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Furnishing a new strategy
Arti Sharma |
September 13, 2003
In two months, 10,000 sq ft at Plant 4 of Godrej & Boyce's furniture division in Vikhroli will become a state-of-the-art knowledge centre.
Along with displays of the latest office furniture designs, information will be disseminated through computers and electronic displays on the ergonomics, design and planning behind each piece.
The centre, open only to architects and buyers, is a sign of changing times in the Rs 370-crore (Rs 3.7 billion) furniture division. Shedding its crusty image for a more contemporary one is only part of the new strategy the division is adopting.
This year, apart from selling office furniture, the division hopes to increase revenues from new lines -- home furniture, children's furniture and single window solutions for interiors.
"We are moving away from being a commodity supplier to furniture solutions for consumers," says Anil Mathur, chief operating officer, Furniture & Interiors group, Godrej.
Not only is the furniture division under the holding company Godrej & Boyce Mfg Ltd redecorating and reorganising but it is also rechristening itself.
What were earlier operating as separate profit centres -- furniture (office) and storewel (cupboards) -- have been integrated into a single unit -- the furniture and interiors group, since April.
Says Mathur, "Change was occurring in the division but we had to accelerate the pace due to competition, pricing, and attitudinal changes."
Mathur, headed the storewel division for two years before he also took over the furniture division in April 2003.
But what brought about the diversification into other areas like home furniture?
"We had reached the peak of a business life cycle with office furniture. We had to explore new avenues for growth," says Mathur.
Godrej is the market leader in the estimated Rs 3,000 crore (Rs 30 billion) office furniture market.
However, two years ago, even as office furniture volumes were increasing about 8 per cent to 10 per cent, returns were decreasing by 5 per cent to 7 per cent year on year because of price reductions.
The division's margins were also under pressure as raw material prices headed northwards.
At the same time, prices of the finished goods were falling. There were a plethora of unorganised and newer players offering better designs at competitive prices.
Mathur says because of the falling returns, topline growth was not commensurate with the quantities sold. "It was necessary to expand the base," he says.
So in 2000, the company despatched a team to 100 consumers' homes in four cities to understand their furniture needs. The survey was branded Integral Design for Marketability and Manufacture.
"There was a perceptible shift from custom-made furniture to branded furniture. We had considerable brand equity so we decided to enter the home furniture market," says Mathur.
Armed with the results, it launched i-space, the children's furniture brand two years ago. Operating in a niche market in a price band of Rs 12,000 -Rs 25,000 for units with bunk beds, study and storage units proved to be a difficult proposition.
Despite retailing through 30 showrooms across 27 cities, sales of the children's furniture didn't really take off. The division had anticipated a 10 per cent growth in volume but it grew only 2 per cent to 3 per cent in the last year.
"We discovered that furniture was not really a priority for parents as far as spending on children is concerned," says Mathur.
Despite this, the division will continue to manufacture and sell the units specifically designed for children since Mathur believes the market exists.
It then introduced a range of sofa sets, dining sets, coffee tables and bedroom sets to cater to a changing market.
This Rs 5,000 crore (Rs 50 billion) segment is growing at a healthier 15 per cent compared to the office furniture segment.
A competitor importing furniture for the home segment says, "In three years this market has grown tremendously. Each player is trying to offer better products at competitive prices."
Currently, 20 per cent of the division's turnover comes from home furniture. It wants to touch 30 per cent this year.
The home solutions include furniture for living rooms, bedrooms and units for the kitchen.
While in some cases like the wardrobes, prices are roughly 10 per cent higher than local brands, in other cases prices are either lower or at par with other players like Gautier and Durian.
To reach out to this consumer, it will open 100 exclusive "Godrej Perfect Home" outlets across the main cities.
Additionally, 600 dealer outlets will sport "Godrej Perfect Home" corners. By year-end, the number of dealers will go up from the current 850 to 1,000. All this will be backed by promotions like road shows, exhibitions and customer offers.
To boost topline growth, Mathur and team also plan to offer single window interior solutions to public and private sector companies. The initiative has just taken off on a turnkey basis with corporates like insurance player New India Assurance and group company Geometric Software.
Currently margins do not differ for the solutions or the furniture. "We don't want to mark-up our prices for the services since that would lead to a cascading effect. There would be no reason for anyone to come to us instead of going to an interior decorator," says Mathur.
Then there are other avenues of business that the company is looking at. For instance, it is attempting to provide furniture solutions to laboratories -- chemical, physical and research labs. It is also furnishing Indian Navy's ship cabins using modular furniture.
At the same time, Mathur has been streamlining operations. "The clear synergies between the divisions would help us optimise resources and minimise costs," he says.
Today production and supply chain functions are centralised. Then it is working with vendors to improve processes and delivery schedules.
Says Mathur, "This makes the commitments easy to adhere to since quality is standardised and vendors are able to bring down costs of manufacturing as rejections decrease."
Even the marketing has been rejigged. Today, dealers are divided not by geography but by the segments they cater to. The 250-odd field force is made to head out and scout for clients rather than to wait for the phone to ring.
But the road ahead may not be easy. A large number of organised and unorganised players are already well-entrenched in the market. Then the fact that Godrej integrates steel with wood, say players, is a concept that still is to take off.Still Mathur expects turnover to cross Rs 700 crore (Rs 7 billion) by 2005. It's an ambitious target and there will be lots of competitors trying to sit down in the same space.