Monday, May 11, 2009

Crashed Dreams!

As I see it, the initial brouhaha about the retail industry has quickly faded, the silken robes have now begun to give way to tattered rags, with most of the retail companies in India sitting on piles of stock and mounting debt situations.

Most of the large retail companies that scaled up massively in the last two years – the likes of Reliance Retail, Aditya Birla Retail had the same consultants who sold them similar business plans with inflated returns and profitability. SPSF for supermarkets were estimated between INR 750 – 1,200. The reality is hurting at closer to INR 500.

To aggressively scale up, no one bothered about rentals till yesterday. Business Development teams had targets not in terms of number of stores at x-rentals, but only in terms of number of stores at whatever rentals.

The order of the day was scale up and do it fast. Get a valuation and go public. This scaling up also meant hiring people in droves and hiring double that what were needed as companies fattened their benches, “to scale up fast”.

That dream is now bust.

Reality has set in and order of the day seems “austerity”. Companies are closing non-performing stores, reducing bench strengths, in some cases closing almost all stores and showing almost all their employees the door (as in India bulls). Others as Subhiksha are looking for financing and facing legal battles with FMCG companies, who have taken them to court for payment issues. What is surprising is one of their bankers has done that too, who had presence on their board!

No one said retailing is easy, but what takes the Mickey out of me and everybody else is – why the heck were Indian companies emulating established retailers in developed countries and modelling businesses at their returns. Not learning from their mistakes and learning's that they have had in the last 30 years. Not taking best practice lessons from them. Basically not doing their homework right in each and every way possible, and only modelling businesses at consultant opinions!

So where are we headed now – Re-evaluations. Which means back to the drawing board for most, bust for many and sell out for others.

Coupled with recession, it may take a year or more to come out of the current situation. For those of you reading this blog who have been laid off, take heart in the knowledge that things should start improving in the next 3-6 months once markets start stabilizing and some form of buoyancy returns and customers start shopping again.

Till then, focus needs to be on optimizing costs and getting the most out of a single paisa.

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