Business Standard

Reliance Retail bets on cash-and-carry for high growth

The home-grown retail player will strengthen its Reliance Market chain to take its turnover to Rs 50,000 cr in two-three years

Abhineet Kumar  |  Mumbai 

At Industries' annual general meeting in June 2012, when laid out an ambitious turnover target of Rs 40,000-50,000 crore for Retail in the next three to four years, he wasn't looking at bullion trading. Often retailers take recourse to this route on the way to bigger revenues.

Retail has instead identified the business as its growth driver. This not only provides large volume, but also promises higher return on capital (RoC), a key benchmark to judge the sustainability of any business.



A year hence, the company has already made progress. In 2011-12, when the target was set, Retail had an annual turnover of Rs 7,600 crore and operational losses of Rs 34.2 crore. By 2012-13, the turnover had risen 42 per cent to Rs 10,800 crore and the company had reported an operational profit of Rs 78 crore, its first in seven years of existence.

The game-changer was its first store, Market, which opened in Ahmedabad in September 2011. By the end of 2012-13, Market, which caters to kirana shops, caterers, hotels and other business establishments, had acquired a sizeable customer base of 125,000, including 24,000 kirana shops. Propelled by its success, six new stores have been opened in the last three months in Bangalore, Mumbai, Anand, Faridabad, Chennai and Guntur. As a result, the company's turnover increased 53 per cent to Rs 3,474 crore in the June quarter of 2012-13. It also posted an operational profit of Rs 70 crore.

Retail is the first Indian retailer to enter the business, currently dominated by multinationals such as WalMart, Metro and Carrefour, whose expansion in the multi-brand format has been hobbled by policy hurdles. While Retail does not want to provide any numbers for store expansion, going by its growth plans it is likely to have 12 to15 stores by the end of the current financial year.

The business is highly efficient, as it has fewer requirements for stock-keeping units, which in turn means better supplier management and greater sourcing power. A bigger draw is the higher RoC. "Retail is a business that is best judged on return on capital instead of the (profit) margins, which could be as low as two to three per cent," says Arvind K Singhal, chairman of consultancy firm Technopak Advisors. In the business, the inventory turnover could be 40 to 50 times in a year, which in turn pushes up the RoC.

The company in various strategic phases, internally referred to as Retail 1.0, 2.0 and 3.0, has established businesses under value, digital, lifestyle, jewellery and brands formats and has become the second-largest retailer in the country after the Kishore Biyani-promoted Pantaloon Retail reported net sales of Rs 19,780 crore for the 18 months ending December 31. Because the company is going through a business re-organisation, it will again report an 18-month financial year. On an annualised basis, this comes to Rs 13,187 crore, at an annual growth rate of 10.2 per cent. Analysts' estimate 15 per cent of this or about Rs 1,980 crore, came from the apparel and fashion business that has been recently sold to Aditya Birla Nuvo. The company has since been rechristened Future Retail.

At the end of Retail 3.0 in 2012-13, about 56 per cent of its revenue of Rs 10,800 crore came from its value and other segment that operates the grocery chains, Fresh, Super and Hyper, under Chief Executive Officer Rob Cissell. This represented a 33 per cent jump in revenue of Rs 6,100 crore in the year, while the number of stores grew marginally by 10 to 760.

Under Retail 4.0, as part of plans for business expansion, the store, Market, is soon expected to become a separate vertical.

In addition to betting on Market, the company is also looking at expanding its digital segment. About Rs 5,500 crore is expected to be spent in the next three years primarily to drive growth in the two formats. In 2012-13, the electronic retail businesses under Digital and Digital Express accounted for 20 per cent of the revenue at Rs 2,100 crore.

The digital vertical, led by CEO Brian Bade, is expected to be the second-largest growth contributor after value and other segment this year. It had 139 stores at the end of 2012-13. Among its other verticals, the contribution of fashion and lifestyle business, with 448 stores in operation, was 15 per cent at Rs 1,600 crore. Having established its reach, CEO Akhilesh Prasad is now focusing on tweaking the product portfolio to provide aspirational categories in order to boost same store growth.

"Every 2 to 3 years, we have had to review growth parameters and get ready, but whenever we entered into a new phase we could anticipate what would happen and anticipate what should be our next move," says a senior executive of Retail.

The company's other two formats - jewellery and brands - contributed seven and two per cent to the revenue in 2012-13, respectively. Jewels was unable to log the desired numbers in terms of achieving scale, recording revenue of just Rs 800 crore in the year. Comparatively, Tata Group company Titan Industries reported revenue of Rs 10,213 crore in 2012-13, with the share of jewellery and watches being Rs 8,108 crore and Rs 1,675 crore, respectively. To drive growth, has shifted the headquarters of its jewels arm from Bangalore to Mumbai and roped in Sunil Nayak from Landmark in Dubai to oversee things.

With a portfolio of 40 international brands across luxury and high-street lifestyle via various licensing agreements, the brands business of Retail contributed about Rs 200 crore to the revenue. While the brands and the jewellery business is important to the company, its contribution in taking Retail's turnover to the target of Rs 50,000 crore, however, will be minimal.

Clearly, increasing RoC is among the top priorities for Industries, which has drawn flak for sitting on Rs 50,456 crore in cash and bank balances and another Rs 28,869 crore in current investments (on the consolidated balance sheet) at the end of 2012-13. This dragged the company's RoC to 12.51 per cent in 2012-13 from 13.72 per cent in 2011-12. To counter this, the company has announced Rs 150,000-crore capital expenditure in the next three years. Retail's expansion in is a part of this larger plan.

RECOMMENDED FOR YOU

Reliance Retail bets on cash-and-carry for high growth

The home-grown retail player will strengthen its Reliance Market chain to take its turnover to Rs 50,000 cr in two-three years

The home-grown retail player will strengthen its Reliance Market chain to take its turnover to Rs 50,000 cr in two-three years At Industries' annual general meeting in June 2012, when laid out an ambitious turnover target of Rs 40,000-50,000 crore for Retail in the next three to four years, he wasn't looking at bullion trading. Often retailers take recourse to this route on the way to bigger revenues.

Retail has instead identified the business as its growth driver. This not only provides large volume, but also promises higher return on capital (RoC), a key benchmark to judge the sustainability of any business.

A year hence, the company has already made progress. In 2011-12, when the target was set, Retail had an annual turnover of Rs 7,600 crore and operational losses of Rs 34.2 crore. By 2012-13, the turnover had risen 42 per cent to Rs 10,800 crore and the company had reported an operational profit of Rs 78 crore, its first in seven years of existence.

The game-changer was its first store, Market, which opened in Ahmedabad in September 2011. By the end of 2012-13, Market, which caters to kirana shops, caterers, hotels and other business establishments, had acquired a sizeable customer base of 125,000, including 24,000 kirana shops. Propelled by its success, six new stores have been opened in the last three months in Bangalore, Mumbai, Anand, Faridabad, Chennai and Guntur. As a result, the company's turnover increased 53 per cent to Rs 3,474 crore in the June quarter of 2012-13. It also posted an operational profit of Rs 70 crore.

Retail is the first Indian retailer to enter the business, currently dominated by multinationals such as WalMart, Metro and Carrefour, whose expansion in the multi-brand format has been hobbled by policy hurdles. While Retail does not want to provide any numbers for store expansion, going by its growth plans it is likely to have 12 to15 stores by the end of the current financial year.

The business is highly efficient, as it has fewer requirements for stock-keeping units, which in turn means better supplier management and greater sourcing power. A bigger draw is the higher RoC. "Retail is a business that is best judged on return on capital instead of the (profit) margins, which could be as low as two to three per cent," says Arvind K Singhal, chairman of consultancy firm Technopak Advisors. In the business, the inventory turnover could be 40 to 50 times in a year, which in turn pushes up the RoC.

The company in various strategic phases, internally referred to as Retail 1.0, 2.0 and 3.0, has established businesses under value, digital, lifestyle, jewellery and brands formats and has become the second-largest retailer in the country after the Kishore Biyani-promoted Pantaloon Retail reported net sales of Rs 19,780 crore for the 18 months ending December 31. Because the company is going through a business re-organisation, it will again report an 18-month financial year. On an annualised basis, this comes to Rs 13,187 crore, at an annual growth rate of 10.2 per cent. Analysts' estimate 15 per cent of this or about Rs 1,980 crore, came from the apparel and fashion business that has been recently sold to Aditya Birla Nuvo. The company has since been rechristened Future Retail.

At the end of Retail 3.0 in 2012-13, about 56 per cent of its revenue of Rs 10,800 crore came from its value and other segment that operates the grocery chains, Fresh, Super and Hyper, under Chief Executive Officer Rob Cissell. This represented a 33 per cent jump in revenue of Rs 6,100 crore in the year, while the number of stores grew marginally by 10 to 760.

Under Retail 4.0, as part of plans for business expansion, the store, Market, is soon expected to become a separate vertical.

In addition to betting on Market, the company is also looking at expanding its digital segment. About Rs 5,500 crore is expected to be spent in the next three years primarily to drive growth in the two formats. In 2012-13, the electronic retail businesses under Digital and Digital Express accounted for 20 per cent of the revenue at Rs 2,100 crore.

The digital vertical, led by CEO Brian Bade, is expected to be the second-largest growth contributor after value and other segment this year. It had 139 stores at the end of 2012-13. Among its other verticals, the contribution of fashion and lifestyle business, with 448 stores in operation, was 15 per cent at Rs 1,600 crore. Having established its reach, CEO Akhilesh Prasad is now focusing on tweaking the product portfolio to provide aspirational categories in order to boost same store growth.

"Every 2 to 3 years, we have had to review growth parameters and get ready, but whenever we entered into a new phase we could anticipate what would happen and anticipate what should be our next move," says a senior executive of Retail.

The company's other two formats - jewellery and brands - contributed seven and two per cent to the revenue in 2012-13, respectively. Jewels was unable to log the desired numbers in terms of achieving scale, recording revenue of just Rs 800 crore in the year. Comparatively, Tata Group company Titan Industries reported revenue of Rs 10,213 crore in 2012-13, with the share of jewellery and watches being Rs 8,108 crore and Rs 1,675 crore, respectively. To drive growth, has shifted the headquarters of its jewels arm from Bangalore to Mumbai and roped in Sunil Nayak from Landmark in Dubai to oversee things.

With a portfolio of 40 international brands across luxury and high-street lifestyle via various licensing agreements, the brands business of Retail contributed about Rs 200 crore to the revenue. While the brands and the jewellery business is important to the company, its contribution in taking Retail's turnover to the target of Rs 50,000 crore, however, will be minimal.

Clearly, increasing RoC is among the top priorities for Industries, which has drawn flak for sitting on Rs 50,456 crore in cash and bank balances and another Rs 28,869 crore in current investments (on the consolidated balance sheet) at the end of 2012-13. This dragged the company's RoC to 12.51 per cent in 2012-13 from 13.72 per cent in 2011-12. To counter this, the company has announced Rs 150,000-crore capital expenditure in the next three years. Retail's expansion in is a part of this larger plan.
image
Business Standard
177 22

Reliance Retail bets on cash-and-carry for high growth

The home-grown retail player will strengthen its Reliance Market chain to take its turnover to Rs 50,000 cr in two-three years

At Industries' annual general meeting in June 2012, when laid out an ambitious turnover target of Rs 40,000-50,000 crore for Retail in the next three to four years, he wasn't looking at bullion trading. Often retailers take recourse to this route on the way to bigger revenues.

Retail has instead identified the business as its growth driver. This not only provides large volume, but also promises higher return on capital (RoC), a key benchmark to judge the sustainability of any business.

A year hence, the company has already made progress. In 2011-12, when the target was set, Retail had an annual turnover of Rs 7,600 crore and operational losses of Rs 34.2 crore. By 2012-13, the turnover had risen 42 per cent to Rs 10,800 crore and the company had reported an operational profit of Rs 78 crore, its first in seven years of existence.

The game-changer was its first store, Market, which opened in Ahmedabad in September 2011. By the end of 2012-13, Market, which caters to kirana shops, caterers, hotels and other business establishments, had acquired a sizeable customer base of 125,000, including 24,000 kirana shops. Propelled by its success, six new stores have been opened in the last three months in Bangalore, Mumbai, Anand, Faridabad, Chennai and Guntur. As a result, the company's turnover increased 53 per cent to Rs 3,474 crore in the June quarter of 2012-13. It also posted an operational profit of Rs 70 crore.

Retail is the first Indian retailer to enter the business, currently dominated by multinationals such as WalMart, Metro and Carrefour, whose expansion in the multi-brand format has been hobbled by policy hurdles. While Retail does not want to provide any numbers for store expansion, going by its growth plans it is likely to have 12 to15 stores by the end of the current financial year.

The business is highly efficient, as it has fewer requirements for stock-keeping units, which in turn means better supplier management and greater sourcing power. A bigger draw is the higher RoC. "Retail is a business that is best judged on return on capital instead of the (profit) margins, which could be as low as two to three per cent," says Arvind K Singhal, chairman of consultancy firm Technopak Advisors. In the business, the inventory turnover could be 40 to 50 times in a year, which in turn pushes up the RoC.

The company in various strategic phases, internally referred to as Retail 1.0, 2.0 and 3.0, has established businesses under value, digital, lifestyle, jewellery and brands formats and has become the second-largest retailer in the country after the Kishore Biyani-promoted Pantaloon Retail reported net sales of Rs 19,780 crore for the 18 months ending December 31. Because the company is going through a business re-organisation, it will again report an 18-month financial year. On an annualised basis, this comes to Rs 13,187 crore, at an annual growth rate of 10.2 per cent. Analysts' estimate 15 per cent of this or about Rs 1,980 crore, came from the apparel and fashion business that has been recently sold to Aditya Birla Nuvo. The company has since been rechristened Future Retail.

At the end of Retail 3.0 in 2012-13, about 56 per cent of its revenue of Rs 10,800 crore came from its value and other segment that operates the grocery chains, Fresh, Super and Hyper, under Chief Executive Officer Rob Cissell. This represented a 33 per cent jump in revenue of Rs 6,100 crore in the year, while the number of stores grew marginally by 10 to 760.

Under Retail 4.0, as part of plans for business expansion, the store, Market, is soon expected to become a separate vertical.

In addition to betting on Market, the company is also looking at expanding its digital segment. About Rs 5,500 crore is expected to be spent in the next three years primarily to drive growth in the two formats. In 2012-13, the electronic retail businesses under Digital and Digital Express accounted for 20 per cent of the revenue at Rs 2,100 crore.

The digital vertical, led by CEO Brian Bade, is expected to be the second-largest growth contributor after value and other segment this year. It had 139 stores at the end of 2012-13. Among its other verticals, the contribution of fashion and lifestyle business, with 448 stores in operation, was 15 per cent at Rs 1,600 crore. Having established its reach, CEO Akhilesh Prasad is now focusing on tweaking the product portfolio to provide aspirational categories in order to boost same store growth.

"Every 2 to 3 years, we have had to review growth parameters and get ready, but whenever we entered into a new phase we could anticipate what would happen and anticipate what should be our next move," says a senior executive of Retail.

The company's other two formats - jewellery and brands - contributed seven and two per cent to the revenue in 2012-13, respectively. Jewels was unable to log the desired numbers in terms of achieving scale, recording revenue of just Rs 800 crore in the year. Comparatively, Tata Group company Titan Industries reported revenue of Rs 10,213 crore in 2012-13, with the share of jewellery and watches being Rs 8,108 crore and Rs 1,675 crore, respectively. To drive growth, has shifted the headquarters of its jewels arm from Bangalore to Mumbai and roped in Sunil Nayak from Landmark in Dubai to oversee things.

With a portfolio of 40 international brands across luxury and high-street lifestyle via various licensing agreements, the brands business of Retail contributed about Rs 200 crore to the revenue. While the brands and the jewellery business is important to the company, its contribution in taking Retail's turnover to the target of Rs 50,000 crore, however, will be minimal.

Clearly, increasing RoC is among the top priorities for Industries, which has drawn flak for sitting on Rs 50,456 crore in cash and bank balances and another Rs 28,869 crore in current investments (on the consolidated balance sheet) at the end of 2012-13. This dragged the company's RoC to 12.51 per cent in 2012-13 from 13.72 per cent in 2011-12. To counter this, the company has announced Rs 150,000-crore capital expenditure in the next three years. Retail's expansion in is a part of this larger plan.

image
Business Standard
177 22

Upgrade To Premium Services

Welcome User

Business Standard is happy to inform you of the launch of "Business Standard Premium Services"

As a premium subscriber you get an across device unfettered access to a range of services which include:

  • Access Exclusive content - articles, features & opinion pieces
  • Weekly Industry/Genre specific newsletters - Choose multiple industries/genres
  • Access to 17 plus years of content archives
  • Set Stock price alerts for your portfolio and watch list and get them delivered to your e-mail box
  • End of day news alerts on 5 companies (via email)
  • NEW: Get seamless access to WSJ.com at a great price. No additional sign-up required.
 

Premium Services

In Partnership with

 

Dear Guest,

 

Welcome to the premium services of Business Standard brought to you courtesy FIS.
Kindly visit the Manage my subscription page to discover the benefits of this programme.

Enjoy Reading!
Team Business Standard