Kishore Biyani’s debt woes, years in the making, were exacerbated by India’s recent lockdown that left several non-essential businesses shut for weeks, further straining the company’s liquidity position.
India’s retail maverick, Kishore Biyani, on recentlyvgave up his sprawling, over three-decade-old retail empire to rival Mukesh Ambani-led Reliance Retail.
Reliance Retail Ventures Limited (RRVL), subsidiary of Reliance Industries Limited, announced that it is acquiring the retail and wholesale business, and the logistics and warehousing Business from the Future Group for a lump-sum aggregate consideration of ₹24,713 crore. The deal includes close to 1,800 stores across Future Group’s Big Bazaar, FBB, Easyday, Central, Foodhall formats that are spread in over 420 cities in India.
A warp speed of expansion, acquisition of several retail assets—both regional and national, a chase to build more private labels and in-house manufacturing capabilities—have left the company burdened with debt, and caused rating downgrade across the group’s listed entities.
As of 30 September 2019, the combined debt of Future Group’s listed companies increased to Rs12,778 crore from Rs10,951 crore as on 31 March 2019. Those in the retail business and who has seen Future Group’s diversification from being India’s go-to apparel retailer Pantaloons to opening Big Bazaar, the group’s large format chain of supermarkets, often point to the company’s attempts at diversifying too soon.
Biyani started out in 1980s, a few years before India’s economic liberalization, selling men’s apparel. In 1987, he incorporated Manz Wear Private; and subsequently opened the first large format Pantaloons outlet in 1997; in between, there were brands such as BARE and John Miller, apparel brands launched to capture the country’s shift from unbranded to branded clothing. Apparel was hence Biyani’s first big foray into business.
It was over a decade later, in 2001, that the first Big Bazaar was launched in India—that also set the ball rolling for Biyani’s ambitions to service and reach more households and participate in India’s consumption story.
This was done by opening up of large format supermarkets, electronics stores, retail stores selling furniture, apparel brands, and multi-brand retail chains, apart from acquiring several neighborhood grocery formats. In 2006, Future Group established a joint venture with Italian insurance major Generali. In the process, several businesses were hived off and stores shuttered as the heady expansion took a toll on the company’s finances.
This was especially true over the last few years as India’s $1,000 billion retail market (according to estimates by Wazir Advisors) has piqued interests of the world’s top retailers including Amazon and Flipkart.
Apparel, was always Biyani’s strength before he diversified into too many businesses. The problem with him was, he always found something to sell, if he had stuck with what he was good with—he was damn good at selling apparel—that was his forte, things would have been different. Even today, his strength is in apparel, FBB, for instance. But then along the way, he put his hands into 10,000 things
In fact, in 2012 he sold his flagship Pantaloon retail format to Aditya Birla Group for an estimated Rs1,600 crore at a time when the group had accumulated consolidated debt of ₹7,850 crore. The move also set off a series of restructuring exercises by the group. The period was also marked with some of Biyani’s most trusted executives leaving the company—including Damodar Mall and Sanjay Jog—who eventually joined Reliance.
Between 2014-2017, for instance, Future Retail also bought several national and regional retail formats, especially those selling grocery, with the underlying intent of using technology as a bridge to connect consumers through a sprawling network of small stores.
Although it took several attempts and years for Future Group to truly turn omni-channel.
While this gave Future an edge in building brick and mortar stores, it further stressed the company’s financials at a time when Flipkart and Amazon were swiftly shifting India’s consumers to e-commerce.
In 2014, Future Group acquired south-based Nilgris chain of grocery stores for an estimated Rs300 crore.
A few years earlier, Foodhall, an upmarket food store was conceptualized by Biyani’s younger daughter Avni Biyani.
In 2016, a few years after Walmart parted ways with its local partner Bharti Retail, Future Group took a swoop at buying out the retailer’s Easyday chain of small format grocery stores. Last year, it shuttered over 100 Easyday stores, in attempts to trim costs.
In 2016, it added Bengaluru-based retail chain Heritage Fresh, with its 124 stores to further consolidate its position in the southern market.
In 2017, Future Retail spent over ₹650 crore to acquire the then loss making HyperCity Retail owned by K Raheja Corp.
In 2017, Ezone was integrated with Big Bazaar. In 2017,
Future Retail announced plans to de-merge the home retailing business HomeTown into Praxis Home Retail.
Meanwhile, there were also investments in food parks aimed at increasing the company’s private label play—that would help it sell brands to its own retail chains and expand margins in the long run. Future Consumer, the group’s FMCG vertical, houses over 20 fast moving consumer goods brands, along with joint ventures with foreign CPG companies.
India was also swiftly moving to online sales, albeit buying cheap clothes and low priced electronics online.
In 2014, American billionaire Jeff Bezos promised $2 billion in investments in India. Then, in 2018, Walmart spent $16 billion for a majority stake in Flipkart in what essentials changed the contours of India’s retail trade.
Bisen said that Future Group, tried, but missed the e-commerce opportunity largely because of the promoter’s skepticism of making money on selling goods online.
“E-commerce really hit us hard, especially over the last five to six years,” said another executive who worked at one of the company’s joint ventures, adding that in apparel and footwear the impact of Flipkart and Amazon was beginning to show.
Post Reliance Industries-Future Group deal, Mukesh Ambani’s Reliance Retail Ventures (RRVL) will hold 13.14% stake in Kishore Biyani’s Future Enterprises Ltd and will take over the debt of ₹12,500 crore.
With over Rs 15,000 crore in debt, the Kishore Biyani-founded Future Group has been seeking funding support for several months. Future Retail operates 1,550 stores. Its flagship brands are BigBazaar, FBB and Foodhall, Easyday, Heritage Fresh and WHSmith. Future Lifestyle Fashion operates 354 stores. The RIL-Future Group deal will add over 1,700 retail stores to Reliance’s footprint of 10,900 stores across groceries, electronics and other formats.
“With Future Retail’s takeover Reliance Retail now consolidated its position in Retail Space. Now Reliance Retail has entered into Upmarket, Metro and Malls. Future Retail has a good presence in these areas. Reliance Retail is now in a formidable position to take on the likes of Amazon or Flipkart,” says Aasif Iqbal, Head-Research Escort Securities Ltd. “With this retail is now happening space, action could be seen in D-Mart and Spencer stocks too.”
When asked how this deal will benefit Future Group and RIL’s shareholders, Iqbal said: “Future Group lender and shareholder got respite with this deal. Debt on Future Group will go off and minority shareholder will benefit as a strong parent means strong profitability.”
Through the deal, Reliance will acquire Future Retail that owns the BigBazaar that sells everything from groceries to cosmetics and apparel, and Future Lifestyle Fashions Ltd that operates fashion discount chain Brand Factory. The Logistics & Warehousing Undertaking is being transferred to RRVL.
Stretching on the road ahead for ‘Future Group’ after Reliance’s rescue move, Iqbal said, “Future Retail, Future Lifestyle Fashions, Future Consumer, Future Supply Chains and Future Market Networks will merge into FEL. After this FEL will sell retail and wholesale business along with that of logistics and warehousing business to RRVL( Reliance Retail VentureLtd.). After this transaction, FEL will retain the manufacturing and distribution of FMCG goods and integrated fashion sourcing and manufacturing business and its insurance JVs with Generali and JVs with NTC Mills.”