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Indiabulls Retail – Yet another retail player bites dust?

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Retail Sector in India was being hailed as Sunshine sector just a couple of years back – Many Indian players entered it to grab potentially huge retail Indian consumer market and grew very aggressively. But it seems that sun is not shining on them anymore – the calculations seem to have gone wrong!

Indiabulls-retail

Indiabulls, which is one of the most diverse groups in our country with interests in diverse fields like stock broking, retail, power, non–banking finance and real estate. The USD 3 billion group has emerged as a big player in many of the sectors it has presence in, but sadly their retail venture – Indiabulls retail – is looking down in the dumps.

Indiabulls entered the retail sector in 2007 by acquiring Piramyd Retail for Rs 208 cr from the Pyramid Group. Probably the only good thing for them was the acquisition because after that, the road has entirely been downhill.

Their initial plans of starting up around 30 hypermarkets and also expanding the 42 stores of Piramyd to more than 150 by 2008-09 were scuttled due to the economic slowdown. This led to the closure of most of their stores. Though others like Reliance and Aditya Birla Retail were able to bounce back, Indiabulls never recovered. And recently it’s been announced that their expansion plans have been currently frozen.

They failed due many reasons: –

  • Being successful in many other sectors already, Indiabulls assumed that it would succeed in retail too. But in the end it became a case of keeping too much on one’s plate. They couldn’t manage to oversee the operations as well as spare capital which they had to invest in their projects in other sectors
  • The economic recession destroyed their plans in terms of retrenchments, defaults to vendors and suppliers, CEO changes etc.
  • The acquisition process was a waste as Piramyd was already in a financial mess and it meant problems from the start for Indiabulls

Indiabulls has tried to rebrand its stores – Megamart as Happy Store and Megastore as Store One to increase sales and footfalls. But that doesn’t seem to have worked. At present it is still running stores in Pune and Nagpur. But the future looks inevitable.

Yet Another retailer gone bust? Where do you think our retailers are going wrong in their planning?

  1. Altaf Rahman says

    What I dont understand in all this retail issue is why we are worried about Govt not allowing forign outfits.
    After all retail is not rocket science. All it takes is
    a. Managing front end (actual sales, study of products and their applicability to consumers, advertisements)
    b. Managing assets (properties, warehouses, logistics, employees, finance)
    c. Back end operations (suppliers, shareholders)
    I observe many locally managed supermarkets in every city and town which are running successfully. I always think that out of the dozens of supermarkets atleast one will expand in a systematic way. But I am disappointed. None of them grows. Then I realize that all of them are family managed. The management is family oriented. They dont bring professionals to plan ahead.

    I hope one day some Indian retail which grow from small shops rise to the level of Wall Mart.

    I dont see any difficulty. We got all the inputs. We Indians are genetically intelligent, we have sound banking system, we have 90% of all supplies locally, even the 10% forign items required to make the store look attractive can be managed times (unlike past when import is cumbersome).

    All it takes is a will to be a Wall Mart by next generation and thinking of how to achieve that. I am sure most of them think of how to beat Wall Mart by tomorrow. Thats where all fail.

    1. Aseem Rastogi says

      The problem probably I think is that all the retailers are thinking from a competitive point of view as to what the competitor is thinking rather than an innovative point of view..

  2. Yash says

    Excellent point made by Altaf. Growing gradually is the way to grow anything to a significant scale. Walmart grew exactly like that it began from Arkansas and then spread to other states. And it always started with smaller towns. Same story with Pentaloon-Big Bazar. In fact take a look at ANY of the successful business in the world. Nobody has achieved scale overnight. L N Mittal did not become largest producer of Steel in a few years. It took Infy 20 years to be where it is today. Same is the story with Coca Cola, McDonalds, Microsoft, Apple etc. Whether you grow organically or inorganically, the growth has to be sustainable and balanced. You can open 1000 stores in a couple of years but if other parts of your organization cant keep pace with your growth you will end up like Subhiksha.

  3. Sunil R Nair says

    Good piece. Are there any numbers on how much of the IPO moneys the big guys blew up? Is there any accountability or is it just a myth?

    Long long ago I was involved in understanding the behaviour of consumers in large format stores. Most of them want to aspire and watch whats being consumed by their role models ( the yuppies in any mall ) and then try to replicate the same by getting stuff in small stores in the neighbourhood stores. The threshold of migration to large format comes eventually. Big Bazaar understood this underlying truth and its there for everyone to see.

    my 2 damdi worth.

    1. Aseem Rastogi says

      I personally don’t know the specific numbers. As they say what the leader does, the others follow. But sadly most of them follow by plainly copying and replicating rather than innovating.

  4. Altaf Rahman says

    Nice post and excellent comments by Yash. However I would like to add my two paisa.

    I have a model for successful retail business. Here I go with Yash comment.

    For my model I choose Hyderabad as a start up point. This is how I will do it.

    Phase 1 : First of all start one super market with strong back end ops (supply chain / ware housing etc). Stabilize the whole business (a. Managing the maintenance of super market, b. Managing suppliers, bankers etc)

    Phase 2 :
    Phase 2a : Upgrade the super market to a Mall. This is a natural expansion phase.
    Phase 2b : Start the second super market in the same city but different location with the help of already established suppliers.

    Phase 3 : Repeating Phase 2, the group will have 4 or 5 Malls in various locations of the city and may be 10 super markets.

    If all goes well, by the end of Phase 3 we will have a strong supplier base and central ware house to support all operations. It will take around 5 years.

    Phase 4 : Start supermarkets in nearby towns (with population of over 2 lakhs) one after the other.

    Phase 5 : On the strength of the already firmly established supply base, directly start Malls in the cities (with approx. 5-10 lakh population) in Andhra Pradesh like Vijayawada, Visakhapatnam, Nellore, Tirupati.
    While you are expanding to other places, only about 50-75% suppliers can support the operations in otehr cities. So we have to manage the other suppliers from the local area.

    Phase 6 : Phase 4 repeats for all the otehr cities.

    Phase 4 to Phase 6 will be covered in 10 years from start. Management has to be decentralized to the cities with Malls. e.g. management of Vizag, Vijayawada, Tirupati will run their day to day ops on local conditions.

    Phase 7 : Many people will suggest that next step is Mumbai or Chennai or Delhi or Kolkotta. Wrong !!
    Next step is neighboring states that too nearest to the cities with Malls in Andhra.
    For example, super markets have to be started in towns in Orissa in the strength of Mall in Visakhapatnam. Supermarket to be opened in Gulbarga, Nanded. Local management to be created on the phylosophy of the group. Central management will support the local operations with logistical support from the main cities i.e. Hyderanad to Gulbarga and Nanded and Vizag to orissa.
    This way the group will start its presence in other parts of the country.

    Phase 8 : Start Malls in all big cities and super amrkets in towns in Orissa, Chattisgarh, Maharashtra, Karnataka, Tamilnadu. (Kerala and Pondicherri are natural extensions to Karnataka and Tamilnadu).

    Phase 9 : never jump to Delhi first. It has to be the neighboring states. Because the support you will have from existing business is half of the strength to the new set up.

    Phase 10 : While spreading slowly but firmly all over India, start Malls in places where there are many indians (like Singapore, Dubai, Kuwait, Doha) and not many Indians (like Bangladesh, Srilanka)

    Phase 10 may be over in may be 20-25 years.
    At the end of Phase 10, you will have multiple malls and super markets in big cities while one Mall and multiple supermarkets in smaller cities and supermarkets in towns. May be 100 Malls and 1000 supermarkets.

    I would like to highlight the following :
    1. As the growth is organic, you dont need to fall head over heals for money for so many operations. As you grow gradually, the profits from first business will support the second and first, second will support the third and it goes on.
    2. Also by then you will have your own training schools to train and recruit employees in major locations.
    3. You will may be have your own logistical set up to support such vast net work, may be fleet of cargo planes, trucks, refrigirated trucks, software etc. May be corporate farming business too.

    I think this is how Wall Mart spread all over the world over a period of time.

    Also as Vamsee pointed out if Wall Mart has failed in Germany it may not be because of the vast social / cultural differences between people of US and Germany. It may be due to govt policies / tax structures / local management failure. If definitely may not be due to core management failure.

    But I personally can not imagine starting 100 Malls and 1000 supermarkets all over India overnight like the many failed ventures (as explained above). Its a recipe for failure.

    1. Aseem Rastogi says

      Your step by step process is an excellent way retail chains need to operate. But sadly no one has really approached this way of managing retail in our country.

  5. Pradeep says

    Reason for their failure could be inexperience in operating and managing those stores. Also I think instead of taking over, they could have started fresh

    1. Aseem Rastogi says

      Yeah starting fresh could have been an option if we consider in hindsight that they acquired a business which was loss making and proved an important fact in them getting destroyed!

  6. Yaamini says

    Good article

  7. Arun Prabhudesai says

    Guys….thanks for interesting discussion – Here is question if anyone has answers for it…

    Do you think Government Policy’s and restriction of FII money into retail is to be partially blamed for this ? Like Vamsee pointed out, it is important to have financial muscle to sustain- These newer guys, just could not raise that kind of money…

    1. Aseem Rastogi says

      That is probably one of the most important and biggest problems. And now if things hold right, that may finally be changing as the government may allow 49% FDI in retail. But I hope its not too little too late.

    2. Yash says

      I don’t think capital is an issue. Subhiksha did not go belly up because of lack of capital. It went bust because of lack of customers in the stores. And They had marquee investors like Azim Premji and ICICI Ventures. RIL entered the market with an ammo or Rs. 10K crores – what happened to them? These days Indian corporate houses don’t find it difficult to raise a few billion dollars. Indiabulls was unheard of a few years ago and now they are a multi billion dollar enterprise. Money has never been an issue for entrepreneurs who have a zeal and passion to make something happen.

  8. Yash says

    @Arun mom n pop shops are going to be around for a long long time. The Megastores just cant match them. When a bunch of new stores opened in our neighbourhood, we started buying from them instead of our 20 years old “Baniya”. Over the period the enthusiasm of the new format died down and now we are back to the Baniya.

    There are various reasons, you don’t have to stand in a queue to check out a bunch of vegetables. Stuff are delivered home in a matter of minutes. You don’t even have to visit the shop, you can just place your order on phone. And the mom and pop stores have been providing credit to their customers long before there were credit cards. We only visit large stores to buy stuff where we want a large variety to choose from in soaps, shampoos or deos. All the more important house hold stuff now comes from the local Baniya and there goes the business plan of Subhiksha for toss!!

    But there are some stores that know their business really well. Take the case of a small chain called DMart. There’s a Hypercity, Spencers, Food Bazaar and DMart in our area. Dmart is always full of customers even on an afternoon on a working day. And they have the smallest store, narrow alleys, the AC sucks, they don’t accept Sodexo or Accor meal passes and don’t have parking either! But their check out counters are always full. You know why? Their shelves are always full of stock! Whatever you want. There have been instances when we have not found certain item in the Food Bazar but it is available in DMart. Their supply chain is super efficient.

  9. Arun Prabhudesai says

    Excellent point made Yash…I concur…

  10. Yash says

    Everybody with a few hundred crores to spare wanted to become next Walmart or Big Bazaar. People jumping into retail from left right and center forget one thing – Sam Walton and Kishore Biyani honed their skills as small retailers for years and once they got the back end in place they expanded their front end. Diversified groups like Reliance and Indiabulls thought they could run stores with a few MBAs who have worked for Walmarts of the world. If you read Made in America or It happened in India you will realise the strategies applied by Walton and Biyani although unique to their markets, had one thing in common – they consolidated the supply chain first instead of getting into store opening race. Both have grown at a steady pace over the years.

    1. Vamsee says

      Sam Walton and Kishore Biyani had to start small, because they lacked resources – and the retail industry itself was pretty young in their respective markets when they got started. They had plenty of time to learn the lessons and then apply them. People entering late into the game don’t have that luxury. If they want to compete with already established retailers, they have to scale fast.

      Perhaps Reliance moved too fast to open so many stores, but they have enough cash in the bank to correct those costly mistakes. The other upstarts don’t. That said, Walmarts and Carrefours of the world are certainly not immune to this mistake – Walmart pulled out of Germany with nearly $1bn loss, and Carrefour is pulling out of SE Asia for very similar reasons.

      1. Aseem Rastogi says

        If a group has deep pockets like Reliance it would be easier to manage in this sector unlike say an Indiabulls which tried to be so many things together without being able to give the best.

  11. Vamsee says

    From the pedantry department: I think you mean “hailed”, not “hauled”. If a group with as many resources as Indiabulls failed, despite all other seemingly valid reasons, it most likely means only one thing: the professionals they hired to run the retail business are simply not good enough.

    1. Arun Prabhudesai says

      Yup…it was hailed and not “hauled”…thanks for pointing out…

      Yes, wrong heads is definitely a reason, but I also think that they have misjudged the market, and although people are thronging Malls, still majority of them prefer mom and pop shops, where it is more personalized…

      1. Aseem Rastogi says

        It seemed as if everyone was joining the bandwagon because of the success of a few players!

  12. Sushrut Bidwai says

    General retail sector was always believed to be difficult to crack and over hyped to be frank. Niche retail seems to be doing alright with supermarkets for electronics items, mom & me stores.

    FWIW – There was no economic recession in India.

    1. Aseem Rastogi says

      Yes it is actually overhyped. Its as they say joining the bandwagon. If Future could do it, everyone thought they could do it.

      Yeah there was no recession in India but the after effects were still felt here. And therefore in such a scenario taking up cash negative stores in such a large number was nothing but poor planning by Indiabulls

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