The Future Of Future

Kalim, Santosh, Prabodh

Slide 1 - About Future group Slide 2 Unbridled Expansion Slide 3 Rising Debt Slide 4 Overambitious growth Slide 5 Rising Inventories Slide 6 Damage Control Slide 7 A bridge too far

About Future Group

Future Bazar is one of the leading retailer in India First store of Future group launched by Kishore Biyani at Kolkata 10 years ago In just 12 years Future group has build an empire of Rs 12000 crore , spread over 15.5 million sq. ft. of space The Future group and its subsidiaries (FY 11 Income (Rs Crore) Retail Pantaloon Retail (India) 12212 Pantaloon retail Stand alone 4097 Future value retail 6914.83 Finance Future Generali Life Insurance 188.92 Future Generali (India) Insurance 97.54 Future Capital holdings 238.54 Future Venture (India) 542.80 Services Future Supply Chains 291.88 Future Media (India) 32.31 Initial response of store like Bigbazar was very over whelming, a long queue, people from different part of cities come to shop from here with foot long bill Success of initial experiment prompt Kishore Biyani to go for more stores just capture the benefit of early mover
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Unbridled Expansion
Kishore Biyani mad rush to straddle the organised retail space has left the Future Group in a precarious financial position As per Mr Biyani, we have many new stores that have also started throwing cash back into the business. The debt situation is not that bad. With higher disposable incomes, the Indian customer is willing to upgrade. Big Bazaar also needed to change. There has been a 28% year-on-year rise in the inventory cost per sq. ft. at Future Group, indicating a decline in sales volumes. The going was absolutely smooth until 2006. Turnover had touched Rs 1,900 crore, although profits were a meagre Rs 64 crore. There were 40 Big Bazaar stores and 20-odd Pantaloons stores and year-on-year same-store sales growth was as high as 25%. The ambitions only grew bigger with Biyani deciding to scale up his business further and add more verticalsthe idea being to capture as much of the consumers wallet as possible The going was absolutely smooth until 2006. Turnover had touched Rs 1,900 crore, although profits were a meagre Rs 64 crore. There were 40 Big Bazaar stores and 20-odd Pantaloons stores and year-on-year same-store sales growth was as high as 25%. But in pursuit of scale, Biyani also decided to straddle multiple retail formatsan unusual strategy for any retail company globally Biyani also got into a number of non-core businesses, like financial services and media, which failed to take off In 2005, the group went beyond retail for the first time by acquiring a stake in Galaxy Entertainment and setting up Kshitij, Indias first real estate investment fund. The following year, it set up Future Capital Holdings, while expanding its retail portfolio. It launched Home Town, e-Zone and Furniture Bazaar and signed joint ventures with Staples and Italian insurance major Generali. 4

Rising Debt
Biyani decided to add 40 Big Bazaar stores in a span of just one year (2007-08), and more stores in the other formats as well, he had to make huge borrowings The consequences of that borrowing have now put question marks over the future of the Future Group Its debt, which was in the region of Rs 700 crore until 2006, had shot up to over Rs 7,656 crore by 2010, and is currently at Rs 7,846 crore. Things began to go wrong in 2007, when Biyani commenced his aggressive expansion. The slowdown of 2008 came soon after and consumption fell sharply, crippling growth. The company registered a loss of Rs 7 crore in 2009-10 Biyani very sensibly got out of some of these failing businesses, he continued to sign up more properties and launch new stores I had to choose whether to sacrifice growth or go ahead and sign up properties by taking debt, Biyani says, defending his strategy. A host of businesses that have become a drag on profitability and are amplifying the financial pain for the group The biggest difference between Future and other retailers is that the latter were very cautious in its expansion plans and didnt overburden itself with too many loss-making businesses Despite the financial stress, Biyani has maintained he will continue to add another 2.5 million sq ft this year too. He defend his strategy by saying that I dont see any properties being available after two to three years Its debt-equity ratio stood at an uncomfortable 1:3 Several of the new formats, such as aLL, Fashion Station and Blue Sky, were failures.