Thursday, February 17, 2011

Failures of Retailing - Subhiksha & Vishal: A Ringing Bell

With the booming Indian economy under the buzz words of liberalization, Globalization and Privatization, Indian retail industry is growing like anything. Many big giants like Carrefour and Wal-Mart are trying to enter into Indian market with the help of Indian Local Heavyweights but are tied by Indian Government . 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.
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  are mentioned 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. Same was with Subhiksha trying to give impossible discounts on its own labels.
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.
Will there be more Subhikhsha’s or Vishal’s is under the cover of future ,but these two give lessons to other retailers to make proper stepping stones before climbing the ladder up in vastly growing Indian Retail Biz.

Contributed By:
Deepak Jain
(Batch 2009-11)

3 comments:

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Sumir Chadha said...

The entire blog has been picked up from http://trak.in/tags/business/2010/08/07/indian-retail-industry-subhiksha-vishal-retail-fall/

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