To bridge the gap between its Internet and retail outlet models, Archies introduced the concept of e-kiosks that introduced shoppers to the company’s website and its services. The portal also came out with advertisements that targeted non-resident Indians in the US, UK and the Middle East with the help of India Abroad News Service, Khaleej Times, India Post and India West. As a result of these initiatives, the portal claimed to have registered over four million page views and programming of 0.15 million e-greetings in September 2000. The website became very popular in a short span of time and began to receive over three million page views per month. The number of registered users reportedly reached a phenomenal 0.6 million. Even though the number of e-greetings sent through the site touched 54 million, Archies discovered that the company gained no monetary benefit. In fact, the venture was proving to be a drain on the company’s finances. Hence, Archies decided to make archiesonline.com a paid site. The company had invested Rs. 20 million in the online subsidiary but made just Rs. 2 million from e-commerce. Creating and hosting one card was costing around Rs. 6,000. The company could not have continued with this free-for-all for ever since Archies accumulated losses of Rs. 13.5 million. In June 2001, Archies ran a nationwide advertisement campaign across various newspapers and television channels. The idea was to ‘equate e-cards with fun’ and tell people that when it came to ‘serious expressing of emotions,’ an Archies card was the best option. The company spent 6% of its turnover on the campaign, which had the tagline, ‘When you really mean it, send an Archies card.’ In late 2001, Archies ran huge advertisements in leading Indian financial dailies, stating that e-greetings or SMS could never be as effective as a physical greeting card. According to analysts, these developments indicated that Archies had decided to treat the online venture as an extension of its business rather than as a thrust area for future growth. Archies decided to revamp its distribution network and replace existing distributors by a C&F agent network. According to the new distribution system, in place of 68 distributors in 21 states, Archies appointed 10 C&F agents in 10 states who catered to distributors who in turn reached out to the retailers. Manish Jain, Company Secretary, Archies, said, “The biggest advantage of this model is that the company owns the inventory, so the consumer is ensured of seeing the entire products range that is available.” In 2001, Archies began an ‘exclusivity drive,’ by way of which all existing Archies Gallery franchisees were asked to keep only Archies range of products. If they did not want to be an exclusive outlet, they were given the option of converting into an Archies Paper Rose Shoppe on a ‘non-exclusive’ basis. The idea was to have only Archies Gallery and Archies Paper Rose Shoppe as the completely franchised outlets. As a part of this exercise, many shops were revamped and some even had to be shut down. Archies believed that being in direct contact with the customer will help assess the detailed requirements of various product lines, and have better inventory management and product mix systems. In addition, the company was also planning to increase the number of Vision 2000 stores on a large scale. The Vision 2000 stores were much bigger than any other Archies retail outlets and according to company sources, brought in 40% more revenues as well. These stores had world-class interiors and stocked all the products marketed by the company. These two rationalization moves resulted in the company facing a decline in profitability. During the conversion stage (from distributors to C&F agent setup), the company took back all the stock lying with the distributors. This increased the level of inventory, which increased the working capital requirement. This forced the company to outsource fund requirements, and therefore, incur a heavy interest burden. In addition, the fact that Archies had to pay higher interest on working capital and had to write off expenses incurred on an ERP initiative also contributed to the decline in performance. Investments in real estate, which were negligible in the franchisee-based system, went up as the company had to invest heavily in real estate. Though Archies planned to take retail space on lease, it had to incur substantial investments during the transition. For the financial year 2001-02, the company’s revenues were Rs. 804.7 million, an increase of 18%. However, net profits declined to Rs. 75.3 million. According to analysts, the revamping of the distribution and outlets was likely to affect the company’s performance at least for some more years to come. They also had their doubts about Archies regaining the growth rates it experienced in the mid 1990s. ITC’s entry into the greeting cards business was not great news either. In addition, analysts also questioned the company’s entry into the highly competitive music and perfumes businesses. Archies was in direct competition with giants such as Saregama and Tips Cassettes in the music segment and with Hindustan Lever and CavinKare in the perfumes/deodorants segments. With the economic slowdown in the country, the margins were going downhill for most players. However, many players were entering the market including the tobacco-to-hotels major ITC (in association with the UK- based design company, Simon Elvin), Gutka manufacturer Manikchand, and pen company Rotomac.

1. Critically comment on Archies’ franchising and distribution strategies for expansion. Do you think the company’s strategy in the initial years was right in the light of the rationalization exercises? Give reasons to support your stand. 2. Discuss if Archies will be able to maintain its marketshare and leadership in the future with the entry of players such as ITC? Will the company’s current strategies help sustain its competitive position?