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The New Delhi-based Relaxo Footwear has seen its market capitalisation grow 23 times since March, 2008, to about Rs 1,090 crore. A lesser-known brand than the Rs 1,841 crore Bata India, its market value relflects the underlying changes that are reshaping Relaxo's strategy.
Relaxo has been working over the last two-three years to raise its profile among both consumers and investors. Its work on expanding reach and building its brands for the footwear consumer has already started to pay dividends for its operating performance and share price.
Bata India, which clocked Rs 172 crore in profit (after tax, Jan-Dec, 2012), enjoys a higher recall with consumers and investors too. To come up to speed, Relaxo has been steadily investing in its marketing activites. A few years back, the company began signing up A-list Hindi movie actors to endorse its different footwear brands, such as Salman Khan, Katrina Kaif and Akshay Kumar.
While addressing the strategic importance of these brand ambassadors, Ramesh Kumar Dua, the managing director Relaxo had said in Relaxo's annual report for 2012-13 that Salman Khan depicts strength and is perfect for being the brand ambassador of its Hawaii slippers; while Katrina Kaif is right for endorsing Flite, with her style often imitated by women across the country. The brand ambassador for Sparx sportshoes and sandals, Akshay Kumar matches all the qualities of a Sparx man.
The campaigns were geared to move Relaxo up the value chain with instant recognition. At the same time, Relaxo expanded to newer markets such as the southern states, increased concentration in existing markets with more outlets and ramped up its manufacturing capacities.
There have been tangible gains from the company's branding activities. For example, its pricing power. In 2008, the average price per pair of its footwear stood at just Rs 48. Now it is at an average of Rs 100 per pair. Branding has helped Relaxo push for higher margin products and get a better price per pair sold.
In FY-2013 it made a profit of Rs 4.48 per pair, which was far higher than the Rs 1.64 per pair in the year 2008. The financial market began to recognise its pricing legroom and re-rate the stock. Its return on equity, which is one of the key parameters evaluated by the shareholders, 23.17 per cent in FY-2013, which used to be about 7-8 per cent about eight-nine years back.
"Today your Company (Relaxo) has...eight manufacturing plants, ...10 brands, 168 exclusive outlets and an extended family of over 50,000 retailers and distributors. We will continue to rationalise in the near future at different geographical areas across the country," Ramesh Kumar Dua had said.
An improved distribution has also led to Relaxo selling over 100 million pairs of footwear as against 60 million in 2008, and twice the size of pairs annually sold by Bata.
However, it has to work on its reach in urban markets, which are dominated by stronger brands such as Bata and other international brands.
Bata India which is a bigger player, commands a premium over domestic footwear brands such as Relaxo and Liberty. But Relaxo is fast catching up. In 2008, Bata, in terms of revenues, was more than three times bigger than Relaxo. Today, that gap has narrowed down to less than two times. More importantly, Relaxo is moving towards narrowing down the gap in terms value earnings. Relaxo is a little over half the size of Bata in terms of revenues and one-sixth in terms of market capitalisation.
The biggest difference remains the average realisation per pair for Relaxo, as Bata gets Rs 300-320 per pair. This drawback could be an opportunity if the company continues to gradually move up the value chain.
Though, Relaxo's brands such as Sparx and Flite realise higher values than its average realisations, as they are in the range of about Rs 150-250 per pair. "We have responded to the fast-evolving tastes of our customer base with powerful merchandising, retail expansion and advertising exercises that increase touch-point level engagement with our customers and maximise sales-gains and drive brand recall across age and social groups," Ramesh Kumar Dua had said.
If Relaxo continues to walk up the value path, it should stay on course, feel experts.
