"Freedom may consider entering retailing via a franchise model, which entails lower risk." Sue Evans, Principal, A.T. Kearney

In light of the business issues that Freedom has outlined, it would appear that it faces two key imperatives in the medium term:

Revitalise its existing structure to cut costs and improve its competitiveness and bottomline

Formulate a growth strategy to increase volume sales and revenues

In the short term, given the pressure on margins, Freedom may be better advised to focus its efforts on revitalising its existing operations via cost reduction exercises and optimisation of its portfolio. There are likely to be some immediate 'quick wins'. Equally, Freedom should consider redesigning its manufacturing strategy to ensure long-term competitiveness. Establishment of regional production centres in the mid term may help reduce logistics and inventory costs and have favourable tax implications with the long-awaited advent of vat.

Kumar and his team have made little mention of the strength of their brand image in the market. However, organic growth of their existing brand by strengthening their value proposition may help gain share from unorganised competitors. Empirical evidence shows that strong brands add perceived value and can command a price premium by differentiating from commodity products. Here, the strategic alliance with their new Italian friends may well give them a strong competitive advantage by giving them access to better designs.

Retail, of course, is another strategic growth option, but Kumar and his team need to consider whether their brand image is strong enough to support a retail initiative. Retailing is a very a different ball game from manufacturing and is highly capital intensive. At this stage it may be difficult for them to attract the talent and funding required to enter this sector. But once their brand image and margins have been strengthened, Freedom may consider entering retailing via a franchise model which entails lower risk. Apart from providing direct access to consumers, such exclusive outlets can also help build brand image and 'bazaar presence'.

"Freedom should enter the retail market through innovative alliances to position itself for future growth." Harminder Sahni, Associate Director, KSA Technopak (India)

Freedom's case is typical. A family-managed business caught in a slow-growth situation, where margins are falling and unorganised competition is getting bolder. I believe that Freedom should focus on two areas it itself has identified: manufacturing efficiency, and retail.

Freedom should benchmark itself not only with Indian competition but also with international players. In the case of manufacturing firms in India, performance gaps are widest in three areas: operator skills, industrial engineering, and technology.

There is a difference between high technology and right technology. While Freedom can do without certain technology that promises to reduce manpower, it must invest in technology that ensures product performance, consistent quality and, of course, material savings. Focusing on these issues should lead to savings that would give Freedom the extra elbowroom that it is searching for in the market.

On the retail front, it is not right to even suggest that a widely distributed brand can change to an exclusive store-only brand overnight. A chunk of Freedom's sales will continue to come from dealers, and its own stores will contribute little in terms of volumes to start with. However, the company must start investing at the retail end in a limited way, keeping its resources in mind. There are some innovative ways to cover a much wider retail front even if you don't have deep pockets.

In the case of exclusive stores, different formats like limited self-owned flagships stores mixed with a large number of franchisee stores should be able to give Freedom the same control. With four to six flagship stores in major markets, the idea should be tested for its feasibility and for setting systems and processes. Immediately after this, Freedom should invite franchisees to roll out stores in various markets.

Another option that it should explore is of developing joint brands with upcoming retail chains. It's a win-win situation: Freedom will gain from the large number of footfalls that retailers attract and retailers will have a reputed manufacturer supplying a major category. These brands will be distinct from Freedom's own brands in the dealer network or own stores. I believe that in the next five-10 years, retail chains will capture more and more of the footwear market. Freedom should enter this market immediately through innovative alliances and position itself for future growth.

One issue that Kumar and his team have not considered is the channel conflict between their existing dealers and their own stores. The best way to address this is through differentiated product and packaging, and sub-branding. While own stores may carry a select range from the regular trade's product range, it should primarily focus on and promote sub-brands and more extensive range of newer products. The store brand should be the mainstay of the retail strategy, as in the Indian context the store brand enjoys stronger brand loyalty than product brand.

Kumar has cited pilferage and a lack of skilled manpower as reasons for not getting into retail. With some cost-effective, anti-shrinkage systems, the pilferage issue can be addressed quite effectively. Yes, there will be a need to invest in training of sales staff, not only for own stores but for franchisees as well. This cost should be seen as an investment in the overall brand building and customer acquisition.

Given the industry scenario, Freedom has to take some significant decisions quickly. Not reacting may cost it dearly in the future.

"Freedom should improve its efficiencies to launch products at lower price points and keep unorganized players at bay." Adarsh Gupta, Executive Director, Liberty Shoes

I fully empathise with freedom, since Liberty is more or less on the same boat. Like Freedom, Liberty is a family-owned and (largely) family-managed company. And, again, like Freedom, we are facing ''unfair competition'' from the unorganised sector. I think the outlook for the organised footwear players is bleak, unless the government creates a level-playing field for them. The unfortunate part of the situation facing Freedom is that its biggest problem-namely, of uncertainty in government policies-is not something it can control. With every budget, the government keeps changing the excise rules, besides which the states also change their sales tax. For a manufacturer like Freedom, making long-term investments becomes difficult.

What is the core issue that Freedom needs to address? It is of lowering prices within the range of ''grey market'' players. A 35 per cent price differential is not something you can correct by merely improving your cost efficiencies. Another way of justifying Freedom's higher prices would be by investing in brand and design. That will create market pull and in the long-term ensure that unbranded footwear is passed over by consumers. Yet, I suspect there will be problems. With profits dwindling, most of the tax-paying footwear companies do not have the wherewithal to invest in brand building. The risk associated with such an expensive strategy is huge.

I think the only viable solution for Freedom in this situation is to go retail. It need not own the shops, but can simply rent them. Having your own people running the outlets will avoid an ugly scenario that Kumar talks of-of dealers splitting commissions between themselves at Freedom's cost. But like Kumar points out, there are a number of reasons why controlling retail may prove expensive for Freedom. An alternative would be to find a partner who only wants to focus on retail. Again the issue would be of finding a partner who doesn't mind Freedom calling the shots. I would imagine that will take Freedom some time to achieve. Meanwhile, it should focus on improving its own efficiencies so that it can launch products at lower price points and thus, as much as possible, keep the unorganised players out of its segments.