Reliance retail dream sours

Even as the Ambani brothers are busy fighting their legal battle over the gas, their businesses seem to need their attention ever more. The elder brother Mukesh, who is considered savvier of the two, now has a failure in the form of the Reliance retail venture. Financial chronicle reports that :

RELIANCE Retail is yet to see profit in any of its formats. The company has reported total losses in excess of Rs 450 crore in 2008-09 alone. Mukesh Ambani had launched the retail business in 2006, which now operates under 15 formats.

Data obtained from RIL shows that till March 2009, Reliance Fresh had run up the highest negative reserves of Rs 276.77 crore. The other formats such as Reliance Hypermart (negative reserves of Rs 54.32 crore), Retail Concepts & Services (-Rs 38.37 crore) and Reliance Vantage Retail (-Rs 21.23 crore) have also run up negative reserves.

Reliance Dairy Foods (with negative reserves of Rs 7.63 crore), Reliance Digital Retail (-Rs 15.49 crore), Reliance Footprint (-Rs 10.47 crore), Reliance Trends (-Rs 3.1 crore), Reliance Gems and Jewels (-Rs 5.73 crore) and Reliance Home Store (-Rs 4.54 crore) are among the other formats that have reported accumulated losses.

Reliance Retail now runs as many as 900 stores across 14 states in India, spanning the supermarket, convenience store and mini hypermart formats, in addition to specialised units which sell everything from eyewear to jewellery. The business, which encompasses partnerships with firms such as Marks and Spencer, Office Depot and Hamleys, now counts five million customers as members of its business-wide loyalty programme.

The rising losses in the retail business are learnt to have led to the billionaire Ambani downsizing the ambition for this business, which was expected to bring about a paradigm shift to his oil and petrochemicals commodity venture.

My take on why Reliance Retail has not succeeded is :

  • Reliance may be the largest company in the country and its name has tremendous equity in the financial markets. In consumer markets, Reliance brand has limited salience.
  • Merchandise sold in Reliance retail outlets were undifferentiated from the stuff sold in other stores. Just  expecting that consumers would flock to the Reliance shop because it was from Reliance, smacked of arrogance or ignorance or both.
  • Reliance have succeeded in businesses where it could use its financial muscle to build scale and efficiencies, backed by clever manipulation of government policies to its advantage, by cultivating politicians and officials. Retail business, needs none of these strengths.
  • Investing a lot of money and hiring top notch professionals  from various competitors at fat salaries is no subsitute for a sound strategy.
  • Organised retail in India, is a difficult game where achieving top-line targets through use of offers and promotions is relatively easy, making profits is very difficult. Indian consumer is very price conscious, yet India has a high cost-structure, leaving no margins for the retailer.

One should not write-off Reliance Retail because of its early failures. Yet, it must be quite humbling to the top-brass of Reliance that the humble Indian consumer is far tougher to tame and understand than the Indian politician or official.

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