Metro Brands to pursue multi-brand, multi-channel strategy

Mumbai-based footwear retailer Metro Brands Ltd plans to pursue a multi-channel, multi-brand strategy for growth in coming quarters, the company told analysts from Nuvama Institutional Equities.

Metro Brands operates over 600 stores across India for its flagship Metro branded outlets and other brands like Mochi, Walkway, Da Vinci and J Fontini. The company listed on the stock exchanges in December 2021.

Founded in 1955, Metro has established itself as one of the largest Indian footwear specialists, with a consistent track record of growth in stores, revenue and profitability. For the fiscal year ended March 31, 2023, Metro’s revenue grew by 22% to Rs 2,117 crore while net profit jumped by 48% to Rs 365 crore compared to the previous year.

Most of the company’s stores are under the flagship Metro brand. Over the past 8 quarters, Metro has beaten consensus earnings estimates, as demand for footwear rebounded post-pandemic. Same-store sales growth has remained in double-digits, footwear demand has proved resilient against inflationary pressures, and the company has expanded its store footprint by 10-12% every year.

Metro’s omni-channel approach, wide brand portfolio catering to aspirational segments and value segments, and cluster-focused expansion in Tier 2/3 cities have been key growth drivers.

During their interaction with Nuvama Research analysts, Metro CEO Nissan Joseph and CFO Kaushal Parekh outlined plans to step up the retail footprint across Metro, Mochi and Crocs stores, and continue investing in digital channels and brand building.

Metro aims to keep adding 80-100 stores every year across its brands, implying a store count of over 800 by 2025. The share of online sales is seen rising to around 15% in the next 2 years, from around 11% currently.

“Metro highlighted its offline presence in key markets is also aiding market share gains online—closer proximity reduces delivery times, which helps rank products higher. Besides, Metro is investing in online marketing to drive growth in this channel. Metro has a target to take online share higher (FY23: 7.9%). That said, return share remains similar to the industry, which is the key constraint to achieving profitability,” said the analysts.

While Metro will remain the dominant format with over 55% of stores, focus on Mochi and Crocs is increasing given the strong brand equity and growth potential in their respective target consumer segments.

“While FY17–22 marked higher store addition in Crocs, Metro expects this to normalise ahead. Management expects an approximate equal split to the guidance of adding 100 stores/year,” the analysts said.

Mochi will be positioned to tap premium demand from fashion-conscious buyers in metros and tier 1 cities. Crocs has bounced back post-pandemic on casual, comfort footwear demand. Metro is looking to accelerate Crocs stores rollout in India through the franchise model, similar to global markets.

Analysts note that turnaround efforts are underway at the Fila brand, which has struggled after Metro acquired the franchise rights in 2019. After rationalizing unviable stores and optimizing inventory in the first year post-acquisition, Fila will now be repositioned in the premium sports lifestyle segment. But scaling up Filas’ presence is expected to take 2-3 years more.

Beyond its core footwear trade, Metro is also trying to build its fashion credentials in the value segment through Walkway. However, fine-tuning the right product mix for Walkway will take time.

Propelled by the rebound in footwear demand from pre-pandemic levels, Metro Brands is now firmly on the growth path. The company aims to strengthen its leading position in specialized retail.

With resilient categories like footwear, retailers have scope to pass on high input costs to consumers, offsetting margin pressures from inflation. Metro’s cluster-based store expansion strategy focused on Tier-2/3 cities has allowed it to penetration small towns with high growth potential.

The organized shoe retailing industry in India is pegged at around Rs 25,000 crore, but remains fragmented. Unorganized players account for 65% market share. Players like Metro, Relaxo, Campus Activewear and Bata India are looking to gain share from unorganized incumbents.

India’s per capita footwear consumption lags global averages, signaling room for penetration-led growth. Rising fashion consciousness, increasing disposable incomes in small towns and a rebound in outdoor activities/social occasions post-pandemic are driving footwear sales.

Market leader Bata India is plotting its own expansion strategy to reach 250-300 new stores per year. Campus Activewear, which got listed in 2022, wants to scale up from 500 stores currently to 1000 stores in the next 3-5 years.

Relaxo Footwears, known for its budget segment Hawaii slippers brand, is also diversifying into premium footwear through new brands like Flite and Bahamas.

While competition is heating up, Metro seems confident of maintaining its growth momentum across brands, price points and channels in the coming years. Backed by its strong execution track record, Metro is gearing up for the next phase of expansion to tap India’s footwear demand potential.