Retail king: The duel is on - Reliance, Pantaloon contest for coveted crown

The ruling retail king The leap, all of 10 years, from textile merchant in his fathers shop to king of Indian retailing, has been full of innovation, street smartness and an approach of thinking large scale. He entered the retail space with the launch of the fashion store, Pantaloon, in Kolkata, in August 1997. Over the years, he has led Pantaloon Retail (India) Limited (PRIL) to become the largest retailer in India. PRIL has, now, adopted a new corporate identity called Future Group, a diversified conglomerate with presence in multiple consumer-centric businesses. Here's presenting Kishore Biyani, the entrepreneurial spirit behind Future Group, the retailing giant that has given India multiple formats of retailing in less than six years. As of today, the company owns 100 stores in 25 cities, operating through 35 lakh sq.ft of retail space. Revenues projected at Rs 1,073 crore (US$242 million) for the financial year ending in June 2005 - up 90 per cent over last year. PRIL employs over 12,000 people and has a customer base of over 12 crore Indians. Biyani has rewritten several rules in an industry that was branded 'western' and this resulted in the framing of the company's corporate credo: Rewrite rules, retain values Biyani believes retail is about facilitating consumption and consumption equals development. It is a common sight to see Biyani positioned outside his retail outlets, observing consumer behaviour. According to the industry, it's Biyani's entrepreneurial drive coupled with the rapid consumer-driven focus and growth in the retail sector that has put him ahead of all his competitors. Enter Reliance, the contender Unconfirmed reports say that in January 2004, Kishore Biyani had a series of meetings with Mukesh Ambani, behind closed doors. The agenda, it is alleged, was how Pantaloon and Reliance Industries Limited (RIL) could carve out their own huge spaces in the retail sector, avoid head-on competition, and thereby jointly take on the multinational retail giants once they got the green signal to set up shop in India. It is believed that the dialogue broke down abruptly. Fact or not, the truth is that RIL plans are in full swing to enter into the retail industry. Reliance, at the moment, is not giving any statements to the press regarding their foray into retail. But it is expected that when they do unveil their plans, Biyani, and other competitors, will have no choice but to sit up and take notice. Here's why: The Mukesh Ambani factor Reliance Industries Ltd need no introduction. The Late Dhirubhai Ambani, corporate legend, built Reliance from scratch and in 25 years got it a place among the world's top Fortune 500 corporations. At Reliance, he inspired all to better the best in the world, a quality that his son Mukesh Ambani has imbibed from him. Today Mukesh Ambani heads RIL, over which he got ownership rights after months long feud with his brother Anil Ambani about splitting the Reliance empire. Lauded at prestigious forums as 'Global Leader for Tomorrow', named in 'Time's roster of young leaders for the new millennium' in Time magazine, ranked among the 'Top 50 Most Respected Business Leaders of the World', ranked 13th in Asia's Power 25 list of the most powerful people in business, Mukesh Ambani believes: 'Our fundamental belief is that for us growth is a way of life and we have to grow at all times.' Today, RIL is one of the leading business conglomerates in India with a multi-crore turnover and the highest profits in the private sector. Clash of the titans The Ambani Plan In all probabilities, the proposed size and scale of the Reliance retail blueprint - in typical Ambani style will make the existing industry players, including Pantaloon, aka Future Group, which is the leader by far, appear small. Considering the investment outlay by March 2008, Ambani would have sunk all of Rs 15,000 crore into his retail business, 30 times the Rs 500 crore Biyani has earmarked for 2006-07. Big investments equal big sales and Reliance is aiming at a turnover of Rs 90,000 crore by 2010, 10 times Biyani's projection for the same year. The employee strength of Reliance Retail will be five times that of Pantaloon's in four years (5 lakh as against 1 lakh). (All figures are courtesy TMCNET). But, as Biyani points out in his interview with Retailer, the huge projections coming out of Reliance (see table 2) are yet only on paper. And some also feel that, to some extent, the declaration may be a plan to get ahead in the psychological battle that's being fought in the marketplace even before the first Reliance store gets started. However, the Reliance Chairman is going about the task in a systematic manner, with economies of scale, integration and value-addition being the underlying themes once again. Be it lifestyle retail or agri-retail, consumer electronics, apparel or foods and groceries, as well as the procurement, supply chain, quality control and integration prongs of the strategy, Ambani is putting in place a grand strategy that seeks to grab the consumer's wallet - just like Biyani. The only difference, of course, is one of resources, which is apparent in the investment outlays of both the entrepreneurs. The Biyani Plan But the king is not ready to hand over his crown on a platter. Biyani has put into place the ultimate strategy. With his new corporate identity, Future Group, he is building size and scale beyond conventional retail, across the entire consumer space. The objective is clear: Attract and cater to every need of the consumer and earn his loyalty, and, of course, all his money. The company's catch line is: 'Everything, Everywhere, Every time to every Indian customer in most profitable manner'. Says Biyani, "We believe that with our multiple delivery formats that cater to both the lifestyle and value segments, we will be able to provide for all the needs and aspirations of every Indian customer. The Future Group operates through six verticals: Future Retail (encompassing all lines of retail business), Future Capital (financial products and services), Future Brands (all brands owned or managed by group companies), Future Space (management of retail real estate), Future Logistics (management of supply chain and distribution) and Future Media (development and management of retail media spaces). This organizational design will ensure that we are able to generate consumption and cater to it in the most profitable and efficient manner possible. So, entrepreneur-driven Pantaloon is well poised to grow even if the competition comes. Some industry experts are quite bullish on Pantaloon's business model. According to them it's Biyani's entrepreneurial drive in the retail sector that's enabled him to grow revenues at a compounded annual rate of a massive 70 per cent over the past five years, with the topline expected to hit Rs 2,000 crore in 2005-06. And they expect this drive to continue into the future. Where they will compete head on Inevitably, though, Biyani and Ambani will have to compete head-on, specifically in areas like clothing and textiles; food & grocery; books, music and gifts; and health & beauty, as these are clearly some of the areas with huge potential in modern retail. Pantaloon' strategies for expansion and further growth Future Group plans growth in all directions. Future Capital, the financial services arm of Future Group, has two real estate funds, Kshitij and Horizon, which have a combined corpus of $430 million or Rs 1,935 crore. The money raised through these has been committed (almost Rs 1,900 crore) to the development of close to 30 lakh sq.ft of retail spaces, which will be operational by 2010. Another expansion strategy is Future Group's entry into joint ventures. Recent joint ventures include those with Liberty Shoes, Planet Sports, Galaxy Entertainment, Capital Foods, Gini & Jony Apparel and Lee Cooper, which have given him a foot into an entire gamut of retail services, right from footwear to apparel to restaurants to foods. Funding compulsions of the next two-three years-of Rs 400-500 crore-will also be taken care of via internal accruals and borrowings. Pantaloon can also add to its investment base by attracting IPOs and FDI Other competitors It's not as if it is only Pantaloon that will have to get its act together. In fact, all the other players, including Globus, Shoppers' Stop and Trent, will have to take drastic steps once to counter the giant named Reliance. Competitors also include The Tata Group's Westside department store chain which is growing as fast as Pantaloon, and RPG Group's Spencer's. But Biyani isn't fretting. A rough-hewn entrepreneur himself, he has begun hiring experienced managers and accountants to drive expansion and manage inventory. Overview It would be fair to first examine what weapons the main contenders for the crown have in their arsenal to capture the Indian retail market. Pantaloon Early mover advantage, achieved growth already. Almost a decade of retailing experience and is at the top today. into JVs with various companies, with many more willing. This would add to Pantaloon's investment base, experience and expertise, and share the markets of partner companies. be scaled to any level and retail can get that investment (IPO, JV, FDI) Aware of ground realities, Biyani is known for his focused expansion. His ingenious creation of Future Group, if spread across the consumer market, has the potential to capture the consumer's entire wallet Even if Pantaloon were to exit it would do so at Rs 10,000 crore. So it would be a win-win situation for Biyani if he decided to stay or quit. Reliance Though plans are still on paper, expectations are very high. It's record and reputation is likely to create landmarks in retailing too. Reliance's large-scale operational capacity, investment capacity and infrastructure and business acumen have the potential to respond to every challenge in the retail sector. Scalability and approach to business is expected to generate success. Largest outlay for expansion in retail, ie, Rs 30, 000 crore. Known to have conceptualised integrated blueprints for Reliance, faultless project execution skills, amply reflected in the petrochemical units and the refinery, and nationwide rollout of the CDMA-based telecom services for Reliance Infocomm (now a part of Anil Ambani's empire). Ambani has the capability to lead RIL into the retail industry and achieve yet another landmark. Industry sources feel that it is too early to talk about who will survive or perish. They expect a shakeout six-seven years down the line. Some say that competition will be healthy, as it will expand the organised retail business pie. India's growing economy and the rising income levels will augur well for the nascent modern retail industry.