Despite a patchy track record, experts are willing to bet on Mukesh Ambani's ambitious plans
The execution hasn’t gone as per his original script, but Mukesh Ambani’s passion for Reliance Retail is still intact. Or, so it seems, going by the ambitious plans he laid out at Reliance’s 36th annual general meeting last Thursday.
Consider this: in 2006, Raghu Pillai, former head of Reliance Retail, had set a revenue target of $25 billion (Rs 112,500 crore) by 2010. What Reliance Retail has managed is Rs 7,600 crore in FY 12. The company had plans to set up 4,000 stores by 2010; five years later, it has been able to set up just 1,300 stores. There’s more: the much hyped ‘farm to fork’ strategy just refused to take off following opposition in many states, dashing Ambani’s high hopes. In 2008-09, Reliance Retail, in fact, had to shut 50 shops, downsize its employee strength by over 1000 and exit two formats —Reliance Kitchen, which sold modular kitchen furniture, and Reliance Wellness, a beauty and lifestyle chain.
But the fact that the man hasn’t lost any of his initial enthusiasm was evident at the AGM when he laid out a grand expansion strategy at a time that has seen some of his rivals curtail expansion and shut outlets. Also, Ambani is talking profitability even though, Reliance Retail’s losses widened to Rs 430 crore across 34 retail units in FY 2012.
Reliance Retail, according to the new blueprint, plans to grow its retail business five to six times and achieve Rs 40,000 to 50,000 crore over the next three to four years. That means the country’s second largest retailer has to grow at 51-60 per cent compounded annual growth rate. That shouldn’t be difficult considering that it has grown at a CAGR of 50 per cent in the four years since FY 2008, though Future Group, its nearest rival, has managed just 28 per cent CAGR between FY 2008 and 2011.
That’s not all. Reliance Retail is looking to grow its customer base by over three times from about 3 million people visiting its retail stores every week currently to over 10 million every week in three to four years.
Can Ambani pull it off this time? Most experts say he will. Harminder Sahni, managing director of Wazir Advisors, a retail consultancy, says since 2010, Ambani is looking at the business seriously and has realised which formats will work and which would not.
Sahni may be right, going by the scaled up investments. Reliance invested Rs 5,027 crore in Reliance Retail in FY 2012. The last time it invested in the company was in 2009-10 when it put Rs 1,220 crore in the business. The Reliance Retail board also has an approval of Rs 4,500 crore fund infusion from the parent company that is expected to come in several tranches.
What gives experts the confidence is that the company is now under the leadership of two retail veterans from China – Rob Cissell, former chief operating officer of Walmart China, and Shawn Gray, former vice-president in-charge of store operations of the same company.
Most competitors say Reliance Retail is dead serious this time. An executive from Aditya Birla Retail says though Reliance has been experimenting with the business so far, but has got a new focus now and will definitely improve operations.
The “focus” on scale is clearly visible. Reliance Retail, which started with smaller 2,000-4,000 sq ft food and grocery stores, is now stepping up its presence in hypermarkets that are built on about 70,000-80,000 sq ft and stock everything from food to apparel to furniture.
To bring in more synergies, it has merged nine loss making units with Reliance Fresh, its main retailing unit. Some say that Reliance’s multi-format strategy had paid off though it is yet to see success with its value formats.
In tune with its chairman’s multi-format strategy, Reliance Retail opened formats such as Reliance Digital, a consumer durable chain; Reliance Jewels, a jeweler chain; Reliance Footprints, a footwear chain; Reliance Trends, a fashion chain among others apart from value formats such as Reliance Fresh and Reliance Mart.
Though competitors have mixed views on Reliance Retail’s claim of a “leadership position” in the AGM speech of Ambani, retail consultants such as Arvind Singhal, chairman of Technopak Advisors, are impressed by the chain’s growth.
“If you look at growth rate, there is no other retailer which has grown from 0 to Rs 7,600 crore in revenues in the last five to six years. The only retailer, which has a bigger size is Future Group, which was set up much earlier,” says Arvind Singhal, chairman of Technopak Advisors, a retail consultant.
“But it is difficult to make statement on leadership position unless we understand the context in which it was said. In terms of space, Future group is largest but going by the growth that Reliance is projecting in the next three to four years, they would be the largest in the next one or two years,” Singhal adds.
While Kishore Biyani declined to comment on Ambani’s leadership claims, a senior group executive says they may not be factual. “Though they are leaders in many other segments, they are way behind in retail. Though they have cash and management bandwidth, we have to see how their plans pan out in the coming years,” says the executive.
Technopak’s Singhal believes Reliance can achieve the target of Rs 50,000 crore given the growth in retail sector. “Currently, the total size of retail in India is $ 560 billion which is set to touch $ 1 trillion in the next couple of years. If Reliance aims for a $ 8 billion topline, it will be less than one per cent of the total market. With the cash on books and significant learnings they had, I do not think it will be an issue for them,” he adds.
“Already, losses to the percentage of sales at Reliance have come down significantly. I do not have any reason to disbelieve that they won’t achieve profitability in the next two to three years,” he says.
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