Fabindia's Tightrope Walk
Posted on: 12:31 PM IST Nov 03, 2011
In 1993, while holidaying in Australia, William Bissell once ran into an experienced surfer who shared an invaluable lesson with the 27-year-old. Dont just surf the course, but keep a constant watch on where the next wave is coming from, he advised him.
Bissell, 45, hasnt forgotten that incident. Over the next few months, Bissells balancing act will be tested as he prepares to navigate the next wave thats about to strike Fabindia, the incredibly successful retail business that his father John started to built way back in 1960. It wasnt until William took over the reins in 1999, that Fabindia started to go places.Today, Fabindia is considered one of the most profitable retailers in the country. It earns a net margin of 8 percent, nearly three times more than the industry average, evoking the envy of every rival. Whats more, under Bissells leadership, Fabindia has almost singlehandedly built a network of a rapidly vanishing breed of handloom weavers and artisans, which in turn supply handicrafts to a loyal set of city folk across Indias 35 top towns through its network of 144 stores.Fabindias elaborate and almost dedicated supply chain organisation is now in place, thanks to Bissell, who co-opted 22,000 artisans and made them into shareholders through an elaborate community-owned model that became the subject of a Harvard Business School case study in 2007 and made Bissell a poster boy of inclusive capitalism.It seems contradictory that we pursue both a social goal and a profit, but I believe that is the only way to do it, says Bissell in that case study. Over the next year or two, striking that balance may become a lot more difficult. So far, Fabindia has remained a privately held company, run by a board that has the Bissell family and old friends fully aligned to Fabindias mission. William and his family own almost half of the company. Even though he has managed to grow the company manifold since he took over, much of that growth has come through internal accruals. The only time he has taken external funding was in 2007 when former World Bank president James Wolfensohns private investment fund picked up a 8 percent stake in the company for Rs. 50 crore.But now, he realises that Fabindia has hit a glass ceiling.Fabindia can easily add about 30 stores a year without batting an eyelid. Except that even the die-hard Fabindia customer now has a lot more to choose from. In New Delhis Greater Kailash N Block market, where the Fabindia story began, there are multiple stores Kilol, Anokhi, Cottons, all selling ethnic Indian wear surrounding the flagship Fabindia store. Retail chains like Lifestyle and Shoppers Stop too have expanded their ethnic wear sections. And the disquieting truth: Even though Fabindia has a huge share of mind, at Rs. 404 crore, its turnover is smaller than some of the kids brands like Gini and Jony or Lilliput.Bissell knows he has to up the ante now. Which is why he is working on a new vision plan, one that will grow the companys outlets to three times the number it currently has over the next four years. After saturating much of the demand in the bigger cities (Fabindia has 13 stores in Bangalore and 22 in NCR) he now wants to unlock demand in smaller towns like Vellore, Karnal and Rishikesh. By 2015, he wants to put 300 stores in these tier two towns. There are also plans to open 10-12 large format stores to showcase Fabindias home furniture range.To fund this growth, Bissell needs capital. In the last few weeks, he has been holding daily meetings with venture capital and private equity firms to dilute about 25 percent of its equity and at least a dozen firms from Carlyle, Sequoia, Everstone to PremjiInvest are said to be queuing up at his door. The valuations are said to be steep. Sources say Bissell expects to dilute at about six times current revenue. Part of the money will go towards buying out Wolfensohns share, some of it will go for ESOPs (employee stock ownership plan) and the rest will be for growing the business.