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Method in the madness

Kishore Biyani has been aggressively restructuring Future Group's retail operations over the last year or so, at times giving out mixed signals. Here is the big plan

Masoom Gupte  |  Mumbai 

  • Somewhere in the middle of 2013, underwent a thorough restructuring. Future Ventures, the group's non-banking finance company and investment arm was relisted, with the fashion brands being hived off under The newly formed entity, is currently home to formats like Central and Planet Sports as well as product brands, including private labels and those with which the group has licensing and franchising agreements.
  • In October, exited its investments in ethnic wear brand Biba and designer Anita Dongre-owned AND for Rs 450 crore as the five-year plus investments had "matured".
  • Last year itself the group closed about 40 per cent of the Food Bazaar stores that were not performing well and is currently restructuring the FairPrice neighbourhood stores and the home-furnishing chain, HomeTown.
  • Towards the end of 2013, the group started Big Bazaar Direct's pilot in Maharashtra. In an interview to The Strategist claimed, "If it works, BBD will be bigger than Future Group's flagship store Big Bazaar."
  • The year 2014 squarely belongs to the Future Group's value format, FBB (Fashion @Big Bazaar) with its promise to "make India beautiful".

These are not disparate moves. Kishore Biyani's has been working hard over the past year or so to get the vertical in shape. The restructuring effort underway at since the sale of Pantaloons has been largely number-led, aimed at reducing the accumulated debt. It has also helped in streamlining Future Group's sprawling fashion interests. (The Future Family Tree)

The focus on fashion isn't surprising. "Apparel is an important category - in fact, it is the largest after food and grocery retail," says Ankur Bisen, associate director, Technopak. "The size of the opportunity as well as the margins are quite high for this category."

The other reason could be the high mortality rate in food and grocery retailing. While this is the largest chunk of organised retail, it is a tough business to be in. It typically has a gross margin of 12-15 per cent, compared to 45-50 per cent for lifestyle and apparel. Now you know why the gradual shift from sasta (cheap) to beautiful (aspirational).

Currently, the group sells over 15 crore garments in a year, of which around 10 crore are sold through its value format and the rest through its lifestyle stations. The fashion vertical of the group has been growing at over 30 per cent annually and stands at around Rs 6,500 crore, contributing around 55-60 per cent to the overall turnover of the group currently.

Biyani's fashion strategy rests on one simple proposition - aligning complementary brands under one roof to make the most of the group's capabilities in brand-building and distribution.

Complementary brands under one roof
Take a look at the businesses housed under Future Retail and Future Lifestyle. Future Retail is home to the group's flagship brand, Big Bazaar, the food and grocery chain Food Bazaar, and more recently, FBB. Future Lifestyle, on the other hand, houses retail formats like Central, Planet Sports and Brand Factory and fashion brands like Celio, Clarks, Manchester United, Rig and Bare, a mix of joint ventures, licensed brands and private labels.

"We have adopted a portfolio approach in our fashion business as is the common trend in retail. We maintain a mix of value retail as well as lifestyle brands, holding over 30 brands currently, some our own, some joint ventures or even some through minority stakes," says Kishore Biyani, founder and CEO, Future Group, speaking of the group's overall approach to fashion.

As for the segregation of the different verticals, Sandip Tarkas, president, customer strategy, Future Group, says, "It is a separation of our business interests. Future Retail is home to our value formats, with the only exception being Foodhall, and Future Lifestyle looks after our interests in premium retail."

So while Future Retail focuses mostly on retail formats, Future Lifestyle defines itself as an "integrated fashion company, with presence across key segments within the fashion industry - that is, from design to distribution." The Future Lifestyle portfolio covers sub-categories like formal menswear, casual wear, active or sportswear, women's ethnic wear, women's denim wear, women's casual wear, footwear and accessories and is present across various price points.

The group has long followed this approach of bunching complementary brands under one entity before. But that didn't stop it from cashing in on group-wide synergies or having a group-wide strategy for a particular brand.

An example will make this point clear. Take denim brand, Lee Cooper. The brand covers a wide price range of Rs 1,000 to Rs 7,000. While the exclusive brand outlets may display the entire range, the different retail formats take a segmentation approach. An FBB, given its primary appeal to a value conscious customer, will sell items in the range of Rs 1,000 to Rs 2,000, whereas the rest of the range at the higher end of the price band would be retailed at Central.

Focus on strategic investments
When Future Group sold off its stake in brands such as Biba & AND, the reason cited was "maturity of investment''. "It was simply an investment and it can't be confused with the group's fashion business per se," says Abhishek Raghunath, VP, Phillip Capital India. "The two demand completely different approaches."

Since the group exited these two investments, it has picked up minority stakes in over seven brands, including, footwear firms Tresmode and Famozi Shoes and Mineral, a designer label from Priyadarshini Rao. "Wherever we pick up a minority stake, our approach would be PE-like. We will look at maturity of the investment over time and exit," says Biyani.

Future Lifestyle's mandate, consultants believe, won't be purely PE-like though, following the credo of "invest, reap and exit". The approach may be more strategic going forward, with brands and ambitions chalked out for each individual brand, given the group's overarching portfolio approach to the vertical. Tarkas says, "Pure financial considerations should not be confused with brand strategy. The two should not be mixed up." For instance, the group is committed to the footwear business, aiming to growing it beyond the Rs 1,000 crore mark and would invest steadily in brands like Clarks.

That said, the consolidation process doesn't look complete yet. The group exited investments in women's ethnic wear brand Biba last year, leaving a gap in its portfolio. The Desi Bell minority stake may not be sufficient to fill that gap. Similarly, the group doesn't have a play in children's wear. That may be another segment to look at carefully given Future Lifestyle's long-term aim to conquer the entire fashion landscape.

Building up private labels
A lot has been written about why both online and offline retailers are investing heavily in home brands. The crux of the matter is that private labels offer margins that are at least 5-10 per cent higher than home brands. But the shift in consumer approach to certain categories is also shifting the sands in this business. "Across the board, consumers are starting to get value conscious. Especially for categories like leggings or inner wear where the brand really doesn't matter, consumers are willing to buy private labels," says Bisen of

To give its home brands Bare and Rig a leg up, the group plans to set up at least 10 exclusive stores this year in Tier-II and Tier-III markets. The Future Group also hopes to expand the franchise of 'I am In', a youth-targeted chain that was piloted last year. This format targets the 18-24-year group and will stock all in-house brands such as Jealous 21, John Miller, Rig, Bare, Indigo Nation etc.

"It makes sense," says Bisen speaking of Future Group's plans of opening up exclusive stores for its private labels. "If they stick to retailing their private labels in existing formats, be it Big Bazaar or Central, the growth of these home-grown labels will depend on the growth of the formats' footprint," he adds. It may not be possible to open a huge store in an upscale locality. It is easier to open smaller, 5,000-6,000 square feet stores and expand quickly in a more targeted fashion.

Distribution synergies across the group
The group's thrust on value fashion, represented by FBB, is evident in the aggressive growth targets set for the brand. FBB has a footprint of 31 stores currently, which is expected to go up to 100 by the end of this year, adding another 50 next year. Biyani says that FBB is likely to touch the Rs 3,000-crore sales mark by the end of this year.

To ensure that the group meets the expectations of the price-sensitive, value-fashion segment consumer, the company has moved to a single distribution centre model for this vertical. A single warehouse in Nagpur supplies the 10 crore garment units that FBB sells in a year through its outlets across India. A separate distribution centre manages the lifestyle business' requirements.

The group is gung-ho about its fashion vertical, with a lot more investment flowing into this business than any other. There are no more exits planned for now. "We don't see any investment mature enough or plum enough to be picked right now," Biyani says candidly.

First Published: Mon, June 23 2014. 00:15 IST