Relaxo slipper is the cheapest slipper, you will find on
Amazon.
It’s quite strange that Relaxo is selling slipper at 88 rupees, whereas its closest competitor is selling at 139 rupees. How is this possible ? This
article is the story of family which created this beautiful business of
cheapest slippers that no one in India can reach even close to it.
Relaxo has grown its sales on an average 10% every year.
Relaxo profit growth has been 18% on average for last 5 years. Bigger companies
like BATA has grown at 1/3 times of Relaxo.
Relaxo maximum product lies between 100 to 400 rupees. Bata sales
these product 4 to 6 times of this price. Yet profit margin is identical.
Return on Capital is identical.
Relaxo selling its product 1/6th times of Bata price but growing thrice the BATA. How this is possible ?
How can you build business like this ?
This is the story of DUA family hailing from Punjabi Bagh, Delhi. He owns 74% of
Relaxo. They were plastic wholesaler in 1980s in the NCR market. They use to
sell their plastic to footwear industry. In the late 90s they entered the slipper
market. They recruited Accenture for management consulting which lasted for
10-13 years.
First thing Accenture observed that footwear industry doesn’t
use SAP for supply chain management. Using this there revenue collection day
came from 90 days to 30 days.
Any company which collects revenue quicker will generate free
cash flow quicker. They took that free cash flow and keep on building factory
after factory. Because everyone outsources footwear. As they were in plastic business
they were able to get cheaper plastic compared to other brands. Nobody in India
has made so much factory in the industry of footwear. In the last 16 years,
they have created 9 factories in Bahadurgarh. Basically every other year they
create a factory. And their ROCE gives a glimpse of that. When they are making
factory ROCE goes to 26 and when it is made ROCE jumps to 30.
Even on the cheapest slipper they have gross profit margin of
60%. operating margin same as 16-17% same as BATA.
2015-16 BCG and Deloitte come
as consultant. They start building next level of competitive advantage. They
have driven every one out of market. Now as you know BATA no longer makes hawai slipper.
These consultant firm suggested them to replicate above formula in sandals and sport shoes. Some
year ago plastic crox footwear came to India which was very expensive. The
relaxo replicate that into flite the desi version. If you look at crox price
and flite price you will drop your mouth. Paisa yahi banta hai boss. Entry
level sports shoes Sparx with Akshay kumar branding it. They have started
capturing market of entry level sport shoes and sandel. Their consultant
advised them that they are using wholesaler. You cannot create competitive advantage
by keeping whole sealer.
5 year ago for whole of
Rajasthan they will have one whole sealer. They can sell the way they wanted as long as relaxo getting timely payment.
In 2016, 2017, 2018 they
appointed distributor for jodhpur, Jaisalmer , Jaipur and so on. Then they
pushed these distributors to appoint dealers on high street who will carry on
their product. Result today is relaxo has 30000 dealers touch point. Twice as
many as BATA, and Thrice as many as anyone else.
By far they have created 4
things in last 15 years:-
- Widest range of product at entry level.
- The widest range of dealership by far
- Lowest cost structure
- And tightest working capital cycle.
Why this is monopoly because
they sell 18 crore pairs per annum.
India has 130 crore people.
India has 100 crore people who live in less than 1lakh per annum. These people
will not be able to afford Nike and adidas. For them only organized brand is relaxo.
That’s why this chappal is enormous wealth creating machine. If 18 crore pair
is sold by Relaxo that means 80% of market is with informal sector (Slipper
made in street of kanpur, kolapur and other small places). As we can see covid,
GST, demonetization is completely compressing these informal sector. As these
informal sector dies the entire market will go into the hands of one company
Relaxo and DUA family. It’s a straight 10 years point. As they will create more
factory and they will have more price bargaining power. New companies come but
they will never be able to provide so cheap slipper as relaxo as they will not
have volume. If company big as BATA was not able to survive this segment who
else will.
In a decade of 10 years it will
be 5 times of what it is today.
I thank Saurabh Mukhrjee for enlightning us with these beutiful businesses. Thanks everyone for reading.
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