The Indian retail industry has been riding a wave for the last couple of years.

According to a
latest report, retail sales are expected to rise from US$ 343 billion currently to US$ 543
billion.

Reliance Fresh, Subhiksha, Vishal Retail, Spencer’s, More, Big Bazaar and many more have
entered India since the modern format retail concept began. The expanding middle and upper
classes has played a big role in the expansion of existing modern format stores and entry of new
ones.

The biggest question is “Have all of these stores been successful?”

The answer is a big NO. We shall discuss about two of the biggest failures in the history of
Indian retail – Subhiksha and Vishal Retail.

Subhiksha was started by R. Subramaniam, an IIM A and IIT Chennai alumnus with its first
store at Chennai. Ram Chandra Aggarwal set up his Vishal Garments Store in 1994 – three years
before Biyani’s Pantaloon and seven years before setting up Vishal Retail. Both of them are
discount stores at prices which are much lower than other retail outlets.

Though, Subhiksha has closed down and Vishal is still in the market, there are some points of
similarity in their fall from glory which I would like to mention here –

Un-mindful expansion spree across different parts of the country

Subhiksha didn’t realize that with this only a few stores would be profitable and generate
positive cash flows. It moved across different sectors such as medicine, grocery, IT, mobile etc
very fast.

Vishal expanded without having the proper capital. They got the orders from the suppliers but
when the stores didn’t work out, the entire supply chain got choked.

IPO problem
Subhiksha was thinking of going for an IPO in 2007 but shelved it in view of “uncertain market
conditions”. But I believe that they got greedy as they expected a market correction.

Vishal on the other hand raised Rs 110 crore from an IPO in June 2007 which wasn’t enough to
meet it scorching growth pattern. It had 50 stores by then and was looking to expand to 130
stores in a year. But it went for short term debt which resulted in a big blow to their entire supply
chain when the stores didn’t happen as intended.

Both of them didn’t consolidate

Subhiksha and Vishal instead of stabilizing and consolidating themselves first in different places
and then moving to newer locations, tried to be the first in every town.

Poor inventory management

Subhiksha had a bad history of credit defaults and this led to supply breakages. This led to
situations where sometimes the store had very high inventory and at others, the stocks were out.
This led to great dissatisfaction.

Vishal’s distribution center led model failed as it couldn’t build an IT network. Buying at
warehouses was mostly not aligned to what the customers needed and resulted in dead inventory.

Private Labels

Vishal tried to develop private labels in almost every category but had limited scale to support
them.

Subhiksha closed down in 2009 amid allegations of defaults, non – wages payments and
bankruptcy. The people behind it are still struggling to come up with valid explanations.

Vishal has brought down the rentals of the properties, decreased its expenses and closed down
two dozen stores and warehouses and plans to close more. They still need an infusion of about
Rs 50 crore. Would the lenders give them?

What do you think about the failures of these two players as well as changes in the Indian retail
industry as a whole?

Friday, September 5, 2008

Subhiksha: A perfect "go bust"

(Having observed the operational dynamics of Subhiksha, 2 years back, it had struck me that
this was not a sustainable mode of working. Over the next 2 years that seed has actually taken
long roots. In fact many of the retail chanels in India are not on sustainable models and are
trying to over spend each other. This post, happened after 7/8 days of the Retail Realism one
and bear my thoughts and ideas substantially if not fully)
Read article at http://www.livemint.com/2008/09/05001546/Subhiksha-not-paying-some-
bill.html
In continuation to an article that appeared in Mint some time back.. "bringing back retail
realism" (http://www.livemint.com/2008/08/27002851/Bringing-back-retail-realism.html) , I
had listed out a number of points on just how high and how much the retail exuberance is
irrational. Subhiksha to me is the best and the biggest example of "how to get retail management
wrong". To list down the bullet points on this
1. Unmindful Expansion: Subhiksha took a lot of pride on matters of number of stores opened
per day/per week/per month...
2. ... without Consolidation: Very few stores would have been profitable in terms of cash flows
3. Flouting all possible rules in Retail management.
4. The staffing and the personnel quality was pathetic but the pay was very good.
5. The terms of business were not always ethical or right minded.
6. Whither Inventory management?
7. Footfalls, turnaround and turnover being the guru mantra: Subhiksha never understood its
customers
8. The only USP was discounts... hardly a sustainable competitive edge!
9. Your vendors only have a limited leash...expecting infinite credit cycles to make up for your
ROIs is hardly good vendor management
10. Downstream supply chain was not integrated. Bulk buying is not a source of advantage.
11. Diffused focus: Subhiksha sold fresh vegetables, medicines, groceriezs, mobile phones,
accessories and more.. where was the focus? How robust was the business model and the
manpower to handle such diversity?
Now i hear CDIT format stores under the Subhiksha aegis... When will you learn Mr.
Subramanian? Bottomline: No one "buys out" a sick horse. At this rate... Mr Subrmanian.. you
would go bust!