Subhiksha Rise & Fall – Case Study
We present to you the brief excerpts of the Case Study of Subhiksha’s Rise & Fall in the Indian Retail Space.
Subhiksha, once the blue eyed boy of Indian retail, R Subramaniam in 1997 pioneered the value retailing concept in India and has now become a case study on what not to do in the industry.
Subhikasha had a go to market strategy, they started off in Chennai by opening small (not more than 1500 sf) stores retailing food and groceries. Retailing at below market prices, using a low cost approach (eg. Non‐AC stores), helped the company succeed in its initial years, opening 150 stores in Tamil Nadu by 2006.
Downfall of the company began in 2006-07 when it took up an aggressive pan India expansion plan and opened a staggering 1400 stores across the country in less than two years. Store formats were altered to include other items like mobile phones on their shelves to offer a ‘one‐stop’ shop to the customer.
To fund the CAPEX of opening new stores Subhiksha took on Rs8bn debt, which added financial leverage to the already existing operating leverage in the business model. New stores failed to take off and the company was faced with the unprecedented slowdown at the end of 2008 (subprime crisis). The heavy interest burden blocked the equity funding and high rentals caught the company in a classic cash flow riddle. The company could not even pay its employee’s salary dues. It finally had to shut shop in February 2009.
Un-Mindful expansion, capital; structure and poor inventory management led to the failure. Worse was Venture Capitalists [ICICI] who funded the company never even bothered to take stock of the situation and thus shutdown was inevitable.
Written by Retail Analyst · Filed Under News & Views
The largest retail value chain of India- Subhiksha, failed. This case analyses some of the reasons for the same.
Largest retail value chain in India with 1600 outlets started in 1997 .
From 150 stores in Sept 2006 all of which were in Tamil Nadu the company grew rapidly to over 1600 stores by Sept 2008 across the country.
The company’s investors included Wipro’s Azim Premji and ICICI Prudential Mutual fund apart from the ESOP Trust.
Started with $8-10000. Turnover in 2008 was $451 million.
In March 1997 opening of the first retail store in Chennai, with $ 1 million initial investment.
March 99‐ 14 stores in Chennai.
June 2000‐ 50 stores in Chennai, ICICI ventures joins Subhiksha.
June 2002‐ 120 stores in whole of Tamil Nadu.
June 2006‐ 420 stores in other big states in India namely Gujarat, Delhi, Mumbai, Andhra Pradesh and Karnataka.
Feb 2007‐500 stores across country
Dec 2007‐ 1000 stores across India
October 2008‐ 1600 stores across India
RAPID EXPANSION VIA DEBT CAPITAL.
Reasons for the failure:
Expanding the number of stores rapidly without sufficient funds in hand.
Expansion of Stores without adequate system control and IT Support.
Lack of strong HR policy and Staff.
Over confidence and Aggressiveness.
Never be too aggressive with your expansion and growth plans unless you have enough finances.
Know your competitors inside out.
Understand your Strengths and Weaknesses and use them efficiently to gain and learn.
Debt Capital though profitable, is the most risky source of finance.