Award: Entrepreneur with Social Impact
Name: William Bissell, Managing Director, Fabindia
Why He Won: For creating a globally recognised, profitable retail brand that has over 22,000 local artisans as its shareholders, most of whom would have lost their livelihoods if it were not for Bissell and Fabindia. And being able to make sure margins are almost three times that of the industry average.
William Bissell never had to persuade anyone to buy Fabindia products. The clothes, furniture and upholstery pretty much sell themselves.
But now, Bissell is about to embark on his toughest persuasion task: He has to coax his 16 supplier companies to merge with Fabindia.
“In two to three years, all our employees and suppliers will be shareholders in Fabindia,” says Bissell, managing director of the iconic brand. No, he is not talking about giving his employees and suppliers (and thus the artisans) an option to buy shares through the much-awaited IPO. That will surely come.
But before that Bissell, who firmly believes business can be the biggest force of social change, wants to merge each supplier company—called community owned company or CoC, these are co-owned by artisans, much like a co-operative—with Fabindia. This will make each CoC shareholder, including artisans, owners of Fabindia’s equity. The retail company’s microfinance unit AMFPL holds a strategic stake in each of these supplier firms.
This will perhaps be one of the most audacious mergers in corporate India. Imagine deciding the share swap ratio between each of the CoCs and Fabindia, which owns the brand, the customer experience and the retail outlets.
Bissell has had some basic communication with the CoCs and their investors, telling them “this is going to be the new system… It will continue to be inclusive like the earlier one and it will be good to have all of you on board.” The intricacies of how each CoC will be valued, and what their share swap ratios will be, are yet to be even discussed.
The merger is perhaps the most important step in the history of Fabindia. With this Bissell’s creation will stop looking like a match between a market-loving rake (Fabindia), and its 16 socialistic brides (the CoCs). Fabindia will become a normal limited company, like Tata Steel or Wipro.
But this does not suggest that Bissell won’t have the artisans’ interest in mind anymore. In reality, the artisans will now have direct claim over all of Fabindia’s profits—through their equity—and not just the profits of the CoCs. Their and Bissell’s interests will be aligned more tightly than before.
The move is bound to upset a lot of people. For many in the social sector, Fabindia was a gateway through which the profits from the rich found their way to poor and deserving artisans.
CoCs were small, and were rooted in the local geography. They were sustainable. That was the vision of William’s father John, when he set up Fabindia in 1960. The company never made the products it sold.
With the merger, it will become a completely integrated company that will source raw materials, make finished products out of them, and sell them through outlets across the country.
There will be suggestions about how William has moved away from John’s vision. “William is keeping true to his father’s vision of creating jobs in rural India. And it is a win-win proposition,” says Sunil Chainani, Fabindia’s executive director and Bissell’s mentor.
While the merger will enable Fabindia to add the margins of CoCs to its books, it will allow artisans to have a share in the value-add that their products get from consumers at the outlets.
Bissell has the backing of his new investors L Capital and Premji Invest, who he selected over eight other suitors early this year. “That [the merger] is something that all of us would like to happen,” says Sanjay Gujral, regional managing director, L Capital Asia, a unit of the private equity arm of French fashion major LVMH that bought 8 percent of Fabindia earlier this year.
Why it Must Be Done
While all this may sound like investor-speak, reality is that Fabindia’s hybrid approach has run its course. There is a clear chasm opening between the potential of consumer-facing Fabindia and the ability of its supplier companies.
Fabindia currently generates sales of Rs 500 crore a year and its plan, according to internal sources, is to take this to Rs 1,000 crore in the next four years. Right now, Fabindia has 167 stores and it plans to add 25 to 30 outlets every year, many of them in smaller cities.
The old way worked till now because Bissell made artisans shareholders in the CoCs. Not only did they get more regular jobs, they also got dividends. “These were the two biggest gains for artisans,” says Chainani.
The move also created entrepreneurs. Supplier companies were able to attract investment from outside, from the likes of Aavishkaar. With Fabindia’s hand-holding, the suppliers developed capacities. For instance, some of them were beginning to centralise some of the functions, like buying, to improve standardisation. “Without the suppliers,” says Rai, “Fabindia would not have been able to get to the next level, which is the merger.”
Scaling up: The present supply chain and supplier companies are not equipped to handle the increase in revenue. At any given point of time, Fabindia has 2.5 lakh product variants (called stock keeping units or SKUs). While some of them can be produced quickly, the more sophisticated ones, such as silk garments, can take more than six months to be delivered, says Charu Sharma, CEO, Fabindia. Also, with the network of suppliers spread across the country, a garment sometimes travels across four locations before it is completed and is ready to be delivered to Fabindia.
Standardisation: The company is known to be flexible on deliveries, but strict on quality and consistency. With suppliers often competing with each other for the final nod and order from Bissell’s team, standardisation of products is a challenge. Rai says the problem is compounded by the fact that the same garment could be made by an artisan in the hills or one by the coast. “Different cultures, working conditions, and lack of awareness about the taste of urban consumers make it tough,” he says.
(This article is excerpted from the latest Forbes India 12 October, 2012 issue which is now available at news stands and book stores. You can buy our tablet version from Magzter.com)