What not to do in Retail?

Introduction
• R Subramaniam the founder is alumnus of IIT-M
and IIM-A.
• He then joined Citi Corp in 1989 and left the
company soon.
• He then worked for Royal Enfield in Chennai for two
years from 1989 to 1991.
• Subhiksha started in March 1997 with 4 lakhs
investment.
• Today, the retail chain has more than 650 outlets in
30 cities across India
 Good Old Days
• Value retailing in India.
• "Value retailing is primarily enhancing the lifetime
value of the product. A one-stop shop is an easy route
to success. However, this kind of shop will only
succeed if it has the right kind of products''
• Subhiksha started expanding in March 1999.
• By 2002,130 stores in Tamil Nadu.
• By sept. 2008, fresh equity infused by I-Venture, the
venture capital of ICICI.
• Growth of Subhiksha attracted Azim Premji to
acquire 10% stake of the chain for Rs. 2.3 bn.
• In August 2008 unconfirmed reports stating of not
paying staff and defaulting on rent.
• The ignominy of the retailer aggravated with
revelation from the EPFO that the retailer failed to
remit the provident fund deductions of the PF trust
from june 2008.
• MD of Subhiksha Trading Services in need of at least
Rs. 3 bn to restart.
• Appointing KPMG as an independent auditor
suggested by ICICI did not help.
• Deloitte failed to audit financial reports FY 08 and
FY 09.
 What went wrong for Subhiksha?
• Subhiksha focused on food and grocery on which net
margin is as low 1% - 2%.
• Only a handful of categories, private labels.
• Is it necessary to focus on private labels to drive up
profit margins?
• Diversified into mobile phone retailing.
• The total debt stood at Rs.8bn against equity of Rs.
320mn.
• Improper IT infrastructure to back up aggressive
growth.
• Untrained staff which alienated customers.
• Secondary market transaction through Zash
investment floated by Azim Premji.
 What they did Right?
• Subhiksha pioneered the concept of no frills, deep
discount stores in India.
• Subhiksha launched non AC stores when that was a
stigma in organized retailing in the country.
• Integrated their supply chain by sourcing their
products directly.