Who Will Dominate the Footwear Industry in India?

The Indian footwear industry is poised for intense competition as major players like Bata and Metro Brands vie for market dominance. However, despite India being one of the most populous countries in the world, its per capita footwear consumption remains surprisingly low compared to global averages. As per research by CRISIL, the average Indian owns just two pairs of footwear, a stark contrast to countries like the United States, where the average person owns eight pairs. Even neighboring Asian countries boast higher averages of around three pairs per person.

The question arises: will India’s footwear market experience exponential growth in the coming years? Will rising per capita income lead to a surge in footwear purchases? While it’s tempting to predict a significant uptick, historical data shows that India’s per capita footwear consumption has remained relatively stagnant over the years. So, if it’s not a dramatic increase in volume, what factors could drive the growth of Indian footwear companies?

Changing Preferences and Quality Over Quantity

Though the number of shoes purchased per capita has not drastically changed, Indian consumers’ preferences have evolved. Today, they are more fashion-conscious, focusing on quality and brand recognition over quantity. This shift has been crucial for the growth of industry leaders such as Bata and Relaxo Footwears, despite the challenges these companies have faced.

Historically, Bata has been perceived as a sturdy but less fashionable brand, with a focus on consistency rather than product innovation. However, since 2010, the company has embraced a strategy of “premiumisation” to stay competitive and profitable. Bata has consciously shifted its focus to trendier, more fashionable products, moving away from value footwear priced under ₹200. Premium collections like Hush Puppies, Naturalizer, Power, and North Star have helped Bata appeal to more style-conscious consumers.

As a result, Bata has seen its average price per pair increase at a compound annual growth rate (CAGR) of 4-5% over the past five years. This focus on premium products has driven double-digit volume growth in recent years, particularly in the post-pandemic period. More importantly, higher margins from premium products have improved Bata’s return on investment, boosting return ratios from 14% in FY 2018 to a projected 23% by FY 2024.

Metro Brands: A Strategic Competitor

In contrast, Metro Brands, a relatively newer player in the public market but a long-established name in the footwear industry, has taken a different approach. Instead of focusing on production, Metro Brands has concentrated on branding and licensing. Approximately 70% of the company’s revenue comes from its private brands, and it aims to strengthen this portfolio further. Metro operates popular brands such as Mochi and Metro, with the former targeting millennial consumers and the latter positioned as a family footwear store.

Additionally, Metro Brands holds exclusive licenses for international brands like Crocs and FitFlop, for which it has opened exclusive retail outlets. The company has also embraced sustainability, launching collections such as Metro Nature Pro, made from recycled PET bottles, and Mochi Australian Wool, which is crafted from wool without any leather content.

Metro’s fully outsourced production model allows it to tailor its product offerings regionally, catering to specific local preferences. For instance, in Northeast India, the company sells smaller shoe sizes, while in Southern states, fewer high-heeled products are offered. In Punjab, where vibrant colors are favored, Metro adapts its designs accordingly.

Metro Brands has also adopted a company-owned store model rather than relying on franchises. This strategy, combined with outsourcing, has allowed Metro to maintain higher profit margins, resulting in better operating efficiencies compared to Bata. With more flexible cost structures, including variable lease rentals and employee expenses, Metro is able to mitigate the volatility of store-level margins.

E-Commerce and Digital Expansion

E-commerce is becoming an increasingly critical factor in the success of footwear brands, and both Bata and Metro have recognized this trend. However, Metro Brands has taken a more aggressive approach in scaling its online presence. The company has separate digital platforms for its three umbrella brands and is actively expanding its online footprint.

Bata, while also maintaining a strong online presence through its website and partnerships with major online marketplaces, has been slower in digital innovation. However, Bata was one of the first footwear brands in India to introduce digital invoicing, e-pay wallets, and store inventory apps like “Find a Pair,” which helps customers check the availability of specific sizes in-store.

During FY 2024, Bata expanded its retail footprint significantly, opening over 500 franchise stores, 650 Sneaker Studios, and 125 Hush Puppies stores. The company has also incorporated innovative in-store experiences, such as 3D holographic units, digital LED screens, and QR codes for seamless online-to-offline shopping.

Despite these advancements, Bata’s reliance on a more traditional brick-and-mortar expansion strategy has resulted in lower operating margins compared to Metro Brands. The latter’s asset-light model, combined with its ability to negotiate favorable terms with third-party vendors, allows Metro to operate more efficiently, leading to a leaner balance sheet.

Valuation and Future Prospects

The sharp difference in operating models and profitability has also led to a significant gap in stock valuations. As of 2024, Metro Brands commands a price-to-earnings (P/E) ratio of 83x, higher than its three-year average of 87x. In contrast, Bata has seen a decline in its stock valuation since October 2021, with its current P/E multiple (52x) below its three-year average of 68x.

For Bata to close the valuation gap, it will need to catch up in key areas like digital presence and reducing debt. Until then, investors may remain cautious about rerating the stock closer to Metro’s levels. However, Bata’s strong legacy, combined with its expanding product range and innovative in-store experiences, positions it well for long-term growth.

Conclusion: Who Will Win the Footwear War?

The competition between Bata and Metro Brands represents a broader shift in India’s footwear market. With changing consumer preferences, the rise of e-commerce, and a growing focus on premium products, the landscape is evolving rapidly. Both companies have unique strengths: Bata with its vast retail network and consistent legacy, and Metro with its asset-light model and focus on private branding.

Ultimately, the “footwear war” in India may not be won by sheer volume but by who can best adapt to the changing demands of consumers. Whether it’s Bata’s premiumisation strategy or Metro’s branding and digital focus, the company that stays nimble and continues to innovate will likely come out on top. As India’s consumption story unfolds, both brands have the potential to thrive, provided they can navigate the challenges of a dynamic and competitive market.