Why Bata continues to lose market share in the low-priced segment?

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Bata India, once synonymous with high-quality, affordable footwear, is struggling to maintain its dominance in the low-priced segment of the market. Despite its strong legacy and widespread reaches, the iconic brand has been losing market share steadily. The affordable segment, bracketed below Rs 1,000, which used to make up 50 percent of its sales before Covid, now contributes only 30 percent.

Analysts attribute Bata’s steady decline to a combination of factors, including its growing reliance on franchise stores and e-commerce, aided by rising raw material costs.

The 130-year-old brand is still the largest footwear retailer and biggest manufacturer in the Indian footwear industry with more than 1,900 retail stores across 1,500 towns, including franchisees in FY24. Bata India sells close to 50 million pairs annually.

The low-priced segment, which has run into a rough patch, includes brands such as Pata Pata and Sunshine. In the quarter ended September 30, Bata's revenue grew 2.2 percent, falling short of analyst expectation of 3.3 percent. Brokerage Axis Securities flagged that although the mass portfolio stayed under stress, the premium segment saw faster growth. The company's gross margins too declined in the face of a rising share from franchise stores and e-commerce, which generally carry lower margins than direct retail, the brokerage added.

Perils of premiumisation

Commenting on the significant loss of market share, chief executive Gunjan Shah flagged that the premium footwares from Bata has found a growing demand in tier II and tier III cities, which indicates a shift in consumer preference towards higher-end products even in smaller towns.

Premiumisation swept through the consumer and retail sectors over the past couple of quarters on the back of rising disposable income and changing lifestyle aspirations across the country. Companies in the FMCG and retail sector are focussing on the premium category to keep up with the demand. A report from NielsenIQ (NIQ), a consumer intelligence company, suggest that premium brands in FMCG are consistently growing twice faster than their non-premium counterparts. According to the NIQ Mid-Year Consumer Outlook Report, more than 70 percent urban Indian consumers are willing to pay a premium for a product that will last longer before it needs to be replaced.

Scorching inputs, simmering competition 

Shah attributed the decline in the sub-Rs 1,000 category to a double blow from GST (Goods and Services Tax) implementation and rising raw material costs, compounded by the growing prominence of private labels like Zudio and Westside. He said that the GST created a clear demarcation at the Rs 1,000 price point. As a result, products previously priced near the Rs 850 mark had to be adjusted to nearly Rs 1,000 just to maintain margin neutrality.

GST on footwear below Rs 1,000 was earlier taxed at 5 percent but in 2022, the government increased it to 12 percent, hurting the footwear brands. The weakness in the category caused by the price migration and shifting consumer preferences, pushed multi-brand footwear retail MetroBrands to exit the sub-Rs 1,000 category after sales slumped in 2023.

"It's not premiumisation, it's not a portfolio mix, but price hike. So article to article prices got increased. So the GST plus the material inflation significantly jacked up the prices. That had an obvious impact in terms of how some articles migrated. So it's not just a question that it's apple to apple. There is a migration that happened a portfolio for one price point below Rs 1,000 to another," Shah said.