Indian Retailer

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.

Turning happy doesn’t seem to have worked for the retail business of the India-bulls Group, which also has interests in financial services, real estate and power.

The retail unit of Indiabulls recently repositioned its outlets as Happy Store with a new logo that comprised a smiley transposed on a cheerful yellow shopping bag, but according to a senior manager who recently quit the company and two senior company executives, Indiabulls Retail Services Ltd, the company that houses the retail business, has closed all but four of its 42 outlets.

These outlets had been inherited from Piramyd Retail Ltd, the firm that the group acquired in 2007 for Rs208 crore. In the process, Indiabulls has completely exited some cities such as Ludhiana and Jaipur.

The company, however, opened a new store in March in Destination Mall, situated in Faridabad in the National Capital Region. It also runs a multiplex and a food court in this mall.

Indiabull’s website, however, still says the group is “one of the fastest growing retailers having broad national brand presence with 47 stores located in seven cities”.

“Instead of opening five stores and firefighting on loss-making stores where the business deal is not making sense, it is better to do what we are doing,” said Anil Lepps, chief executive of Indiabulls Retail, in response to why the company has shut most of the stores.

An executive, who recently quit, said the company has also retrenched employees from the stores that have been closed and laid off at least 60 more people in the buying and merchandising team in existing stores in the past three-four months. He did not want to be identified. One of the two company executives mentioned in the first instance confirmed that dozens of people across stores and divisions have either quit or been fired in the past three months. “We are working on a very limited team. We are short-staffed,” he said, asking not to be named.

Lepps, however, said the company has only laid off around 10 people in the merchandising and buying team and is currently trying to rebuild the team with new hires.

Meanwhile, the landlord of one of the closed stores in Jaipur has moved a winding up petition against Indiabulls Retail in the Delhi high court. According to Sanjay Jhanwar, the lawyer representing the landlord in the case, the landlord has sought recovery of Rs1.5 crore against unpaid rent for several months.

In recent months, several retail firms here have either gone bust or have been closing down some stores, scaling back expansion plans, even laying off employees in an attempt to cut costs and to beat the acute downturn in the business that began with the slowdown in the economy.

Subhiksha Trading Services Ltd, the country’s largest discount retail chain, for in stance, has completely halted its operations amid mounting debt and a severe cash crunch.

Other retailers such as Pantaloon Retail (India) Ltd, Reliance Retail Ltd, Aditya Birla Retail Ltd and Spencer’s Retail Ltd have also closed stores and shelved expansion plans in the past year or so.

Indiabulls Retail’s Lepps, however, said the firm was still in a better condition than many of its rivals. “While others are bleeding hundreds of crores, our bleed is over because we have shut down all unprofitable stores,” he said, adding that he is currently focusing on the revival strategy.

“My idea is to get perfect with one store and once we get our model right...then we will plan to open a flagship property in Mumbai in one year and that’s when the new beginning of Indiabulls Retail happens,” Lepps said. “We are trying to figure out a differentiator...”

A March report by audit and consulting firm KPMG International said the slowdown in the retail business is expected to last for another 12-18 months. The firm said the sales growth in modern retail stores in December slowed to 11%, from 35% a year ago.

Indiabulls Retail has been plagued by problems, mainly financial, ever since it entered the business by acquiring Pyramid Retail from the Mumbai-based Ashok Piramal Group. Indiabulls officials privately say they inherited a “mess” from Piramal.

Piramyd was making losses at the time of its acquisition. Many investors expected cash-rich Indiabulls to turn around the company, but it has not happened thus far. On the contrary, the company has had to close down a majority of the inherited stores.

Indiabulls Retail’s stock sank nearly 90% to Rs14 on Thursday, from a peak of at least Rs200 in December 2007. It, however, rose 10% to end at Rs16.30 on the Bombay Stock Exchange on Friday. The firm has also been under fire from vendors in various cities who have accused it of not paying their dues for months together.

Reliance retail revamp plans – telecast on NDTV

Mukesh Ambani-controlled Reliance Retail, which is reviewing the performance of Reliance Fresh outlets in Jharkhand, may close down the non-viable ones.

According to a company source, a group of technical experts are reviewing the performance of Reliance Fresh outlets. "Those that are not doing well may be closed down. In that case, their assets will be merged with other units. This is being done at the national level," the official said.

Retail industry circles indicated the sales at Reliance Fresh outlets had been impacted by the recession.

Incidentally, Reliance Retail had launched its first outlet in November 2006 under the Reliance Fresh banner. In Jharkhand, there are 10 Reliance Fresh outlets in Ranchi, while Jamshedpur and Dhanbad seven each. A Reliance hyper mart was also inaugurated in Ranchi last year which is said to be one of the biggest, with 33,400 sq ft floor space and 30,000 products

Incidentally, two Reliance Fresh outlets -- one in Upper Bazaar, Ranchi and one in Jugsalai, Jamshedpur -- have already closed down. However, this is being attributed to non-viability due to their poor location. And performance of many others are reportedly poor.