APEX ADELCHI FOOTWEAR LTD: Taking Business in a New Height

Apex Adelchi Footwear Limited (AAFL) is a leading export-oriented leather footwear manufacturer in Bangladesh. It is the largest exporter of leather footwear from Bangladesh. Currently holding the second position, the company is also one of the fastest growing footwear companies in the local market. AAFL also has the second largest retail network following Bata Shoe Bangladesh Limited. Apex Adelchi has quickly established itself as one of the most recognizable brands in the footwear market of Bangladesh. The exports by Apex Adelchi account for 45% of the total footwear exports from Bangladesh. With 6% of market share in local market, they are behind only to Bata Shoe, which holds 22% of market share. Because of their superior quality compared to that of Bata, Apex Adelchis products have given the local market a very good alternative to Bata. Although the company remains a predominantly export-oriented company, they have also taken the local market very seriously, which may prove to be decisive in the long run ( www.bracepl.com).

Company Profile
APEX means the peak or the zenith. Apex Adelchi Footwear Limited is the leading manufacturer and exporter of leather footwear from Bangladesh to Japan, Western Europe and North America. Apex Adelchi was one of the first companies to start exporting value added finished leather products from Bangladesh. The company is now also involved in local retail business. Gallerie Apex is the local manufacturing and retail wing of Apex Adelchi Footwear Limited, founded by Mr. Syed Manzur Elahi, the chairman of Apex group. Gallerie Apex ensures nationwide coverage of its diverse range of footwear for its consumers by huge selection of shoes and sandals, ensuring that each of the valued customers finds the footwear just right for them by their 146 own retail outlets and 275 authorized resellers (apexadelchi.com). Established in 1990 as Apex Footwear Limited, the company was renamed to Apex Adelchi Footwear Limited in 2006. This change occurred after a collaboration deal with La Nuova Adelchi, one of the largest footwear manufacturers in Italy. Apex

Adelchi currently has a production capacity of 15,000 pairs per day for exports and an additional 5,000 pairs per day for local market. Currently, their exports dominate their local retail business with exports accounting for 80% of the total revenue. The company has revenues of USD 100 million in 2010 (apexadelchi.com). Apex group has seven Associates Companies. The companies are Apex Tannery Limited, Adelchi Footwear Bangladesh Limited, Apex Pharma Limited, Grey Advertising Bangladesh Limited, Quantum Marketing Research BD Limited, Mutual Trust Bank limited and Pioneer Insurance Company Limited. Apex Tannery Limited, leading manufacturer and exporter of finished and crust leather from Bangladesh to major products manufacturers in China, Japan and Italy (apexadelchi.com, 2012). ATL pioneered the export of value added crust and finished leather from Bangladesh and accessed capital markets for growth. Adelchi Footwear Bangladesh Limited. It is a leading manufacturer and exporter of leather footwear from Bangladesh to major shoe retailers in Western Europe, North America and Japan. AAFL pioneered the export of value added finished products export in the leather sector of Bangladesh and is also involved in the local footwear retail business. AAFL has equity, technical and marketing participation from La Nuova Adelchi one of the largest footwear manufacturers of Italy (apexadelchi.com). Apex Pharma Limited , One of the fastest growing, ISO 9001-2000 certified new generation pharmaceutical manufacturing and distribution companies in Bangladesh. APL started its operation in 2002, currently employs 1300 persons and markets 126 dosage forms from its Saver plant (apexadelchi.com). Gallerie Apex is a wing of Apex Adelchi Footwear Limited. It established on April 11, 1997. Now it became an important part of Bangladeshi leather footwear market. Now 140 galleries are running all over Bangladesh. This retail segment of Apex Adelchi Footwear Limited produces leather shoes, sandal, wallet etc for Bangladeshi market (apexadelchi.com).

Significant Events in Apex Adelchi Footwear Bangladesh Limiteds early History

Date 1944 1975 1990

Event The founder of AAFL Mr. Syed Manzur Elahi is born. Apex Tannery Limited is founded. Apex Adelchi Footwear Ltd starts operations in as the first full export oriented. AAFL achieves National Export Trophy Gold. Bangladesh Business Awards to Mr. Syed Manzur Elahi as the Business Person of the year.

1992-1999 2002

2010

HSBC Export Excellence Awards 2010 Exporter of the yearTraditional & Emerging Sectors.

Source: (apexadelchi.com) Industry Overview The Footwear Industry in Bangladesh has started since the colonial era, although its modernization took place only in the late 1980s. During the British period, there was no footwear manufacturing firm producing on a mass scale in East Bengal. However, a traditional cottage type footwear industry with limited production facilities existed. When Bata Shoe Company established its manufacturing plant at Tongi in 1962, it was the first manufacturing plant to produce shoes on a large scale in erstwhile East Pakistan. In 1967, Eastern Progressive Shoe Industries (EPSI) established its production plant. It began exporting footwear to Former USSR, Former Czechoslovakia and England. Both Bata and EPSI held major shares in the local footwear market (Banglapedia.com). The footwear industry suffered a major setback during the war of liberation but was rehabilitated after independence. Currently, the local market is dominated by smallscale retail manufacturers, none of which have significant market shares. Only the organized retail manufacturer and distributor such as Bata (22%) and Apex Adelchi (6%) can boast of sizeable market shares. Among the major exporters are Apex Footwear, Jennys Shoes, Landmark Footwear, Leatherex Footwear, Bay Footwear, etc.

Since the small-scale retailers are the dominant force in the market, combinedly they outperform the growth of big manufacturers. However, as none of this micromanufacturer has any substantial market share, their individual growth is negligible. Many of these companies get stuck in the same production level for a long period because of the lack of capital and eventually exit the market. The local footwear industry is experiencing an annual growth rate of 21% annually, according to Leather Goods and Footwear Manufacturers and Exporters Association of Bangladesh (LGFMEAB). However, to continue the trend, the present level of growth has not only to be attained; it also has to be taken to a still higher level, if Bangladesh is to match the success of its immediate competitor, Vietnam (bracepl.com). Nowadays many countries like China and India are failing to produce high quality but low-cost leather items due to the WTO antidumping rules. So orders from Germany, Italy, France, Japan and Canada are shifting to the local manufactures. Crushed leather is the main raw material for locally produced. Earlier China, India and Vietnam are the largest shoe exporters in the world. The demand for fashionable and high end leather shoes has decline in international markets because of the recession. But it has also given rise to an opportunity for the county to produce shoes that are ordinary but essential. The county started exporting leather footwear in 1994 on small scale to neighbouring countries including India and Nepal. The footwear business grew in recent years. Currently the total market size of Bangladesh made leather footwear stands at tk1700 corer of which about 45% is exported. The country exports around six million pairs of leather footwear a year. Bangladesh mainly exports mens footwear, ladys sandals and sports shoes to European nations China, Canada, Saudi Arabia, Iraq, Jordan, India and Nepal (reportlinker.com). According to the Export Promotion Bureau (EPB), the country has fetched USD 222.44 million in the July-January period, compared to last fiscals USD 172.64 million(epb.gov.bd). The growth may be attributed to some new industries or joint venture units with foreign companies. Recently, some well-known leather companies from China and Taiwan have set up manufacturing units in Bangladesh. Such companies have started exporting goods from Bangladesh, triggering an upward swing in the export figures.

Recently some Global retail chains, such as JC Penny, Marks & Spencer, Tesco and Wal-Mart started collecting footwear from Bangladesh in medium to high price ranges. This has opened up an opportunity for the leather and footwear industry to help propel exports by increasing volumes, reaching new markets and penetrating new segments of product.

Market leader in exports

Apex Adelchi has the undisputed leadership in leather footwear exports from Bangladesh. Around six million pairs of shoes are exported from Bangladesh of which Apex Adelchi contributes more than four million pairs. Their technical and marketing partnership with La Nuova Adelchi gives them an edge in exporting to European markets.

Second position in local retail business

With about 6% market share in the local retail footwear market, Apex Adelchi is the second largest company. The company serves the market through 120 retail outlets called Gallerie Apex and 50 agents throughout the country. Apex Adelchi has plan to introduce around 30 new outlets each year.

Largest leather shoe manufacturer

Apex Adelchi currently manufactures only leather shoes. The company manufactures about 5,000 pairs per day for the local market which makes them the largest leather shoe manufacturer in the country. Although Bata has a capacity of 110,000 pairs a day, they produce only about 4,000 pairs of leather shoes while the rest of the products are mostly synthetic.

Partnership with Adelchi

In 2006, Apex struck a deal with La Nuova Adelchi, one of the leading footwear manufacturers of Italy. The company was renamed to its current identity. From then on, their Italian partner took the lead in design and development. Adelchis large network and exposure to European market also helps Apex Adelchi in entering that developed market. The company currently has about 200 different styles of shoes.

Improvement in quality
Another benefit that Apex Adelchi is enjoying since Adelchi came into the picture is the improvement in quality. The company used to have a defective rate of about 6% before 2006. Currently, they have a defective rate of 3.5%. With the technical help of Adelchi, the company is continuously trying to cut down the defective rate even further.

Cost to value
Apex Adelchi considers itself as a medium low cost producer. Only the likes of China and India can beat them in production cost. However, the product quality of Apex Adelchi is generally better than Chinese and Indian manufacturers. Apex Adelchi has backward linkage with one of its sister concerns, Apex Tannery. This helps Apex Adelchi to maintain the quality of their products. This has an impact on their local retail business also. Because of their backward linkage, they are able to compete on a par with Bata. Their product line is slightly up-scale to that of Bata.

AAFLs product strategy

At AAFL, the new product development process is planned by product development department under a group of senior managers like Product Development manager, Company manager, Merchandising manager, Production manager, Costing manager, purchasing manager etc. Then they create new shoe line based on turnover, seasonal impact and customer segments and brands. The idea generation of new product is inspired from best seller, local market visit, competitor analysis, fair and fashion shows, season etc. Idea generation also depends on the availability of materials, socioeconomic class & demography. The main challenges for establishing a new shoe line are proper technical support, different constructions, raw materials availability, coordination between the departments and time management. To build a new shoe line a thorough process has to follow by the product development department. First they have to select the design by best seller item, visiting market and

attaining fair. Then it is important to select the materials and ensure the availability of the process. The further step is to accommodate with the available materials. Product development department then segments customers for targeting potential customers. Then PD plans a BLUE PRINT to follow in the final production. Before marketing a shoe it has to go through several stages. AAFL follows 8 week plan for new products in market. At the first week, a sample product is prepared by P.D department and is send it to the testing lab for further inspection. Then the requirement needed for the shoe is planned and collected. After that raw materials are confirmed through the purchase department. Then supply ready is confirmed in a week. Then the raw materials are stocked for production. Then production starts for that product. After production the product goes to CDC then it goes to market for the final consumer. Before a mass production company always go for a Pilot production of 100 pair to check the customers reaction about the new product. AAFL uses POSmaster for Improved Customer Service and Satisfaction, higher Operational Efficiency& for efficient Return Management Reduction in fraudulent returns. It is estimated that retail stores lose about 0.5% of sales due to fraudulent returns. Managing returns in a systematic and authorized manner efficiently eliminates loss due to returns. It Profiles AAFLs Customers and builds Customer loyalty to drive repeat purchases. Also helps to get accurate information to take critical business decisions. Efficiency and speed of marketing are the two key ingredients of success in the new global footwear business. Both require a world class, flexible and scalable end-to-end ERP solution customised for a vertically integrated footwear company. Apex Adelchi Footwear Ltd has started implementation of IFS Applications to increase efficiency among its 200 plus branches countrywide (dailynews.com).

Ideas on Store Display of Gallerie Apex:

Gallerie Apex always plays a different style to attract the potential customer. Visual Merchandising is very important part in store to attract the customer. Store Display gives an idea about the product feature such as variety, quality and size, color, design and trends. This display reminds the customers about their need and they attract to

buy this product. It is an act of putting things for view or on view. This display can be divided in Interior Display and Exterior Display. Before a customer enters the store, the store must send a message that, store must be well decorated, clean and full of lighting. The display products are being neat & clean. There is some display rules such as, Have to show the outside of shoes, Angle at 0degree & 90 degrees (same style), Group shoes consistently with a space between groups, Display shoes are small sizes like 38/40, The display light remain top on display article. There are some rules about Brand Differentiation, as each Brand should be displayed separately, never Venturini mixes with Apex and never Nino Rossi mixes with Sandra Rosa. Always different Brands are displayed in a selected place. According to ladies footwear, display the flats on the bottom shelf & high heels on the top shelf. It is better not display the Sandra Rosa with Nino Rossi. According to new arrival, new article is displayed on the right side after entrance with new arrival tag. In that part ladies and mens article can display separately.

After sales service

After sales service is also an important part of in-store merchandising. Any types of customer claim are settled by gallerie manager. Manager informs to Area Sale Executives (ASE) under these galleries, ASE checks the claim product and after that sends it to Central Distribution Centre for repair if possible. Generally claim reports of defected products are caused by Sole crack, Upper ornament, Insole cut, Counter stitch, Pasting, Upper cut and Insole defect. In case of claim report, company also attach copy of Settlement of customer claim whether Change of price (Increase), Change of price (Reduction) or Discount sale.

Future Outlook of AAFL

Export market overview Orders which earlier used to be given to China or India are now being handed out to footwear manufacturers in Bangladesh because they are able to produce low-priced but quality shoes, which have now found its way in to key markets in EU and Japan. Moreover, the currencies of India and China have appreciated against the US Dollar in recent times. Bangladeshi Taka, on the other hand, remained stable against the Dollar. This has effectively made the Bangladeshi manufacturer even cheaper than before. If the Taka continues to stay stable against the Dollar, more orders will be handed out to Bangladesh. Because of the better quality in Bangladeshi leather compared to Indian and Chinese ones, the cost to value of products for Bangladeshi leather products is better. Moreover, countries like China and India are failing to export high quality but lowcost leather items because of the anti-dumping rules of the World Trade Organisation (WTO). So, orders from Germany, Italy, France, Japan and Canada are shifting more to Bangladesh. Apex Adelchi would definitely benefit from heightened interest from foreign markets. In recessionary trends, high-priced products tend to register a negative growth, as consumers tend to shy away from them in preference for value for money items. In this scenario, it is a golden opportunity for the leather and footwear sector, Apex Adelchi in particular, to increase its global market share. This new opportunity has opened up to further diversify the range of Bangladeshs export base by including footwear and other leather goods in the list of exports particularly to the European Union (EU) market. However, the country has already been exporting finished leather and different kinds of leather products to the overseas markets. These products also enjoyed considerable demand because of their high quality. The main reason for this was the natural advantage of leather that Bangladesh produces.

India has the largest livestock population in the world. Because of religious beliefs of the majority Hindus, Indians do not slaughter cows, which are by far the largest source of raw hide in the leather industry. On the other hand, Bangladesh is a Muslim

majority country and they have no such reservations regarding the issue. Consequently, a large number of cattle are brought to Bangladesh from India. Bangladesh reaps the benefit of a large livestock population of India. Despite the high quality of local animal hides both in raw and finished form, Bangladesh was still trailing behind Vietnam and China in the export of footwear and other leather products in the European and other markets. However, Bangladesh is set to emerge as the next manufacturing hub for the global footwear industry. The cheap labor is prompting top manufacturers to relocate their factories in the country. The good news is that a number of foreign investors as well as buyers have already shown interest in Bangladesh's leather and footwear sector. Industry insiders informed that at least three large investors in the footwear sector from Taiwan are linked with Apex Adelchi. The buyers from EU, as well as other very highly developed industrial nations like Japan have reportedly been showing importance in Bangladeshi leather products. All these developments look promising for the local footwear industry. Recently some Global retail chains, such as JC Penny, Marks & Spencer, Tesco and Wal-Mart started collecting footwear from Bangladesh in medium to high price ranges. This has opened up an opportunity for the leather and footwear industry to help propel exports by increasing volumes, reaching new markets and penetrating new segments of product. AAFL has set elevated objectives for the near future and aims to increase its export volume by 200 per cent and up its domestic sales 275 per cent by 2015. The stakes are high but the company is confident in its abilities to outshine global competitors. Local market Although Apex Adelchi currently produces leather footwear, they have recognized that they need to produce synthetic products as well in order to make a significant dent in the market share of Bata. Given the buying power of lower and middle class, which dominate the local retail market, Apex Adelchi may not have any other alternative. They are planning to set up a new plant exclusively for this type of

products. It is worth mentioning that synthetic products have a lower margin, which may affect their profitability. However, the volume will be much higher. Since Apex Adelchi is concentrating more on local retail business, it is expected that this segment to grow slightly faster than their exports segment. However, the company enjoys significant tax break from export. Therefore, it is unlikely that their local business will become significantly larger. Estimated local business would generate around 25% of total sales by 2013 and then stabilize. In the domestic market they also continue to drive business through our Gallerie Apex retail stores. While rolling out newer large format stores, they have also focused on renovation and refurbishment of existing stores. They are also focusing on a more balanced merchandize mix and strengthen our product offering for ladies and children. The core business strategy in 2012 will however be to launch, promote and sustain their own private label brands such as Venturini, Sprint, Apex, Moochie, Dr. Mauch, Maverick &Twinkler. These will be supported by dedicated marketing and merchandise plans throughout the year. Apex adelchi have also continued to drive their synthetic shoe line business both at retail and whole sale. Ranging from productivity initiatives at the factory floor level to cost reduction plans in distribution to service training for sales teams, they will become more efficient and knowledgeable about their business.
Apex Adelchi Footwear Limited has established its credentials in the global market as a forerunner in this industry in Bangladesh but they must now redouble their pace to maintain their leadership position and achieve their goal of global standards of excellence. Apex Adelchi Footwear Limited has regained their focus on productivity and they have been forced to reassess their business model. (Apex annual report, 2009) They have made efficiency a byword, starting from wastage of materials to improving line wise productivity and this focus will remain. (Apex annual report, 2009) They have sought out and developed new and better sources of raw materials; they have identified new markets and segments where they have huge potential for growth. (Apex annual report, 2009) They have also actively begun the process of reducing their financial expenses by exploring new innovative funding options. (Apex annual report, 2009) On the domestic front they are reinforcing their retail format with new formats in the wholesale space. (Apex annual report, 2009) They have launched several very large format stores which

are generating good returns and also begun a phased renovation of older stores. (Apex annual report, 2009) They will continue to refresh and renew their product range to ensure that they deliver on their promise to maximize customer delight and choice. (Apex annual report, 2009) As the global markets emerge slowly, from recession they are ready to take full advantage of the new opportunities that emerge. (Apex annual report, 2009) The power situation in Bangladesh has already reached crisis proportions and Apex Adelchi Footwear Limited averaged more than 7 hours of load shedding per day in March 2010. (Apex annual report, 2009) Adelchi Footwear Limited is equipped with sufficient diesel standby generators but they are not designed to run for such long hours at a stretch and the wear and tear and operating costs are very high. (Apex annual report, 2009) This is a serious threat to their ability to meet their production targets and operate their plant optimally and profitably. (Apex annual report, 2009) They must now actively explore immediate power solutions like switching to alternative energy sources such as HSFO based captive power generation. (Apex annual report, 2009) The global shift towards green sourcing is a reality and it has already started in the footwear industry. (Apex annual report, 2009)