Thursday, December 06, 2012

No frills... no thrills... just mounting bills!

Subhiksha must adopt a franchise model, but first it needs money real fast!!!

The man behind FedEx, Fredrick Smith once famously said, “Fear of failure must never be a reason not to try something.” And it seems that R. Subramanian, MD, Subhiksha did follow that advice with sheer optimism and steadfast resolve. However, he isn’t exactly moving in the direction of Frederick Smith! Just a year back, both R. Subramanian and the Indian retail sector were considered to be on a high but as the global economy melted down, both of them followed suit. In a business like retail, where the balance between cash and inventory rules the roost, almost all the retailers present in the country are finding it tough to keep their bottom lines above water. But among all, Subhiksha has been amongst the worst casualties. Apart from delaying salaries of employees and not clearing its debtors, many news reports claim that the suppliers have stopped transactions with the retail chain, which the company has often denied. But now things seem to be getting out of hand.

The no frills retailer has been known for offering low cost products to the consumer but for the past few months, Subhiksha has lost a lot of ground to competitors, as it hasn’t been able to lure the customers due to the shortage of supply. “We are in pain but we are not shutting down,” said R. Subramanian in a note sent to the media. Sources confirm that the retailer hasn’t given salaries to its employees since October and owes a hefty amount to them across the country. “There are arrears on salaries and payments – not because we do not want to pay, but because we can’t pay,” admits Subramanian. The company is also planning to cut sown on its stores by a hefty count of 100-150 from the currently operating 1,600. Subhiksha, was once considered to be an underdog emerged as a very strong player in the retail industry, but the company made the mistake of over reliance on debt. They have raised only around Rs.1.8 billion on shareholder funds and the Rs.40 billion turnover in 2008 was funded largely through debt. Their equity plans last year fell flat as a result of the crisis, making their aggressive expansion ill-timed. “We did not budget for a time, when there would be no money,” asserts Subramanian. Subhiksha urgently needs a fresh infusion of Rs.300 crore to give their business a new start, but the unfortunate part is that getting funds from the market isn’t a cake walk in the current scenario.


Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri

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