Fabindia: Connecting India’s rural economy to the Market
Fabindia – creating value for customers while improving rural livelihoods.
Fabindia is an Indian company that has retails apparel, home furnishing, furniture and organic food through standalone stores across India. It is unique in that it sources its product range from about 55000 rural craftsmen and provides them a livelihood by giving them market access[1]. Fabindia was founded in 1960 as a company exporting home furnishings from India[2]. The company has grown and diversified its portfolio with time moving from home furnishings to hand woven and hand printed fabric in the 80s[3]. In 2000, the company diversified to non-textile products, adding organic foods in 2004, personal care products in 2006 and jewellery in 2008[4].
Girding this diversification in product portfolio is the pursuit in growth of volume through the network of stores it operates. Fabindia opened its first store in 1975. As of 2014, Fabindia had 180 stores with a revenue of approximately US$150 million. From being a retailer of Indian handmade apparel and home furnishings and furniture, the company has redefined itself into a lifestyle brand. It has extended its product offering from Indian ethnic products by launching a western wear brand, Fabels, based on changing consumer trends[5].
The company is seen as the most profitable in the retail apparel companies with a focus on profits and cash flow. Its net margin has been around 8%, three times that the industry average[6]. The company is seeking to grow further with private equity investments from L Capital – the investment arm of luxury goods conglomerate LVMH, as well as, from Premji Invest[7].
The company is successful because of the strong relationship between its business model and operating model:
Business Model:
Fabindia’s business model rests on delivering value to customers by giving them access to the rich tradition of ethnic craftsmanship in rural India. Not only does Fab India try to make profits for itself, but also helps to create livelihoods for its network of 55000 artisans and their families. By preserving their livelihoods, Fabindia also aims at keeping alive the various ethnic art and craft forms that would die without financial support.
In order to deliver value to customers Fabindia takes on the risk of assuring quality and consistency of handmade products to its consumers. In the absence of mechanized production process through traditional factories, Fabindia has been truly able to create value by bringing together decentralized producers and place a high quality product offering to its clients.
Fabindia also keeps a keen eye on latest consumer trends, effectively altering its product offering while staying true to its brand identity of being ethnic yet trendy.
Operational Model:
Simply put Fabindia’s operational model rests of sourcing goods form its network of 55000 rural artisans and selling them through its standalone network of stores across India. The artisan network is its biggest asset which forms the basis of its production process. The company funds its artisans by providing resources to help them invest in infrastructure[8]. This ensures stability of supply and also helps meet minimum quality requirements.
Fabindia’s supply chain process and quality control is its other big asset[9]. In order to run an operation that is not mechanized it is imperative to have a strong quality control team that sets strong quality standards for artisans to meet. This is essential if the consumers are to obtain value from Fabindia products. The supply chain process ensures that it brings the goods produced from its wide network of artisans, to centralized warehouses from where merchandise is supplied to its various stores.
In order to provide incentives for proper quality control and growth of the company, everyone in the supply chain has a stake in the company[10]. Thus employees and artisans share in the profits of the company and are motivated to ensure efficiency and quality.
Assessment:
The company is a winner because its business model is in sync with its operating model. Fabindia is uniquely positioned to meet its customers’ value proposition because of its relationship with artisans and its ability to deliver quality products despite having a decentralized and nontraditional production model.
The strong quality control and effective supply chain gird the process of delivering the customer value. The incentive structure of providing a stake to various agents controlling the supply chain also help to further incentivize a decentralized nontraditional operational model.
References:
[1] http://www.fabindia.com/company/
[2] http://www.fabindia.com/50-years-of-fabindia/
[3] http://www.fabindia.com/50-years-of-fabindia/
[4] http://www.fabindia.com/50-years-of-fabindia/
[5] http://articles.economictimes.indiatimes.com/2014-04-24/news/49378187_1_wear-market-50-new-stores-more-stores
[6] http://www.forbes.com/2011/11/08/forbes-india-william-bissell-growth-plan-fabindia.html
[7] http://articles.economictimes.indiatimes.com/2012-03-01/news/31113650_1_fabindia-william-bissell-john-bissell
[8] Interview with Company Staff.
[9] Interview with Company Staff.
[10] http://blogcms.outlookindia.com/article_v3.aspx?artid=261378
First, let me just say that when I go to India for Field 2 in January I will now definitely be finding a FabIndia store. It is evident that FabIndia has been able to create value out of having a unique operations system that focuses on traditional craftsmanship. FabIndia treats their products as pieces of art and establishes strong relationships with artisans. 55,000 artists are a lot of people to keep track of though and I wonder what internal processes they have had to put in place to manage these relationships. Do the artists produce goods for specific local FabIndia stores (so each store sells unique products) or do the products get distributed to all the FabIndia stores? It is really interesting to hear that FabIndia has also branched out to create a more western fashion line – it seems to me that they were able to do this because they had developed a good reputation for quality. In class we often talked about centralizing operations to gain more control, but sometimes decentralizing the operations or production process can be the right answer. I think it relies on picking the right products for the right regions – where people feel pride for what they produce and that their products really represent the culture of the region- drawing in more customers and tourists.