Kishore Biyani led the retail revolution in India but was also guilty of trying out too many things. A full-blown crisis later, he is ready with an equally grand but a more sedate growth plan
On what seemed like a regular Friday evening, Home Town was teeming with a few hundred excitable shoppers. A furnishings store in Vikhroli, a Mumbai suburb, it offers everything from iron nails that sell for a few rupees to shower enclosures and jacuzzis that cost over a lakh. The reason they were there was that each of them had succumbed to the oldest four letter word in history — S.A.L.E (well, the second oldest actually!).
Sofas could be had at 40 percent off their regular prices while Panasonic 42-inch flat-screen televisions were on sale at Rs. 38,000 apiece. And on Independence Day when the sale ended, revenues at the store touched Rs. 2.1 crore — the most money any store earned on a single day across the Future group’s network.
Sure, it’s the kind of number that gives credence to the boom in India’s consumption story and perhaps signals home furnishings may well be the next big thing. But it also signals the second coming of Kishore Biyani — India’s original new kid on the block and the architect of India’s largest retail network.
The funny thing is, when Biyani first invested in the 200,000 square feet property in early 2008, it wasn’t meant to be a home furnishings store. Like everybody else, he was caught up in the euphoria of sunrise businesses like retail and was trying to grab every little piece of real estate he could lay his hands on. The original plan was, politely put, vague. Something like open two separate stores from among the many formats his group operated.
Then Lehman Brothers collapsed in September 2008 and the world changed.
The crisis that followed blew a hole in Future group’s portfolio. Sales plunged; bankers who until then had queued up at his offices started to call in their loans; mutual funds that had invested in his companies buckled under redemption pressures and decided to get out; sources of foreign capital dried; his market capitalisation plunged two-thirds in a matter of six months; and Biyani who had invested way ahead of the cash flows from his network found himself trapped.
At Home Town, sales had plunged 30 percent. In any case, the format was still to demonstrate it could deliver profits. In a chat with Forbes India at his quirky office in Mumbai Central, Biyani admits he’s given to whimsical decisions. Nothing else, he said, could explain why he asked his team to convert the entire property into India’s biggest home furnishing store. They looked aghast, but complied.
Damned right he was. This year, the store is on track to bring in revenues in the region of Rs. 200 crore. Biyani claims Home Town has an order book of Rs. 1,000 crore because real estate developers have cottoned on to the idea of selling furnished homes. And new home buyers are looking for a one-stop shop. “The success of that one store energised the entire organisation,” says Biyani.
The fact is Biyani isn’t crawling out of the slowdown. He’s tearing out of it. By the end of this financial year, the group’s turnover is expected to cross Rs. 8,000 crore, up 27 percent from Rs. 6,342 crore the previous year. (This includes some double-counting because parts of the group buy and sell things to each other).
What makes these numbers remarkable is that even before the downturn struck, Biyani was being written off. In 2006, the Reliance juggernaut had announced its intention to get into retail with Rs. 25,000 crore to back its plans. The A.V. Birla group stepped up its plans as well to launch a chain of supermarkets and hypermarkets. Clearly, competition from deeper pockets was a big threat.
“Then, they said we didn’t have the capital to play this game. When the slowdown struck, they said we’d go under,” says Damodar Mall, Biyani’s trusted lieutenant, who now heads integrated food strategy for the Future group.
By all indications, Reliance Retail is still coming to grips with the nuances of the retail business. A.V. Birla, too, is trying to fix its retail model. Even as rivals regroup, Biyani is pushing full steam. While the slowdown exposed chinks in his armor, he kept his head down and fixed his problems with debt, focussed on cash flows and drove for greater efficiencies. “Most senior people were focussed on driving costs down,” he says. “They’d even switch off their air conditioners.”
Clearly, the gut-wrenching experiences have taught him a few lessons. The question is has he changed forever as an entrepreneur? Is it possible that when the dark clouds dissipate completely, the group will lapse back into its old, reckless ways? The answers perhaps lie in the way Biyani is bracing himself for the future.
The Perfect Storm
Rakesh and his team, in their effort to streamline operations, reduced the number of stock holding points to five and delivery hubs to four. Vendors would ship goods to one of the delivery hubs from where they would be routed through the system according to differing demand in different regions. Warehouses were upgraded at a cost of Rs. 150 crore at a time when cash was hard to come by. The order processing system for each store was streamlined using handheld devices, RFID (radio frequency identification) technology and warehouse management systems for tracking goods within the system. With the distribution system toned up, Rakesh Biyani is confident he’s laid the foundation for a scale-up operation.
Food still has wide regional variations. For instance, a Bengali living in Delhi still prefers to consume Govindbhog rice. But until five years ago, she wouldn’t pay a premium on it if it was available at the local store. Instead, she would travel to the Bengali-dominated Chittaranjan Park area where it could be had cheaper. But things change and now time is at a premium. Mall reckons that a new market is waiting to be tapped. Under the Ekta brand, Food Bazaar plans to sell over 70 such ethnic foods, often at twice the margin.
(This story appears in the 10 September, 2010 issue of Forbes India. To visit our Archives, click here.)