Organised retail outlets : A survey

The dot-com bubble burst is almost a decade old story now. But, some of us could be remembering it vividly as though it happened yesterday only. A similar bubble is now seen coming up in the retail industry. When expansion takes precedence over proper in-store infrastructure and reproduction of stores becomes a cut-and-paste exercise giving less and less importance to interior details in newly come up stores and multiplying oversights, troubles start brewing though they still lack the power to kill a company outright. Not paying due attention to critical facets or factors is a practice generally seen among the first-time business owners for they find often themselves in the difficult position of needing capital outlay. Today, an economic slowdown and a long break-even period per store does not seem to deter most of the  retail chains as they refuse to admit that they have been affected by poor consumer sentiment. Creators of retail euphoria, who are all optimistic of Indian growth, have started believing too much in their own opinion and that of the press.

 

With consumption rate lagging behind the intensive expansion spree by retail corporate houses, retail in India has come into a sort of confusion. Retailers are now becoming wary of their own blueprints because the consumption has not been able to keep pace with the retail stores mushrooming in the country. As a result, stores have become cost centres for companies proving their expected projections wrong.

 

Even worse is the case of mall development in the country with retailers’ confidence losing ground day by day. Mall developers who largely rely on investor linked business model with a brand are juggling between retailer’s concern for footfalls and conversions. The estimated total mall stock of 22 million and 15 million sq.ft respectively by 2008-09 is certainly not showing up as it was supposed to and 300 malls looking to come by this year-end look nowhere to be seen. Maybe, correction on retail overdrive is looking to come as caution would dictate the future growth of retail.

 

Today, most retail companies are building a business around the concept of offering everything at competitive pricing offering huge discounts, big bargains, freebies on a nice premise. The problem with such approach is that it builds companies, which are essentially one-trick ponies. If that one trick starts failing (tastes change, a competitor starts offering a better version of it, or the underlying fundamentals are wrong), the business comes in a danger zone. When expansion of these companies start becoming erroneous at the store levels, they begin to flip with the founders and initial investors looking to sell out quickly enough rather than taking a less traveled and much longer route of trying to build a business around strong fundamentals.

 

Both individual and institutional investors buy into retail company stocks due to its expansion plans. And valuations of retail companies follow two potential trends: either companies are too young to evaluate and initial start-up costs were high requiring a higher valuation to enter a marketplace; or the company is grossly overvalued.

 

Another threat to retail has been the mall culture in India, which has not taken off in the manner it was anticipated. Today, people visit malls more for window shopping or hanging around than making real purchases, which has made retailers wary of the expansion plans they had rolled out in their blueprints. The biggest hits are tier I and II cities where retailers have already started making u-turns. Barring a few malls, developers are already considering constructions of proposed malls or looking to transforming malls in bad shape into commercial offices.

 

Not very happy with the way organised retail has taken off, many joint ventures between Indian-overseas and Indian-Indian companies have fallen through. Planet Retail-Marks & Spencer, which later went in JV with Reliance Retail, Planet Retail-Starbucks, a deal which went bust almost before it had gone through,  My Dollar Store (now part of Future Group) & Howard’s Storage World, Australia, Future Group-Gini & Jony are few notable examples.


 A slowdown in PE funding in retail sectors has also come to light recently due to its highly capital intensive and limited returns characteristic of initial years and PE companies have started identifying service organisations. As an alternative means for raising capital, retail companies have started looking towards IPO options but the corrections coming in Indian stock exchange may thwart the ambitious plans of these players. What would define the real growth of any retail company is its ability to sustain itself against perverse rentals, less talented HR, supply chain lags, price wars and quality merchandise. 


Retailer has prepared a case study of a prominent retailer in the food and beverage segment not with the purpose of demeaning the company or questioning its intentions and integrity but more with an objective to perform a reality check in retail. The euphemism of retail is reminiscent of dot-com days of the late 90s where an over expansion and over supply led to correction and eventually setting the market on the right path. Our search for retail righteousness starts with Subhikhsa, whose retail growth has been evaluated on several parameters in the following pages.

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