Declining Sales

Declining Sales

Bata's sales witnessed a decline in 1994 and 1995, due to the company's strategy of focusing less on its traditional mass market and concentrating on the premium segment. The company began manufacturing high value added footwear and selling them at high prices, sacrificing volumes in the process. This did not find acceptability in the market, resulting in a significant drop in the number of pairs sold. Sales fell from 52.4 million pairs in 1993 to 49.9 million pairs in 1994 and 48.1 million pairs in 1995.

Poor Financial Performance

In 1992, the company made a loss of Rs 85.7 million, primarily on account of a 4-month closure at its Batanagar factory, the result of the employees' union not accepting the management's system of standard productivity norms. The OPBDIT was low at Rs 97.2 million, the operating margin (OPBDIT/OI) being only 2.5%. The recovery in 1993 was followed by two years of declining sales, culminating in a huge operating loss of Rs 231.5 million in 1995, the net loss being Rs 421.6 million. Bata's policy of sacrificing volumes and concentrating on the premium segment thus had a direct impact on its bottomline, as its operations are characterised by high fixed costs consisting of employee expenses (both factory and shops) and expenses associated with maintaining a large distribution network. As a result, profit margins are highly sensitive to volume sales.

Bata's tangible net worth fell from Rs 970 million as on December 31, 1994 to Rs 550 million as on December 31, 1995. Total debt increased from Rs 870 million as on December 31, 1994 to Rs 1200 million as on December 31, 1995, which again was mainly due to increase in short term debt.

Lack of Sustained Advertising and Promotions:

Bata was continuously introducing new designs of footwear; but the company was still not associated with being ‘fashionable'. Neither the promotion, nor the advertising of the company, was strong in its times. The premium segment competitors seemed to completely overshadow the presence of the company. However, Bata did not announced any new products or business segments even after seeing stiff competition. Further, the investments on advertising and promotions seemed to be ‘following' rather than ‘leading'. That is, rather than spending more on advertising, Bata started spending less on advertising, as a direct result of sales decreasing.

Globally competitive business environment

With the opening of the Indian economy through liberalization, privatization and globalization, Bata faced a competition from international players, along with existing competition from the national players. And company does not took necessary measures to curb the competition.

Political