Restructuring Pantaloon Retail: The 'Future Group' Initiative
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Case Code: BSTR227 Case Length: 21 Pages Period: 2004-2006 Pub Date: 2006 Teaching Note: Available |
Price: Rs.300 Organization: Pantaloon Retail (India) Limited, Future Group Industry: Retail Countries: India Themes: Corporate Strategy, Corporate Restructuring, Joint ventures, and Strategic Alliances |
Abstract Case Intro 1 Case Intro 2 Excerpts
"We never created a group identity in the past...We cannot be known as Pantaloon. It was originally a trouser brand."
- Kishore Biyani, CEO, Future Group, in May 2006.
"While Biyani has ambition combined with street smartness, his business model could choke if there is inadequate funding. He has to be careful about cash flows."
-Arvind Singhal, Managing Director, KSA Technopak, in March 2006.
A New Identity
On May 23, 2006, Pantaloon Retail (India) Limited (PRIL) announced that it had signed an agreement to form a joint venture (JV) with the Italy-based Generali Group (Generali) to tap the insurance sector in India. The venture would be called 'Future Generali' and would be headquartered in Mumbai, India. Generali would have a 26 percent stake in the venture, which was expected to offer both life and non-life insurance products. PRIL, which began as a trouser manufacturer in the mid-1980s, had grown over the years to become one of India's largest retail chains. The foray into insurance was part of the group's diversification strategy. In March 2006, the Pantaloon Group renamed itself as the 'Future Group'.
The Future Group was divided into six verticals - Future Retail, Future Capital, Future Brands, Future Space, Future Media, and Future Logistics. Under the new structure, PRIL would be a part of Future Retail. The Future Group planned to operate its insurance business through its financial arm, Future Capital, which was involved in asset management. Future Capital also had plans to get into credit and other consumer related financial services such as banking, personal finance, and investment services. PRIL planned to leverage on its retail strength to acquire customers and cater to their insurance needs. Analysts viewed the restructuring of the Pantaloon group and its endeavor to establish a new identity as part of the ambitious plans of Kishore Biyani (Biyani), CEO of the Future Group. Biyani was widely regarded as one of the pioneers of organized retail in India.
Analysts felt that Biyani had restructured the Pantaloon group under a new identity in order to consolidate the group's leadership position and diversify into new growth areas in the Indian retail. Moreover, the attitudes and preferences of Indian consumers were changing, thanks to the increase in their disposable incomes and exposure to global products and trends. The growth outlook for the Indian retail sector was positive given the estimated 300 million6 strong middle class, a fairly young population, and organized retailing constituting just three percent of the total retail business in India. Commenting on the drivers for growth in the Indian retail sector, Biyani said, "I believe that consumption will be the next big driver of India's economic growth. Rising incomes and increased exposure to global products and global consumption patterns have changed the average Indian's attitude towards consumption and savings. Increased and channelized consumption would lead to the development of the nation through improved and better infrastructure facilities, greater employment generation possibilities will emerge with increased consumption, leading to people wanting to spend more on themselves. This cycle is what will fuel the consumption boom in the country."
Biyani realized that the company had to shed its previous image of being just a fashion and food retailer, if it wanted to tap the potential in diverse areas like home solutions, leisure & entertainment, fitness, communications, and financial services. However, some industry analysts said that the Future Group would have a tough task ahead due to competition from other organized retail players like Shoppers' Stop, Trent Ltd., and FoodWorld11. In June 2006, Reliance Retail Limited, a retail venture of Reliance Industries Limited12, had announced ambitious plans to become the leading player in the Indian retail sector. There was also the likely threat from international retail giants like Wal-Mart Stores Inc. (Wal-Mart), Carrefour SA14, and Tesco Plc, if the sector was opened up to foreign investment...
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