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 Wal-

Mart.
 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
 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 !

 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.

 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 ?

 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 ?