The Dark Future of Future Retail

What used to be the “Poster boy” of supermarkets is now fighting for its survival. I guess it’s true, “The bigger they are, the harder they fall (shutdown)!” Remember those days when being able to walk in isles of shelves and hand pick what you wanted to buy from a shop was a big deal? Supermarkets, as they would be known going forward, were a foreign concept, literally. It was something only seen in Hollywood movies and cartoons. So naturally, when one fine day, a Vishal Mega Mart opened near our house, my family made a full-fledged plan to visit the store. It wouldn’t be such a big deal to the people we are now that supermarkets are quite the mainstay, but we were different people with different shops then.

This trip was less about buying things from the store and more about being in the store itself. Mine wasn’t the only family there either. My parents’ colleagues, our neighbours, my classmates from the nearby area; everyone had to be there. Any crossing of paths with these aforementioned people ended up in a very “sensible” exchange about savings, bulk purchases, discounts, and all the other bells and whistles. Me? I was occupied with our shopping cart. As fancy as this ordeal was, there was a brand more sophisticated than Vishal Mega Mart. Big Bazaar, with its fancy “mall only” presence, and for no other real reason, was considered a costlier place. Today, the same “costly supermarket” is fighting for its very survival as it gets torn by two major corporations. “What went wrong?” you might wonder. Well, that’s what you will find out as you read on.

Days of Future’s Past

Before Big Bazaar, founder Kishore Biyani started his retail journey with Pantaloons in 1997 in Kolkata, West Bengal. Do you know who else started a similar business in the same district? Vishal Mega Mart’s Ram Chandra Agrawal started his retail clothing business out of a repurposed cinema hall in Kolkata.

However, this article isn’t about Vishal. The store started early and has met its fate already (something about failing quickly to succeed to be said here, but let’s not get into that).

From his start with Pantaloons, Kishore proceeded to form the Future Group, a business conglomerate that would go on to house other brands such as Food Bazaar, Fashion at Big Bazaar (FBB), Brand Factory, Planet Sports, Home Town and many more; a lot more! Future group created as well as acquired many of these brands, spreading its reach in the country using both brick-and-mortar as well as online branches.

During the initial months, even years, these businesses and their many branches thrived. Perhaps a side effect of novelty, but a welcome one for sure.

Death by Debt

Fuelled by the success of the retail business, Biyani decided to go on a spree of establishing new businesses. No venture was foreign to the Big Bazaar Boss. What started off as a retail clothing store soon spread its roots to groceries, furniture and sports. Hell, even finance was not out of the question for Mr Biyani!

While these brands and their growth might front the appearance of prosperity, it was all a facade. Future group was setting itself up for severe failure as it tried to bite off more than it could chew.

These expansions would naturally need funding. Funding that was acquired through debt from the likes of Union Bank of India, Bank of India, Bank of Baroda, State Bank of India, Indian Bank, Central Bank, Axis Bank and IDBI Bank. As the aforementioned novelty wore off, these businesses struggled to stay afloat. As a result, Biyani’s businesses were not just selling their stock but were getting sold as well.

By 2012, Future Group had amassed a massive debt of around ₹8,000 crores. Biyani sold a majority stake of Future Group’s eldest and its crown jewel, Pantaloons to Aditya Birla Nuvo for ₹1,600 crore.

This sale was one of the two major stakeholders that Biyani lost. He also sold the majority stake in Future Group’s Non-Banking Financial Institution, Future Capital. The sale was made to US-based private equity named Warburg Pincus.

Future Group, along with two of its CEOs, also acquired a stake in a US-based stationery brand, Staples. A deal that promptly went south as Future soon exited the partnership by selling its holding back to the partner.

Dear Mr Biyani, you were supposed to sell inventory through the businesses, not the businesses as inventory!

Die-versification Troubles

Strapped for funds, any reasonable business would attempt to improve its existing activities. Ideally, Future group would have tried to fix the Big Bazaar, fbb, Food Bazaar and the existing businesses. But Mr Biyani wanted to continue his expansion spree (more like a rampage at this point). Don’t get me wrong, the “hypermarket” model that wanted to add the variety and chaos of Indian Mandi-s to a consolidated space was a great idea.

The business wasn’t the problem anyway, the way things were run was what went wrong.

Amidst these money troubles, Biyani decided to diversify Future Group’s operations even more. This diversification was achieved by exploring the consumer retail space by launching 27 brands of products in 64 categories. These categories included multiple FMCG products like, pulses, sauces, staples, etc. This was in 2016 and Biyani wanted Future to have a full-fledged FMCG brand.

Now, wanting to create and run a brand owned by the business isn’t a bad idea by any stretch of imagination, but doing so when the company’s resources are stretched thin spelt trouble for the company.

“Reliance” on External Help

These expansion plans, as mentioned before, were not inherently “wrong,” growth is a path that every business naturally follows. But Future Group decided to grow when it could barely survive.

Multiple store locations were struggling to pay their rents and had begun to shut down as the storefronts faced termination on account of the rising dues on the locations. During these shutdowns, Future Group entered a deal with Reliance where the latter would buy Future Group’s retail, wholesale, logistics and warehousing business. Reliance was the original renter of these properties and was subletting them to Future.

The failure to meet dues caused Reliance to start taking over these stores and selling their stock as well. These takeovers were what triggered Amazon to take Reliance and Future to court over a possible breach of the agreement.

You see, Amazon, through a holding of 49% stake in Future Coupons, held around a 3.5% stake in Future Retail. According to Amazon, their was a clause attached to its purchase of the 49% stake in Future Coupons. According to said clause, Future Group was to acquire authorisation from various stakeholders in case of any takeovers similar to the one Reliance was committing. Amazon’s complaints were eventually dismissed, and Reliance’s takeover was validated. Reliance’s reason for operating in the taken-over stores was in line with the other stakeholders’ interests after all (Future Retail’s inventory is perishable; thus, selling it as ordinary stock was the best course of action).

Shutters Down

A business is quite like a bubble; sure, they look good when they are big, but getting to that size requires patience and gradual growth. With Future Group, Kishore Biyani seems to have forgotten that if you blow too hard and fast into a bubble, it doesn't grow; it pops.

Today, Reliance Group owns close to 900 out of the 1500-something stores that originally belonged to Future Group. Multiple store locations have been closed, and the others will be rebranded into Reliance Retail stores.

Big Bazaar started as a retail titan during our childhood memories but turned into a faded relic of the past. Was the captain to be blamed, or was the ship too faulty to sail? Either way, it’s too late to point fingers anymore.