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Koutons Retail India Limited argumentative essay help online Engineering homework help

The company went public in early 2006 and thereby became Koutons Retail India Limited (KRIL) with effect from June27, 2006. KRIL is primarily an integrated apparel manufacturing and retail company in India. They are in the business of designing, manufacturing and retailing under the brand names Koutons and Charlie Outlaw. Their main target customers are middle class consumers who are keen to trying out new fashions falling in the age group of 22 – 45 years. Find below a brief timeline of Koutons. 1991- Started as Charlie denim jeans showroom 1994 – Incorporated as Charlie Creations Pvt.

Ltd 1997 – Diversified in non-denim apparel, awarded with Best Menswear Collection 1998 – Brand Koutons was launched 2002 – First exclusive brand outlet of Koutons opened 2006 – IPO. Name changed to Koutons Retail India ltd in June 27, 2006 2007 – Listed on BSE and NSE Koutons Financials Koutons has reported the fastest growth in its sales and profits among its listed and closest peers partly due to a smaller base. The Company’s restated total income and profit after tax were Rs 4036. 17 million and Rs 344. 87 million respectively as of and for the year ended March 31, 2007 compared to Rs 1583. 85 million and Rs 131. 8 million respectively as of and for the year ended March 31, 2006. (Exhibit 1). Koutons do not have any stock option scheme or stock purchase scheme for the employees of the company. Industry Overview

The Indian retail sector, which is believed to be at an inflexion point, is valued at USD 270 billion (2006) with Food and Grocery being the dominant sector followed by clothing, textiles and fashion accessories which contributes nearly 9. 5%. The organized retail sector on the other hand has grown with a CAGR of 30% and stands at about USD 12. 4 billion (2006) which is only 4. 6% of the total retail market thus demonstrating its huge future otential. In the organized retail sector the major share is held by the clothing and accessories sector (39%) growing at a rate of 30. 3% during 2005-06, followed by food and grocery (11%). The Indian apparel retail industry(which mainly consists of sale of all menswear, womenswear and infantswear) grew by 12. 3% in 2006 to reach a value of $20 billion (INR 880. 9 billion); the CAGR growth for the period 2002-06 being 11%(Exhibit 2).

The share of the organized apparel retail has grown steadily to reach 18. 9% in 2006. Considering an anticipated CAGR of 10%, the apparel retail industry in India is expected to reach USD 32. billion by end of 2011. Fuelled by strong economic growth, favorable demographics, easy availability of credits, availability of retail space, rising level of disposable income, rise in dual income families and shift of life style pattern, organized retail in India is expected to grow tremendously in the next few years. The emergence of the mall culture in India acts as catalyst in this growth story. By the end of 2007 approximately 68 million sqft of mall space is expected to come in India, majority being equally shared between North Zone (39%) and West Zone (33%).

According to a 2005 KPMG retail survey report, the Specialty and Super Market format have the highest potential for growth (45%) followed by Hypermarkets(36%) and Discount Stores (27%). In terms of opening up of new retail outlets, the apparel retailers and brands attained a growth of 113% in 2006 compared to 84% in 2005. As on 2006, major share in the Indian apparel retail market is accounted for by Menswear (45%), followed by Womenswear (36. 1%), Infantswear (18. 8%). While the Menswear has witnessed a growth of 12% by value and 3. 9% by volume, Womenswear has grown 14. 9% by value and 5. 4% by volume.

Almost comparable growth has also happened in the Infantswear sector (11. 5% by value and 3. 8% by volume). Competitive Landscape in Apparel Retail Porter’s Five Forces Model The competitive nature of the Indian apparel retail sector can be very well analyzed using the famous Five Forces Model as suggested by Michael Porter. Fig: Porter’s Five Force Model Bargaining Power of Buyers The bargaining power of buyers becomes weak because of three main reasons. First, majority of the buyers are individual consumers and hence has limited purchasing power. Second, the retailers can very easily differentiate their products.

Third, only the retailers can provide the consumers with a wide variety of quality products. On the other hand, the fact that buyers have very low switching cost and retailers are obliged to act according to buyer needs provides the buyer with some bargaining power. Infact, it is believed that in Indian apparel retail, brand loyalty exists mostly for the brands and less for the retailers. Bargaining Power of Suppliers The sourcing happens mostly from the clothing manufacturers and the wholesalers. The manufacturing industry is highly fragmented in nature inducing a price war.

Low product diversity on the part of the suppliers reduces the switching cost for the retailers. However, the only drawback of moving to a low cost supplier might be the threat of not being able to live up to the highly volatile trend of changing fashion. Entry Barrier Entry barrier is comparatively low, like any other retail sector. The industry itself is highly fragmented and requires low capital investment. The policy taken by the Government to open up the retail sector to foreign investments will definitely encourage entry of other foreign players. Threat of Substitutes We can identify three major threats to the apparel retail.

First, with e-buying becoming popular with every passing day there may be an opportunity of buying directly from the manufacturers. Homemade apparels though can be a substitute has a very low threat mainly because of the ever changing fashion needs of the generation and the substantial increase in disposable income. The last and the biggest threat for substitute come from the sale of counterfeit apparels. Competitors The Indian apparel retail industry is highly fragmented in nature. Within the readymade segment there are both branded and unbranded players.

There are many foreign brands that have established themselves successfully in the Indian apparel retail market using different channels. While brands like Allen Solly and Arrow have taken the licensing route, Benetton have entered the market through tie-up with domestic players. Again brands like Tommy Hilfliger, Mark’s and Spencers and Speedo have taken up the franchisee channel. On the other hand, Metro entered the market through cash and carry wholesale trading route. The private labels, by virtue of providing higher margins to the retailer and lower cost to the customers have also become extreme popular.

Some of the well known private labels are John Miller, Bare and Stop. Although competition in the retail apparel segment is heating up, the inherent advantage of Koutons model – backward integration, positioning and first mover advantage – is not easy to replicate within a short period of time. On the back of the company? s aggressive rollout plan and diversification to high-margin segments, the company enjoys better valuations than its peers like Kewal Kiran and Zodiac Clothing, although not strictly comparable. There are approximately 23 major players in the branded apparel retail segment in India with Koutons coming next to Raymond Ltd. Exhibit 3 & 4). Pentagon-Triangle Model Koutons mainly works on pentagon model. The key attributes of the pentagon model fit as follows: Place Size and Location: Out of 999 exclusive brand outlets (EBOs as Aug 20, 2007) 531 EBOs were present in northern region. West and east India has about 29 and 38 stores respectively. Koutons has over 1000 company managed stores and 18 manufacturing units. By August 2007 they owned 14 warehouse facilities spread around Gurgaon. They are present mainly in northern and north western region. By March 2006, there was no presence of Koutons in southern region.

They have started slowly moving into southern region. Layout and Design: Koutons generally operate through a franchisee model. Traditionally, Koutons outlets used to store men? s apparel. But recently they have extended their product portfolio to include women? s and kid wear as well. Generally, the size of a Koutons outlet ranges from 1000 sq feet to 2000 sq feet; variations happening depending on the location, real estate rates and host of other factors as well. Their flagship stores have a size of 3000-5000 sqft. Koutons outlets may be single storied or multi storied.

The outlets are generally spacious and display caters to need of middle class Indian customer segment. (Exhibit 5: Koutons EBO, Calicut). Product Style and Fashion: Go with latest fashion trends. Mainly target high fashion aspirants of the age group 22-45 years. If any type of fashion becomes obsolete, still Koutons tries to attract customers, but ultimately if situation does not improve they also stop keeping such fashioned garments and go with new trends and fashions. Assortment: Wide variety of men? s wear including shirts, trousers, jeans, jackets, T-shirts. Limited variety of kids and women? s wear.

The assortment also depends on region. An EBO in north India might have little different assortment compared to one in south. Value Price: Low brand value. It sometimes offers 70% discounts which have diminished its brand value to a large extent causing a barrier in the way of moving up the value chain. Koutons follows a unique discounting policy wherein they claim to give a discount of x% + y% which is often criticized as a marketing gimmick and a way to mislead the customer. For example, a discount of 50%+40% often gives the customer the impression of availing a 90% discount – whereas effectively it means a 70% discount.

Quality: Mixed conception among customers. Most people think its product quality goes down with increase in discounts. It has failed to maintain same quality of products throughout its EBOs across all regions. People Service: Koutons mainly deal with men? s apparels. But recently have started making garments for women also. Knowledge: For managerial position they mainly look for experienced people (at least 2-3 years of experience in apparel business). Climate: Koutons generally stocks apparel which are all-weather. Few varieties differ with region, e. g. sweaters are stocked in north EBOs but not in south. But most of the stock can be sold in all weathers. Communication Positional: Koutons have positioned themselves as „„value for money, but high on fashion”. They mainly target pro-fashion customers who are very much willing to try new fashion trends at nominal prices. They often offer attractive discount policies to attract middle class fashion minded customers. Their target customers belong to age group 22 to 45 years. Promotional: Koutons mainly advertise through newspapers and they have a well designed website.

They incur minimum advertising expense and rarely goes for any celebrity endorsement. Their presence in 450 cities of India is believed to have created an automatic brand visibility. Business Processes The two major business processes at Koutons are Manufacturing and Sales operations. The diagram below shows the processes involved in manufacturing. Some of the key differentiating factors involved in the business processes are : Procurement of raw materials: Procurement of raw material from India, China, Taiwan and Italy using third party suppliers.

Third party manufacturers: To cater to the growing demand for outsourcing of manufacturing is also done. For this, the Company has executed 211 agreements with 211 fabricators. Manufacture of production sample: A product sample is produced in house according to the specifications provided for the range of products for a particular season. The first production report is prepared on the basis of this sample. All apparent and intricate corrections are made in the sample so as to make it error free. Accordingly, a detailed production plan is devised.

Fabric cutting and stitching: A layout for cutting the respective products is done with the help of CAD plotter machines. Sales and distribution The company has a dedicated “Sales and Marketing” team which consists of 90 employees. Competitive Strengths The key strengths of Koutons are: ? Exclusive brand outlets ? Wide network of retail stores ? Low-cost sourcing capabilities (diminishing the cost of material as well as that of the final products hence resulting in low cost products) ? Proper brand positioning (identifying the proper target customer segment and meeting their requirements) ?

Expertise in designing and merchandise (core competency) ? Efficient management ? Wide apparel range (customers can choose their required things from a well chosen stock) ? Efficient utilization of IT and making it a differentiating factor compared to other retailers. Koutons always follows proper strategic planning before taking any business decision. They are planning to increase their geographic penetration by increasing the number of brand outlets to distant areas, enhancing manufacturing capabilities, targeting new customer segments.

Positioning the Koutons brand strongly (exporting apparels under the brand name), making potential mergers and acquisitions and most importantly constantly improving the cost structure. Some of the key differentiating strengths of Koutons are described in detail. Exclusive Brand Outlets: The majority of the apparel manufacturers cum retailers in India operate through a combination of retailing through exclusive outlets, national chain stores and multi brand outlets. This entails supplies being managed directly and through distribution agents.

Koutons operate on a model of marketing apparel directly through a chain of exclusive brand outlets and thus are independent of external marketing pressures attributable to the national chain stores, multi brand outlets and other intermediaries. This enables them to focus quality maintenance and customer satisfaction without the interference of any external agency. This model also enhances the brand equity and recall as the shelf space on each of the exclusive brand outlets is controlled by company.

In the process, Koutons has developed a greater brand visibility and an identity of its own and has thus reduced the chances of brand dilution. As of August, 2007, the “Koutons” brand was sold through 566 exclusive brand outlets and the “Charlie Outlaw” brand was sold through 433 exclusive brand outlets. The wide coverage of exclusive brand outlets from metros to tier II towns and through the various regions in India, allows them the flexibility to hedge against fashion changes given the general time lag in fashion trends between metro and tier II towns. The table below shows the growth in number of Koutons EBOs.

The company? s brands are marketed through three outlet models ? Company owned / leased and company operated (COCO) ? Company owned / leased and franchisee operated (COFO) ? Franchisee owned / leased and franchisee operated (FOFO) The company had 17 outlets, 124 outlets and 858 outlets under COCO, COFO and FOFO models, respectively, on 20 August 2007. To accommodate all EBOs (Exclusive Brand Outlets) the company is also looking for spaces for extension. It has been allotted a manufacturing facility in Gurgaon at a total project cost of Rs 301. 85 million.

Koutons has benefitted heavily by following a franchisee model as often large scale operation as theirs often becomes tough to be controlled by themselves alone. Also it helps Koutons in availing real estate easily. Besides, the franchisee owners bring in entreprenual energy to the business. This model has also helped Koutons in tackling to some extent the inherent attrition problem in the retail sector and cut down on loses happening due to staff related pilferage. Koutons, in the process, has also realized cost cutting by relieving themselves of the responsibility of bearing the social security liability of the employees.

Koutons franchisee model is different from its peers as it offers its franchisee minimum guaranteed payments covering lease rentals, employee costs, and other establishment costs apart from incentivized sales. Products are consigned to the franchisees, who do not bear the inventory risk except for pilferage–the risk of unsold stock remains with Koutons. The company collects a security deposit (bearing nominal interest rate) from the franchisee towards the apparels that the latter stocks at the outlet.

This model is highly attractive for franchisees who seek security and low investment, which is reflected in the rapid ramp up as well as the fact that franchisee churn rate has cumulatively been less than 1. 5 per cent since inception. Koutons has planned to expand their franchisee retail model to other products like home linen and furnishing and toys. Integrated player with low-cost sourcing capabilities: Koutons is an integrated apparel manufacturing and retail company with capabilities across the entire value chain of manufacturing and retailing. One of the major strengths includes in-house finishing facilities and rigid quality controls.

Extensive logistics and supply chain management systems is put in place to maintain maximum flexibility, which enables them to meet needs in an efficient manner without relying on any one vendor, factory or country. The centralized purchasing system helps in achieving the standardization in quality control systems. Their involvement at every stage of the value chain has helped them successfully cut down on the intermediary costs. Unique brand positioning: Koutons positions itself as a „High Fashion Value for Money? brand. The “Koutons” brand is positioned in the middle to high fashion segment, offering a complete range of man? wardrobe (in the age group of 22 to 45 years). The “Charlie Outlaw” brand is a casual brand targeted at fashion conscious youngsters in the age group of 14 to 25 years. Foreign brands mostly target a niche market while Koutons cater to mass market. Koutons score over foreign brands in terms of fit and size they offer to Indian consumers. Design and merchandising expertise, with a pulse on fashion: A team of designers and merchandisers who are supported by a staff of 40 professionals, including assistant designers and technical designers. Specialized design teams for each apparel categories are formed.

Wide apparel range: A wide apparel portfolio which ranges from shirts, non denim trousers, denims, suits, blazers, T- shirts, cargos, capris, sweaters etc. It has also recently launched a range of apparel for women and children. IT Infrastructure: Until now Koutons has been using a specially developed computerized system (customized) to keep all records related to sales and inventories. To keep pace with the market competition and to make its operations more efficient, it has recently started using an enterprise resource planning system using advanced computer systems with the help of Ramco systems.

This advanced system will help them to reduce inventory related problems (such as decreasing the inventory lead time, planning delivery schedules better), improving transparency and reducing redundancy. State of the art information flow system to maintain records relating to sales and inventory and integrate key work flows. In 2006 the company also installed a state of the art enterprise resource planning system. The company has been working on enhancing its IT capabilities for better management. This has helped it to bring down the average inventory days from 213 in FY07 to 202 in FY08.

Huge sales per store due to hefty discounts offered by the stores. Weaknesses ? COFO model problems: Opening up manufacturing as well as retail outlets needs huge capital investments and hence limits the company? s ability to expand fast, as well as react to the changing market scenario. ? The company is not able to distribute from the multibrand shops and malls. This shuts it off from a major business opportunity and capitalizes on the retail revolution. ? Inventory problem: 340 days of inventory in an apparel industry where demand is seasonal. (Poor inventory turnover) ?

Low Brand Value: Koutons stores only stock their own brands and perennial 70% discounts have completely eroded its brand value. This will prevent the company to move up the value chain. ? Concerns due to the nature of its business, Koutons finds large sum of money blocked up in the form of working capital. In FY08, working capital amounted to almost 68 per cent of annual sales which is on the higher side in retail sector. Acquisitions On January 2008, the Board of Directors decided to acquire 51% or more share in Touchwood International Pvt Ltd. , a Rs. 5 crore company and the owner of the brand „Upper Class?. The company has its presence in the ladies segments. „Upper Class? has its major presence in Delhi and has a strong foothold in the ladies garments segment. The brand specializes in casual bottom wear for women and has its presence in Multi brand outlets (MBOs) like Shoppers Stop, Pantaloons and Globus. Besides, it has its presence in the European market as well. While the acquisition will definitely give Koutons an exposure to the European market, it will help „Upper Class? gain a retail presence in the domestic retail market.

Koutons has planned to open up 400 outlets of „Upper Class? by 2010. Expansion Koutons earlier was exporting Koutons and Charlie brand apparels to the Middle East. But it was halted in 2004 in 2004 as a part of the management strategy to focus more on the domestic market. But now that it has made its mark in the domestic market, it is actively trying to tap the exports market by 2008 with a view to target the Indian population in the Middle East region. It has initiated talks with large retail networks based in West Asia, whereby it plans to open 30 EBOs each of Koutons and Charlie brand by 2009.

Koutons plans to enter the market through the route of Joint Venture wherein the majority stake will be retained by Koutons. While the designing, branding and production will be done by Koutons, their local partners will manage the supply chain and logistics. Koutons has already earmarked Rs 40 crores for rolling out the stores. Their first outlet is planned to come up in Dubai by 2008. The other cities under consideration are Abu Dhabi, Sarjah, Doha and Qatar. They also have plans to enter the Chinese market by 2008 and enter the European market very soon.

All these would definitely provide the company with immense global visibility. Going Forward The company is aggressively rolling out its EBOs in southern India. Koutons would be enlarging its product portfolio in FY09 by adding categories like accessories and handbags for women along with belts for men and footwear collection for both men and kids by 2008. It is being done with a view to increase the footfalls in the outlets and thereby assist cross-selling and also to make it a one-stop-shop. The company has plans to introduce a new line of women? wear (Les Femme brand) and kids? wear. Koutons plans to open up 150 Koutons Junior and 200 Les Femme stores by 2009-10. To lessen the risk of stock obsolescence, the company has been deploying the strategy of shifting the unsold stock from metros to tier III towns to leverage the time lag in fashion trends between metros and tier III towns. For the year 2008-09, Koutons has planned to grow through the ladies wear and kids wear segments which though being high margin segments are currently being dominated mostly by the regional players.

Koutons plans to revolutionize these two segments by providing value for money products – which all throughout have been their core competency. The entry of foreign players in the Indian apparel market has one hand brought the threat the increased competition and on the other hand has increased the fashion awareness amongst the Indian population. However, which target mostly target the mass market can avoid direct confrontation with the foreign players who are more into niche segments. With the rising inflation and increasing cotton price, Koutons definitely has a challenge in their hands in the years to come.

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