Subhiksha: An Indian Retailer in Trouble
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Case Code: BSTR333 Case Length: 15 Pages Period: 2008-2009 Pub Date: 2009 Teaching Note: Not Available |
Price: Rs.300 Organization: Subhiksha Trading Services Limited Industry: Retail Countries: India Themes: Growth Strategy, Operations Strategy |
Abstract Case Intro 1 Case Intro 2 Excerpts
"The nub is that we were making Rs.120-130 million of pre-tax profit and investing Rs500 million per month on expansion - we were to raise equity and then debt we did neither - that is the pain."
- R. Subramanian, Managing Director, Subhiksha Trading Services Limited, in February 2009.
"There has been a complete failure, resulting in an operational and financial loss. We have only 23 per cent stake in the company, we will do anything from our side that can be done to salvage the company. ICICI venture has a fiduciary responsibility towards its investor."
- Renuka Ramnath, Chief Executive Officer (CEO), ICICI Venture, in February 2009.
"There was no prudence; (there was a mismatch) between what the real consumer demand was and the number of stores opened. Retailers have spread themselves too thin to benefit from scale."
- Pinakiranjan Mishra, Partner of Retail and Consumer Product Practice at Ernst & Young, in February 2009.
Introduction
On February 11, 2009, Subhiksha Trading Services Limited (Subhiksha), India's largest retail store in terms of number of stores, announced that it was closing down all its 1600 outlets till May 2009.
According to R. Subramanian (Subramanian), Promoter and Managing Director of Subhiksha, "We are in no position to replenish stocks in any of our stores at the moment; therefore, all the outlets will be non-operational."6 Subhiksha, which was started way back in 1997, was based in Chennai, India. It was operated as a discount store format.
It started with retailing grocery items and later expanded into medicines, mobiles, electronics, and consumer durables. Till 2004, the company expanded slowly, but from then on, it went on a rapid expansion spree across India. Between September 2006 and September 2008, Subhiksha grew its operations from 150 stores in Tamil Nadu to 1600 stores across the country.
Since September 2008, Subhiksha had started facing difficulties in operating its stores. It gradually stopped selling fresh fruits and vegetables. The supply of pharmaceutical products also became irregular. According to the newspaper reports, many employees of the retailer had not received their pay since September 2008.
The company had also reportedly defaulted on its vendor payments which resulted in empty shelves in the stores. However, it was not until January 31, 2009, that Subhiksha admitted publicly that it was facing a major financial crisis. The company insisted that its business model was viable and that it would not shut down its operations...
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