Many observers of the Indian retail space would argue that Kishore Biyani, 60, the poster boy of post-liberalisation retail, deserved much better. As if the struggle to pay off the gargantuan debt piled up by his firm Future Retail over the years wasn’t enough, the past two years have proved particularly unnerving for him. What seemed like a big relief for his firm when the Mukesh Ambani-promoted Reliance Retail offered to buy his grocery and apparel business for Rs 24,713 crore in August 2020, turned into a nightmare with an ugly legal battle with e-tailer Amazon, which challenged the deal a couple of months later. With a bankruptcy court on July 20 allowing the retail firm’s corporate insolvency, it’s the end of the road for all efforts by the storied retailer to rescue his empire. The twists and turns that marked the past two years as the company got sandwiched between warring giants Reliance Retail and the Jeff Bezos-led Amazon for a big slice of the Indian retail pie are a grim reminder of the extent to which corporate rivalry can sometimes damage businesses. Forrester Research estimates India’s total retail market at $883 billion (Rs 70.4 lakh crore) in 2020. This is projected to grow to $1.4 trillion (Rs 111.6 lakh crore) by 2024. The Indian e-commerce market stood at $30 billion (Rs 2.4 lakh crore) in 2019, but is expected to grow to $200 billion (around Rs 16 lakh crore) by 2026.
Until just a few years ago, it would have been difficult to imagine that Biyani and his empire would land in such a soup. Born in Mumbai into a middle-class trading family from Rajasthan, Biyani’s simplicity and easy-going conversation would put anyone at ease. In the world of retail, he was known as a master of innovations, a close observer of the human mind and a street-smart entrepreneur who junked PowerPoint presentations to follow his instincts for business decisions. He was often referred to as the pioneer of the organised retail business in India. Biyani swore by Indians’ penchant for physical shopping, much before the onslaught of online retail shook up his business empire. His Big Bazaar chain of stores became a synonym for the affordable, one-stop-shop buying needs of the Indian middle class.
The fall after the rise of Biyani’s business empire follows a familiar pattern of first-generation entrepreneurs in the 1980s and ’90s who fuelled their ambition with generous bank credit, but ended up sitting on colossal debt piles while tremors in the traditional business environment choked their cash flows. After dabbling in his family’s fabric trading business in Mumbai, Biyani ventured into making fashionable fabric in 1983. The Manz Wear brand launched in 1987 was later to become garment retailer Pantaloons. In 1992, he listed Pantaloon Retail on the stock market to fund his expansion plans. In 2012, as the debt pile kept mounting, he sold his majority stake in Pantaloon Retail to Aditya Birla Nuvo for Rs 1,600 crore. After a decade’s high growth spree, the Future Group, as it came to be called by then, began to slow down post-2010. The rise of e-tailers such as Amazon and Flipkart, among others, on the back of convenience and discounts, posed a big threat. So did the growth of rival Reliance Retail. To take this rivalry head-on, Biyani kept expanding his stores, takingthe number to 1,800 across formats—apparel, lifestyle and groceries—and flush with funds from banks, acquired as many as six companies to augment his reach. While overall sales stood at Rs 26,000 crore, debt was spiralling out of control at Rs 13,000 crore. The final blow came in the form of the pandemic, halting his business and pushing him closer to defaulting on his loans. The absence of an e-commerce play closed all doors on his business as he neared the end-game.
In February, there was an interesting twist to the Future Retail saga. In what was seen as a backdoor attempt by Reliance Retail to own a part of Future Retail, even while the case with Amazon was in the courts, the former took over the real estate lease agreements of at least 400 Big Bazaar stores where Future Group defaulted on payment for renewing the lease. Industry sources say that the leases were shifted from Future Retail to Reliance Retail because the former said it could not pay for keeping these stores operational. These stores will be rebranded Reliance Retail and media reports said that the plan was to re-employ Future Retail staff working at these locations.
Experts cite a combination of factors that led to the fall of Future Retail. “No doubt, Biyani was a pioneer, but he scaled up frantically,” says Harish H.V., a managing partner with ECube Investment Advisors, a consultancy. Unlike start-ups, which rely only on equity for funding, Biyani had to depend primarily on debt since the market was not mature enough for the kind of equity needed to expand businesses then, he says. “Biyani ended up borrowing heavily. Maybe he became too ambitious and expanded fast into other areas like movie-making. Also, he was a bit unclear as to how to leverage ecommerce,” adds Harish. The last straw was when he got unwittingly caught between the might of Reliance and Amazon, which many think was the fire that stoked the litigation between Future Retail and the US e-tailer.
Going into insolvency is not rare in the Indian context, and several entities, including Essar Steel and ABG Shipyard, have gone through the process. The procedure, where a resolution professional (RP) takes control of the assets and finances of the defaulting company and tries to find a buyer for the firm through auctions, ensures two things. One, the lenders (banks and financial institutions) to the firm can get back part of the money owed to them, albeit after a ‘haircut’ or reduction in the actual money owed. Second, the company gets a new lease of life under a new buyer. However, in the case of Future Retail, it had already reached the brink of a new inning with Reliance Retail as the owner before the deal was scuttled by the legal proceedings initiated by Amazon. This has also made it more painful for Biyani to see a quick revival of his business, although under a new management. Sadly, at the end of the saga, there will be no clear winners. It has thwarted Ambani’s plans to own a large chunk of the organised retail market and keeping a check on arch-rival Amazon. But it has also dashed Amazon’s hopes of getting a share of the brick-and-mortar Future Retail’s assets in future. The biggest losers, however, will be the lenders, suppliers and staff of Future Retail. The Future Group owes its 26 lenders, including Bank of India which moved the NCLT for Future Retail’s insolvency, over Rs 15,000 crore.
According to Devangshu Dutta, the CEO of Third Eyesight, a consulting firm, Reliance Retail’s takeover of the Big Bazaar stores is the “tipping point” in the entire Future Retail saga. Without some of the flagship Big Bazaar stores, the value of Future Retail would be considerably weakened. Dutta argues that Reliance Retail is a gainer in the whole deal, since it has managed to wrest control of a good number of stores. Moreover, according to him, the deal with Future Retail not going through is indeed an opportunity lost for the company but is certainly not anything too drastic. Reliance Retail would also be a potential bidder for Future Retail once it is put up for auction. “Future Retail would have been a good addition to RIL’s portfolio. But they don’t need Future to grow. However, Amazon has lost significantly. The momentum they (Amazon) could have got from Future Retail has been taken off the table now,” Dutta says. “Moreover, under the country’s FDI laws, Amazon cannot bid as an operating company (for Future Retail in the auctions).” He also calls for better regulation of the sector by strengthening the CCI by adding more retail sector experts to the body.
The Indian retail sector is once again turning into a hotbed of competition on the back of an aspiring middle class, a high proliferation of smartphones and internet services. It has now been established that both the physical as well as the online models of retail will go hand in hand, complementing each other, as has been witnessed in developed retail markets worldwide. Although the future of Biyani’s Future Retail is now at stake, the retail story in itself is far from over. Many feel that a feisty and sharp entrepreneur like Biyani could still spring a surprise and come up with something new. He named his 2011 autobiography It Happened in India. There could be much more that could happen in the Indian retail space and to entrepreneurs like Biyani in future.
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