Subhiksha Retail

THE ANATOMY OF A BUST: SUBHIKSHA RETAIL

Presented by: MANAS RANJAN DAS PGP-ABPM 09 INDIAN INSTITUTE OF PLANTATION MANAGEMENT

COMPASS…… Chronicles of Indian Sam Walton & the desi WalMart.  Time Line: The Ascent.  Time Line: The Crash.  From Largest Indian Retailer to Doom.  Reasons  On- hind site.  End Line 

Chronicles of the Indian Sam Walton & the desi Wal-Mart!!

R. Subramaniam, IIT Chennai & IIM-A alumnus (1989 pass out) started a chain of discount stores “Subhiksha” in 1997 in Chennai.  First employed in Citibank, then Enfield & Eicher (2 years). After that he started his first company called Viswapriya.  The 1st venture was in grocery.  Quickly, diversified into medicine, retail,mobiles as well.  The USP (unique selling proposition) of these stores were the discount pricing (a take on Wal-Mart, USA). 

Time Line : The Ascent           

1st store in Chennai in 1997 selling groceries & medicines (investment of 5 lakh) March 1999 : 14 stores in Chennai. June 2000 : 50 stores in Chennai. 2000 : ICICI ventures invest in Subhiksha. 2002 : 120 stores across the state of Tamilnadu. 2004 : change in principle from “Consolidatation” to “Expansion”. 2005 : Recruits personnel across the country. End 2006 : 420 stores in Gujarat, Tamilnadu, Delhi, Maharashtra, Andhra Pradesh & Karnataka. Feb 2007 : 500 stores across the country. Sept 2008 : Crosses 1600 stores across the country. Turnover 2305 Cr in financial year 2008(profit 19 Cr.).

Time Line : The Crash  

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Oct 2007 : Subhiksha planned Rs 350 Crore IPO to finance growth. Dec 2007 : Subhiksha decide not to continue with the plan i.e.IPO in view of uncertain stock market conditions. April 2008 : plans to become involved into east market. April 2008 : Subhiksha plans private wholesale markets. June 2008 : Subhiksha looks at alternative routes to generate cash to fund expansion. Sept 2008 : Reports on Subhiksha defaulting on vendor payments, employee salaries/ Wipro takes 10% stake in Subhiksha/ Subhiksha hints at large format consumer durables & IT stores. Oct 2008 : Report problems in the cash flows @ Subhiksha/ Employees claim for salaries/ Vendors cutting off supplies cause Subhiksha stores to go dry/ Subhiksha defaults on rents for the stores. Jan 2009 : R. Subramaniam admits Subhiksha needs Rs.300Cr to keep afloat/ Subhiksha enters negotiations with property owners

FROM LARGEST INDIAN RETAILER DOOM the mechanics for seizure!

Reason 1: Unmindful expansion Across states from South to West, N & East Rapid store expansion.  Rapid increase of personnel.  From groceries & medicines to mobiles & electronics, consumer durables & IT ( too fast too furious!)  Huge investments & cash flows….. 

Reason 2: Growth….. Without Consolidation 

2004 marked & departure in Subhiksha philosophy from consolidation & growth to uncontrolled growth !

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Very few stores would have been profitable in terms of cash flows.

Reason 3: Whither Retail Management The focus was towards multiplying turnovers!  Expansions happened without an eye to principles in retail & customer management.  Staff service was doing badly and with not enough care & stores lacked a healthy appeal to customers.  A Subhiksha store often looked like a Govt. uniform pricing stores! 

Reason 4: Profit & Loss ? Balance Sheets? Cash Flows!! Uncontrolled increase in store & personnel were bleeding the Treasury.  Turnover being the mantra, Subhiksha worked on slim & zero margins, often invoking the extreme anger of other players in the market.  Thus cash outflows were high where as inflows in terms of margins were non existent. 

Reason 5: Mastering The Supply A Wal-Mart builds scale through integrated supply chain, not by being a re-seller!  Downstream supply chain was not integrated.  Bulk buying is not a source of advantage.  In effect, Subhiksha was being a reseller buying products from vendors & selling them at zero margins. 

Reason 6: Managing The Vendors! 

Subhiksha tried to build scale on bulk quality purchases from vendors & a liberal credit term extended to them.

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Hardly “good” vendor management.

Reason 7: Inventory Management!! Credit defaults caused supply breakages.  Hence it led to situations where either there were huge store inventories going bad….. ….or the stores simply did not have stocks!  Inconsistency resulted in customer dissatisfaction with store franchise !  Furthermore, uncontrolled practices like reselling to other retailers made companies squeeze supplies.  In the rush to increase turnovers, Subhiksha were resorting to indiscipline & wasteful practices! 

Reason 8: Discounts as USP The only USP was discounts…hardly a sustainable competitive edge!  Footfalls & Turnover being the guru mantras: Subhiksha never understand its customers.  To meet turnovers & targets, reselling it to retailers & emptying their inventories.  In effect, target pressures impacted the USP since consumers choose to buy outside the store since the store was “sold out” 

Reason 9: Quality of Ground Level Management Personnel recruited to run operations were locals.  Tendency towards dishonest practices in face of turnover pressure!  Scored “own goals” by playing into turnover traps.  Quality of store service was bad, adherence to rules of retail were minimal. 

Reason 10: Diffused Focus 

Subhiksha sold fresh vegetables, medicines, groceries, mobile phones, accessories & more…. where was the focus ?

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How robust was business model & manpower to handle such diversity ?

On-hind Sight We certainly know, that Subramanian wanted to go for an IPO in Oct 2007.  He did not because markets were touching their peaks & a correction was expected!  Subramanian was trying to get his Supply Chain in order by opening his private mandies.  This was a 2nd thought but it came late & has not seen fulfillment! 

End lines Subramanian & Subhiksha have given misleading statements about health of Org. earlier.  There r a large no of disappointed employees & vendors chasing Subhiksha for unpaid salaries & payments.  Now, Subramanian has indicated a infusion of Rs 300Cr would bail Subhiksha out.  Can he be trusted ?  Or it is another B. Ramalinga Raju (Satyam) in happening ? 