success of Delhi ArtisansHandicrafts Pvt. Ltd. It was establishedin the early 90’s and it currently has aturnover of Rs.10-15 crore. Artisans heldshares and the share prices had seen a25-fold increase over this period.

11.0 AWARDS AND ACCOLADES

Fabindia is very careful to maintain itsbrand and its brand has won a numberof accolades. Fabindia won the ‘BestIndian Retail Brand’ in 2005 and 2006. Ithas also won awards for ‘DesignerPromoting Indian Craft or Technique’ atthe Idea Zee Fashion Awards.

12.0 COMPETITION

Fabindia’s main competitors are theethnic wear retailers like Khadder, Wand Good Things, who are alsoexpanding at a rapid pace. W, forexample, has well over 30 exclusivestores now, in addition to being availableat some multi-brand outlets.. There isalso severe competition from the ethnicwear labels of modern Indian retailchains, such as Shoppers Stop andPantaloons. Stand alone stores like Shristiand Biba in Bangalore, Prapti in Kolkataand Sadka and Shoma in Delhi have been

doing well for a while and could pose achallenge by expanding.

New competition is expected fromoverseas retailers also. The governmenthas already permitted single brandretailers to set up shop and others likeCarrefour, Walmart and Metro havedevised ways to get into the Indianmarket. Powerful Indian business houseslike Tata, Reliance and Birla areexpanding their retail businesses.

13.0 FUTURE

From a turnover of 36 crore rupees in2000-01, Fabindia has grown to having aturnover of Rs.130 crore in 2005-06. Itregistered a CAGR of about 38% in theperiod 2002-06. Such phenomenal growthhas not come at the cost of profits. Theprofitability has been maintained at a rateof 6% for the entire period (See Figure-2). For Fabindia William Bissell has set avery ambitious target of reaching 250stores and a turnover of Rs.1000 croreby 2011.

The growth is expected to come from newstores as well as increase in sales fromexisting stores. That increase will beachieved by increased emphasis onpremium products. Also, Fabindia hasattempted to decrease its dependence onfabric based businesses by increasing itsother product lines. Currently organicfoods, body care products andhandicrafts form a significant part of itstotal sales.

Growth in locations was expected tocome from expansion in promising

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overseas markets as well as a greaterpenetration of the markets in smallertowns in India. Fabindia planned toexpand significantly in tier-II and tier-IIIcities in India.

India has a flourishing retail business butmost of it is in the unorganized sector.There are estimated to be over 120 lakhstores in the country. Of this, organizedretail is only 3% but is growing at therate of 18%. This organized retail sectoris vying for a share of the spending ofIndia’s rapidly growing middle classwhose purchasing power is estimated tobe around Rs. 10 lakh crore. An estimatemade by a professional demandforecaster shows that out of the totalretail business potential, the Indianmarket for ethnic wear is likely to be aabout Rs. 9000 crore.

REFERENCES

Acharya, T. (1999) Weaving a new life. IndiaTogether, May

Bagchi, S. (2005) Be Indian, but Indian. TheTelegraph, 4 June

Bajaj, K. (2007) Fabindia’s fabulous march.Business Today, 3 October

Chakravarty, C. (2007) Wolfensohn’s privatefund picks 6% in Fabindia. Economic Times,9 July

Deshpande, T.A. (2007) Fabindia set to spawncommunity companies. SME World, BusinessStandard, 25 May

Fabindia (2007) 7 May 2007 www.7days.ae

Indian Express (2005) Fab food. Footloose, TheIndian Express, 5 March

Indian Handloom Cluster. Varanasi Handloomfabric marketing with Fab India- A newmarketing support to handloom weavers.May 2007 http://indianhandloomscluster-dchl.net

Kaimal, R. (2002) A school may be a harbingerof change in rural Rajasthan. Outlook India,4 November

Kale, R. (2007) Design: Retail. India Today, 26September

Rynne, G. The Fabindia Model: Ghandi Lives.27 November 2007 http://globalicity.blogspot.com

Singh, N. (2007) Fabindia charts out globalexpansion plan. The Times of India, 16August

Singh, U. (2005) Artisans, weavers happy overgood prospects. Hindustan Times, 20January

The Hindu Business Line (2007) Fabindia, ICICIstart fund for craft cos. The Hindu BusinessLine, 24 March

The Telegraph (2007) Store casts ethnic spell. TheTelegraph, 24 September

TNN (2002) Straight answers. Calcutta Times,The Times of India, 18 December

Varghese, N. (2005) Fabindia plans more outletsin South. The Hindu Business Line, 16September

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