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 –
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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?
[…] sector has already witnessed a couple of victims in the form of Subhiksha and Vishal Retail. While Subhiksha became a victim of aggressive expansionary plans – in a tearing hurry to roll […]
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I feel its a good observation emplyoee of subhiksha still struggling for there PF amt which there legal money PF office chennai staff also given bribes. Nobody is hlping them to get the money. All the top people became crorepati they bought bunglow,new car using highend mobiles.
All of you, a big Thanks for the compliments.
I think Big Bazaar is targeting the lower middle class with aspirational stuff like furniture, most of it is cheap junk.
Any idea how this year’s 15th August shopping festival went for them, especially compared to previous years?
I live in Baroda, which is a service class city, it is small with a now growing population of highly paid professionals, so an evolution is taking place before me.
But due to its small size, people can come to the wholesale markets on their two wheelers and buy things cheaper than the malls: 4 GB pen drive for 425 compared to 550 – 625 at Croma, for example.
In comparison, I was in Bangalore last year, and according to my friends there, Croma was the cheapest for digital cameras, so the trend varies from city to city.
Six Ten has also joined the list of closed chain stores here, and the worst managed seems to be Reliance, opening and closing stores at random, some in lower middle class Muslim areas (riot prone and small ticket customers), and even fitting out and then vacating the store without any reason, before stocking it, the a/c, shelves, and interiors were ripped out and sent back to a central godown near Ahmedabad.
There have been even worse cases there in Reliance, plastic goods imported, and then the person who ordered it had quit, finally it was distributed at token prices as part of the bonus at their Jamnagar and Baroda facilities. But the retail arm is less than 5% of their turnover, and Reliance has money to burn.
One story doing the rounds is that it is a giant scheme to convert black money by claiming losses in fresh produce, so Mukesh Ambani and his family can launder money!
Another observation: wholesale prices are twice that of farm gate prices for vegetables, and twice again at retail, so the farmer gets 25% of the retail price, so if the purchase cost to Reliance is 25% of retail, they are making huge profits in fresh produce, as they have a large investment in the farm to fork chain with vehicles, sorting and storage centres in place.
And as pointed out above, unless the promoters who have a feel for the public demand can actually make people feel they are getting a good deal, no chain is going to survive, even Big Bazaar is feeling the pinch, with reduced A/c in some shops, which upsets the genuine customer.
It has been seen by my relatives in Hyderabad, with its power cuts, that people go inside, enjoy the A/c and come out after two hours, having spent less than 100 rupees, what did the mall earn?
In conclusion, More has one shop left in Baroda, and the Spencers here is the last one in Gujarat.
Spencers has vacated two of its three floors, and is next to Baroda Central, and across the road from Croma, so a lot of visitors but also traffic jams.
I go occasionally to buy South Indian stuff like filter coffee, having acquired that taste in Bangalore but the rest of the goods it sells are sold cheaper and of better quality nearer to my residence, no point going to Spencers, prefer DMart, which now has 5 stores, mostly in suburban areas closer to people’s houses, the trip is less strenuous.
Lessons: low inventory, quick response to sudden changes in demand, well trained staff, maintenance of store interior, quick billing, consistent quality of goods sold, and low overheads, these are essential.
Also preventing thefts, both by customers and staff: it is a big problem.
The weak links are produce and groceries like dal, and of course staff, which is in serious shortage here, these are the issues facing retail all across India, whoever is able to manage will emerge a strong force, but as Big Bazaar itself is in talks with foreign chains, and also given their increasingly late payments, it suggests they are short of cash.
As pioneers, and the big boys, they also are learning, but at the cost of small suppliers.
I used to supply goods, payment after 45 days at a good price. Now it is squeezed price and 120 days, so we quit as it was no longer profitable.
Vishal at Ahmedabad also looked like a closing sale, bored staff and clothes thrown in heaps, not looking at all attractive to the buyer, and their location at the Iskcon Temple cross roads was competitive, with Westside, Big Bazaar, Croma, Reliance and Star India Bazaar within 5 minutes drive, if buyers didn’t like what they saw, they would quite literally cross the road, only Star India Bazaar (owned by Tata Trent) was a short drive away, but that is another story as Reliance has downsized that location from 165,000 to 30,000 square feet: did not click, it sold a vast variety of stuff, from nails, power tools, toys, tyres, shoes to diamond jewellery.
Subhiksha had a myopic view. All it did was increase the no. of outlets (rapid expansion plan) without emphasizing the importance of supply chain management. In retail, distribution plays a vital role. Supplier relations are also key to success of the retailer. The cost incurred exceeded the sales and they went into losses and eventually had to close their shutter.
As for Vishal, they were trying too hard to push their own (in-house) brands which were not to the quality expected by the customer. This and many other factors that you guys mentioned led to their downfall.
As for D-Mart store people just rush to it from nearby suburbs as well. The quality is not that great but its affordable.
Thanks Aseem Rastogi and Naresh.
Definitely a good analysis.
The most important factor with any retail establishment is the target purchasers and their desires. Indian customers, where there are hundred and thousands of local distributors, retailers and online schemes to sell products to them, the retail giants need to understand exactly why CONSUMERS THE KING OF MARKET are coming to them leaving other places like nearby consumer stores and wheather they are offering them the correct ambinace, customer service, enviornment, exitment in offers, right product mix, quality of product and product delivery, brands and discounts etc. They must understand CUSTOMER need not one of these but all of these. And Vishal / Subhiksha facing all due to this.
In the end, it all boils down to management skills, focus and a SOLID plan :)
I wish our retailers had thought of that one word “PLANNING” before opening more and more stores across the country.
Dear Aseem,
Can you help me in estimating the cost incurred, like furniture and interior(Reliance Fresh types), in opening a 500 to 1000 sq ft store?
Subhiksha had no variety and was poorly stocked: no Brittania biscuits or Godrej shaving cream, no online inventory, stock was bought from Chennai, staff could not use the computers properly. Most people found the stores were in odd locations, eg first floors, and stopped going after three to four visits as the stuff we wanted was not there.
Another problem was that like Spencers they were selling returned goods, ie stuff the manufacturers like Unilever had got back as unsold after 28 days or more from the dealers, that is disposed of at higher trade discounts, but alert customers noticed that the stuff was very close to expiry date, and stopped buying at these shops.
But they did change the medicine business by offering 10% discount, which caused medical stores to protest, but they fell in line…
In the end, the staff simply sold the stock in cash, and wrote it off as spoilage, because they had not been paid salaries. And most of it was in stuff like vegetables, where it is hard to prove the mischief of the staff, as the proof has been thrown away.
Vishal had zero inventory management, I have seen stuff lying on the shelf (plastic containers) for a year at the Ahmedabad store, what about the supplier’s dues?
I make plastic goods, the offer from Vishal through an intermediary was : squeezed price, 40% – 60% in 150 days, balance after 210 days, I responded that we have to pay cash for raw materials, better you go and see a psychiatrist, who will give you that kind of credit at a low margin?
DMart, on the other hand, buys only 15 days’ worth, and pays in less than a week, so even at low margins, it is worth it as the rotation is fast. And they are not having their own warehouses and transport fleets, they use the existing network, so their blockage of funds in stock is much less than say Big Bazaar and Reliance, both have huge investments in logistics.
Also, DMart does not sell anything expensive or slow moving like TVs and white goods, so their shop floors have only things an average person would need at least once in three months: the stock is sitting on the shop floor for a shorter time than their competitors, and they have consistent pricing, which improves customer trust.
I remember seeing a bed at Big Bazaar on Monday for Rs. 18499, that was on sale for Rs. 8499 on Wednesday: how would the man who bought it on Monday feel? And this simply builds mistrust, so by keeping consistent prices DMart is building trust.
And finally Big Bazaar is selling very poor quality furniture, it will not survive shifting a house, I don’t know about their house branded Koryo stuff. That means that I at least would not be a repeat customer…
Naresh,
Thanks for the detailed comment…and I partially agree with you. Infact, my experience with Vishal has been equally bad..I have visited Vishal only twice in 2 years…The stores are not maintained properly…and things are so bad, that not a single item looks new there….it just looks like a glorified flea market…
But, except one thing…I am quite happy with my Big Bazaar experience…their prices are decent, the goods are of decent quality..however, the management of store is bad..When-ever I have gone to BB pay counter, it has taken me more that half an hour..log queues, unqualified staff at counter, delays etc etc..
I think we have emulated the western concept well, but have not been able to execute it to same standards…
Great points give by you here. Thanks a lot for the detailed comment. The problem among all our retailers is that they have tried to blindly emulate the Western retail concept without proper planning and understanding!
You rightly said “And finally Big Bazaar is selling very poor quality furniture”…not just furniture but many other things are of low quality.
In complete contrast to this, you should see Devdutt Pattanaik, their so-called “Chief Belief Officer”, talking so passionately and like a visionary on a CNBC-TV18 show Business Sutra. That would make one believe think so highly about the Biyani’s Future group.
But when you visit the store, you are left in complete awe regarding the quality. Does that mean that in in order to make money, you have to sell low quality goods?
Dear Naresh
I am just mentioning a point which you left incomplete and that is regarding Big Bazar Koryo Product .I had purchased a KORYO television from there ,at that time they were offering DTH connection after puchasing and ensuresd us regarding its durability and service. But after purchasing , they only use one word till 5 months that they have not the stock and once they will recieve the same will dispatch at our given address but lastly i left the offer because one thing i understood that it will time and cost consuming.Secondly 5 times its get repaired and its cost 30% of the television cost. From that time i stopped the consumer durable items from Big Bazar.
Either you talk abt Subhiksha or vishal both are not up to the expectation i mean they tried to target middle class people but they was failed to do that and more over they never has the useful things in addition to that pentaloons Retail has a huge back up andthey entered market with the same purpose to target middle class and provided lots of options to the people so it was kind obvious that small stores link subhiksha and vishal has to suffer
All the problems in Subhiksha and Vishal resulted from the fact that their owners went for mindless expansions without thinking what they actually wanted and how well their stores would work. Sadly there were overoptimistic or shall I say overconfident.
There is a lot to learn from Subhiksha in terms of what not to do. Over expantion always kills!! With respect to vishal.. I think the quality of products was mainly responsible for its problems.
On the other hand DMART chain which can be termed as a discount store is doing excellent.
Nice one aseem
Very rightly pointed out Amit. It;s always important to take care of all the important factors while expanding. As the above post says, mindless expansion without paying attention to other factors like quality, inventory, keeping only price as USP etc kills completely. Yes I have heard that DMart has been doing good business. It will be interesting to see its progress in the coming years.