The Road to no where: Subhiksha

http://newspaper-posts.blogspot.com/2009/01/subhiksha-perfect-go-bust-part-ii.html

http://www.blogger.com/post-edit.g?blogID=7418068395817476239&postID=1757367981531350090

http://www.slideshare.net/Manas.Ganguly/the-anatomy-of-a-bust

http://www.slideshare.net/Manas.Ganguly/the-road-to-no-where

6 months and 4 posts later, Subhiksha is no tottering on the brink. Its 1600 outlets are all shut. It is not doing business, it has 300 crore of immediate cash requirement, it has not paid its employees 5 months salaries, it is indebted to its suppliers and other creditors, it owes the landlords rents of the outlets, it has no money to pay its security, its stores have been vandalized, most of its managerial cadre has left. How worse can it get? A little more from here: 5 of its 10 directors have resigned from its board, Tata Teleservices which provided its employees with phone lines has a bill of Rs.10 crore, with which it has gone to Chennai court, the EPF trust has moved court against non submission of EPF amounts. It doesnot get worse than this.

Apparently RS is not declaring Subhiksha bankrupt and is going through a debt restructuring programme to make his company lucrative for equity participation offers! Interestingly 5 of its independent directors including the 2 members of the ICICI venture have resigned from its board. Azim Premji, another investor in the company is moving the court on the matter of merger of Subhiksha with Blue Green constructions. That makes 6 independent directors in a board of 10, who appear to have views about Subhiksha and its management, which are completely different from RSs views. The other 4 directors include RS himself and 3 faceless nameless entities from Blue Green Constructions (A company promoted by RS). There are chilling similarities between Subhiksha and Satyam.

In the month of May 2008, Subhiksha had taken a debts from 10 banks worth 620 crore. Then it had also issued warrants to 6 Mutual fund houses totalling another 40 crore. Thats a total of 660 crore. Of Subhiksha's own filing, we know that it is a 2308 crore company in trunover (FY 08). That means a monthly revenue of Rs.200 crores. After recieving a debt stimulus in May 2008, the company started defaulting on suppliers from July and August 2008 and there were delays in employee payments August - September onwards. These matters are in public knowledge by relevant press coverage in those dates. One would assume the 660 crore in the system would have been put to good use and yet the chain was massively defaulting.

Subhiksha was speaking of Private mandis and CDIT stores those days, but the plans never saw fulfilment. There was no significant expansion activity those days. So the 660 crore couldnot have been used up in expansion alone! If 3 montsh expansion ate up all of 66o Crores, that would have a fast and furious expansion and it would again be public knowledge!

If Subhiksha was funding existing operations, running out of 660 crores in 3 months is unbelievable really. For a chain doing 200 cores of monthly business, using up 200 crores (660 crores in a quarter) is tantamount to zero operational deliveries. That is quite an impossibility.

If the 660 crores were used to square off earlier debts, it would have meant that the money put to use earlier didnot earn returns! The model thus was not working from its very beginning!

Which ever way the 660 crores were put to use amongst these three, or a combination of these three; it only demonstrates the incapability of the management at Subhiksha. Perhaps a little more, there is a possibility that the 660 crores could have been siphoned off... (we dont want to relive Satyam!)

With such a background, does RS hope to find a equity buyer... i doubt it.

Subhiksha: A Perfect go Bust (Part II)

When i blogged the first time on the unsustainable business model at Subhiksha (September 5th, 2008), which would cause it to go burst, i had not imagined, that i will be doing a second blog on that story.

This is the First Blog Link:
http://newspaper-posts.blogspot.com/2008/09/subhiksha-perfect-go-bust.html

6 months later, my predictions are born true. http://economictimes.indiatimes.com/articleshow/4053575.cms
http://www.livemint.com/2009/01/30180828/Subhiksha-on-virtual-collapse.html?h=A4

The Interesting bit about Subhiksha's roll out strategy is somewhere R Subramaniam, Founder CEO, also believed that if the retail model didnot live upto his expectations, he had make money on the real estate of the 1000 odd outlets. The Recession and the Real estate meltdown has now seen to it that he wouldnot be making as much money in reselling the stores as well.

I also find the statement by the company official on zero credit being the reason for the fall to be difficult to comprehend. Till not so long ago, Subhiksha had 1/2/3 months credit running from vendors who eventually then, turned off the supply taps. I have been privy to Vendor management systems in Subhiksha to bear out on the same. Subhiksha employees had not been given 2/3 month salaries even during the times of festival months. It has shut all expansion plans in east India! Majority of employees are out of their jobs and demanding salary arrears. In fact the Delhi Head office of Subhiksha has been locked by the owners of the property on account of non payment of the rents!

A convenient bet gone wrong and a business which never ran right for the lack of adeherence to fundamentals. I give Subhiksha another1 month before it goes belly up!

So long Mr Subramaniyam!

Subhiksha: A perfect "go bust"

(Having observed the operational dynamics of Subhiksha, 2 years back, it had struck me that this was not a sustainable mode of working. Over the next 2 years that seed has actually taken long roots. In fact many of the retail chanels in India are not on sustainable models and are trying to over spend each other. This post, happened after 7/8 days of the Retail Realism one and bear my thoughts and ideas substantially if not fully)
Read article at http://www.livemint.com/2008/09/05001546/Subhiksha-not-paying-some-bill.html
In continuation to an article that appeared in Mint some time back.. "bringing back retail realism" (http://www.livemint.com/2008/08/27002851/Bringing-back-retail-realism.html) , I had listed out a number of points on just how high and how much the retail exuberance is irrational. Subhiksha to me is the best and the biggest example of "how to get retail management wrong". To list down the bullet points on this
1. Unmindful Expansion: Subhiksha took a lot of pride on matters of number of stores opened per day/per week/per month...
2. ... without Consolidation: Very few stores would have been profitable in terms of cash flows
3. Flouting all possible rules in Retail management.
4. The staffing and the personnel quality was pathetic but the pay was very good.
5. The terms of business were not always ethical or right minded.
6. Whither Inventory management?
7. Footfalls, turnaround and turnover being the guru mantra: Subhiksha never understood its customers
8. The only USP was discounts... hardly a sustainable competitive edge!
9. Your vendors only have a limited leash...expecting infinite credit cycles to make up for your ROIs is hardly good vendor management
10. Downstream supply chain was not integrated. Bulk buying is not a source of advantage.
11. Diffused focus: Subhiksha sold fresh vegetables, medicines, groceriezs, mobile phones, accessories and more.. where was the focus? How robust was the business model and the manpower to handle such diversity?
Now i hear CDIT format stores under the Subhiksha aegis... When will you learn Mr. Subramanian? Bottomline: No one "buys out" a sick horse. At this rate... Mr Subrmanian.. you would go bust!

Bringing Back Retail Realism

(An addition/comment to a report on Retail and the over optimism around it which was published in Mint on 27th August 2008)
http://www.livemint.com/2008/08/27002851/Bringing-back-retail-realism.html ... for the full post

Having dealt with the large retail houses in course of doing business, i was fairly confident that the exuberrance@retail was shortlived and was over stretched. Come to think of it from a business perspective
1. There were lot of instances of delayed payments by these chains ... leading to order cancellations from the vendors.
2. There was always a working capital crunch and huge credit cycles which were never resolved. 3. These chains had punted a fair amount on the vendors abilities to extend credit and run promotions
4. Competition never ran by any rules of retail management.
5. Consequently there were 3 or 4 players in the same catchment trying to woo consumers
6. Consumers were sploit for choices
7. Most of the shopping that happened was price discount based instead of value based
8. The stores competed on promotions and price offs rather than understanding the consumer better
9. By arm twisting the local vendors into greater margin sharing, these stores stocked up goods which were not the quality the consumers expected from the stores.
10. Quality thus became a concern from these stores. (No one believes jeans @ Rs.199 stories from these stores on quality)
11. The assortment of goods carried, the inventories and the personnel required to run the chains involves huge outflows which the profits dont make good.
12. From the consumer psyche, window shopping is all that he does in these stores. The real purchase happen at 50% and more "off" sales.

Thus in trying to be everything to everybody many of these stores loose on consumers. So then whats working?

1. Would applaud the Nokia, Bose, Sony stores which focus on a narrow merchandise but good depths
2. The Walmarts and the Tesco's of the world dont only do retail management. They have huge vendor/supply management fundamentals. Its like Frito Lays paying farmers to cultivate the Potato for the Lay's Chips.
At this level, of price discounting, promotion and bargain hunting, the story is doomsday for these stores.