Although CEO W K Weston has revived the company, a high-cost structure remains a worry.

By Avijit Ghosal

Only a cobbler, it is said, knows how to mend the shoe. Befittingly, the 58-year-old CEO of the Rs 670.64-crore Bata India (Bata), William Keith Weston, is a self-styled cobbler. And the CEO, who claims: "I can manufacture a shoe myself," has managed to nurse the ailing company back to health. Even Thomas J. Bata, 84, the chairman of the Bata Shoe Organisation (BSO)--which owns a 51 per cent stake in the Indian subsidiary--commends Weston's acumen: "Although we provided occasional advice, and funds, the Indian management deserves the credit for the turnaround."

That the shoe has stopped pinching can be gauged from the financial performance of the largest footwear company in the country, which sold nearly 56 million pairs in 1997. Shrugging off a Rs 42.16-crore loss for the year ended December, 1995, Bata posted net profits of Rs 16.64 crore in 1997. And its turnover grew by 25.99 per cent to Rs 670.64 crore during the same period.

For the past three years now, the no-nonsense Canadian has been at the forefront of the battle of Bata. While most CEOs would relax with a mug of beer on the lawns of the Tollygunge Club in Calcutta in the hot summer evenings, Weston would be closeted in his office studying Bata's financial performance. And once he had taken a decision, nothing could stop him.

Thus, two months after he took over, the CEO decided to sell Bata's office building for Rs 19.50 crore in a bid to stem its losses. Despite the emotional opposition from Bata's trade unions--Robin Majumdar, 50, president, co-ordination committee, Bata Trade Union, criticised the move, saying: "Profits may return, but honour is difficult to regain"--the sale went off without a hitch. So did a number of other desperate, but bold, steps that Weston initiated.

Within a few months, Weston had identified Bata's three biggest problems. One, Bata had committed a blunder by moving away from the low-price, high-volumes game to selling premium products. Two, the company's production costs were unviable. And three, the over-sized labour force led to low productivity. Then, he went about tackling them with tenacity. Fortunately, Weston--who has even cycled to work on days when the streets were blocked due to political rallies--was not afraid of the odds.

His first task was to turn Bata's marketing strategy upside down. Over the years, the company had shifted from manufacturing low-priced shoes to selling expensive, premium brands. Thus, premium brands accounted for more than a third of the nearly 50 million pairs that Bata sold in 1994. But, as the latter were outsourced, Bata's in-house production took a beating. Since growth in this segment was also below projections--although the market grew by 31 per cent to 550 million pairs in 1995--Bata lost marketshare, which came down from 14 per cent in 1989 to 9 per cent in 1995.

Weston thought the focus was wrong, especially since many global majors like the $5-billion Nike and the $6-billion Reebok had failed miserably in the market. Also, Bata--with its 1,000 retail outlets, a huge manufacturing base, and a strong brand--was ideally suited to be a mass producer. So the share of premium brands--as a percentage of sales in volume terms--was slashed to 10 per cent in 1996. Explains M.J.Z. Mowla, 57, vice-president (corporate affairs), Bata: "While we didn't abandon the premium segment, we went back to the mid-segment with a vengeance."

True, since Bata launched 200 new designs in low-priced segments in 1996. Another advantage of the change in the focus was that it could now promote Bata as the umbrella brand rather than pushing individual premium brands like Hush Puppies, Westminster, or the European Collection. And its 1,000 retail outlets proved to be Bata's best advertising vehicle. Says Sudash Roy, 44, dean (marketing), Indian Institute of Management-Calcutta: "In terms of visibility, the Bata stores are unmatched."

Even its competitors recognise that the new strategy is working. Admits Adarsh Gupta, 36, the executive director of the Rs 54-crore Liberty Shoes: "Bata always had its competencies in manufacturing and retailing. With these two advantages, it was a question of finding the right strategy to utilise these assets, and, thus, get back on its feet."

Getting the marketing plans right was only the first step. Weston then rationalised the prices of Bata's other brands. The first inkling of his willingness to cut prices came when the company sold nearly 2 million pairs at a 50 per cent discount in March-April, 1995, to reduce inventory levels. Later, Bata slashed the prices of its premium brands by 20 per cent, and rationalised the prices of the other low-priced brands by between Rs 200 and Rs 800. It was dangerous since success depended on a simultaneous cost-cutting exercise to maintain its margins.

Says Bata's Mowla: "All sorts of costs were attacked: administrative, manufacturing, promotional." For instance, in 1996, the company saved Rs 4 crore by reducing expenditure on advertising, Rs 3 crore by recovering bad debts, and Rs 1 crore by tightening distribution-related expenses. However, Weston's bigger concern was Bata's high interest outgo of Rs 19.30 crore in 1996, and its labour costs, which were high despite being reduced from 20 per cent of sales in 1995 to 17 per cent the next year.

The main reason for the high interest cost was a 38 per cent increase in Bata's borrowings to Rs 119.90 crore between 1994 and 1995. So, Weston sought the help of Thomas Bata, and, in 1996, bso's Canadian arm extended a Rs 36-crore interest-free loan, which was converted into equity as the parent's share of a Rs 77-crore rights issue in 1997. Used partially to pay off debt, not surprisingly, Bata's interest costs came down by 25 per cent to Rs 14.43 crore in 1997.

That allowed Weston to deal with Bata's 16,000-strong workforce. For the first time in Bata's 62-year-old history, it signed a long-term bipartite agreement--in previous ones, the West Bengal state government was a signatory--in 1996 with the Bata Mazdoor Union, representing 10,000 workers. This agreement was signed without any disruption of work.

In contrast, the 1992 negotiations between the management and the workers led to the closure of the factory for four-and-a-half months. Recalls Majumdar: "We showed the management that we could be as productive as any other union in the country." But labour could still turn out to be Weston's Achilles' Heel. For, the twin problems of a high-cost structure and surplus labour persist. In fact, the turnaround has made the unions only more aggressive and demanding.

For instance, Weston has failed to strike a deal with its retail workforce, the All India Bata Shop Managers Union, since the third quarter of 1997. The shop managers are insisting that Bata honour the 1990 agreement, which stipulated that the management fill up 248 vacancies in its retail outlets. And it is opposing the move to sack all the cashiers in outlets with annual sales of less than Rs 50 lakh, which will mean the elimination of 690 jobs.

Unless Weston can reduce the workforce, and achieve higher productivity levels, there's a limit to Weston's strategy. And if costs cannot be reduced, Bata will not succeed in its low-price, high-volumes marketing gameplan. If that happens, poor Weston will realise that while he got the fit right for one foot, it's the other which hurts at Bata.

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