ANATOMY OF A

BUST
SUMAN SOURAV MOHAPATRA
ITM BUSINESS SCHOOL
 HISTORY
 Founder -- R. Subramaniam
 Education -- IIT Chennai & IIM-A alumnus
 First employed in Citibank, then Enfield &
Eicher
 After that he started his first company called
Viswapriya.
 Started chain of discount stores“Subhiksha”
(prosperity ) in 1997 in Chennai.
 The 1st venture was in grocery.
 Quickly, diversified into medicine, retail ,
mobiles as
 well.
 The USP of these stores were the discount
 The beginning ………….
 In the year 1997, Subhiksha opened its
first store at Thiruvanmiyoor in Chennai
with an investment of around Rs 4-5
lakh, with the theme,” why pay more
when you can get it for less at
Subhiksha”



  Subhiksha evolved a new format of retailing
which they proudly called as the Indian
format of retailing
 Value proposition that subhiksha offers are :-

 Convenience
 greater savings





 Negative factors :- they don’t have all the

brands present in the market
 DIFFERENT
VENTURES………..
 

 “We are a golden egg laying duck, we are in

trouble. We need their (bankers and lenders)
support and upon getting it we will restart
operations and repay all debt. It is not easy,
but we have to make it happen,” says R
Subramanian, Founder, Promoter, and
Managing Director of Subhiksha Trading
Services
 FROM LARGEST INDIAN
RETAILER



DOOM
 REASON - 1
UNMINDFUL EXPANSION


 Across states from South to West, N &

East
 Rapid store expansion.

 Rapid increase of personnel.

 From groceries and medicines to mobiles

& electronics ,consumer durables to IT.

 Huge investments & cash flows…..
 REASON :- 2
GROWTH WITHOUT CONSOLIDATION


 2004 marked & departure in Subhiksha

philosophy from consolidation &
growth to uncontrolled growth !
 Very few stores would have been
profitable in terms of cash flows.
 REASON :- 3
WITHER RETAIL MANAGEMENT


 The focus was towards multiplying

turnovers!
 Expansion happened without an eye to
principles in retail & customer
management.
 Staff service was doing badly and with
not enough care & stores lacked a
healthy appeal to customers.
 A Subhiksha store often looked like a
Govt. uniform pricing stores!
 REASON :- 4
 PROFIT & LOSS ? BALANCE SHEETS ?
CASH?
 Uncontrolled increase in store &
personnel were bleeding the Treasury.
 Turnover being the mantra, Subhiksha

worked on slim & zero margins, often

invoking the extreme anger of other
players in the market.
 Thus cash outflows were high where a

inflows in terms of margins were non

existent
 REASON :- 5
 MASTERING THE SUPPLY
 A Wal-Mart builds scale through
integrated supply chain, not by
being a re-seller!
 Downstream supply chain was not
integrated.
 Bulk buying is not a source of advantage.

 In effect, Subhiksha was being a reseller

buying products from vendors & selling

them at zero margins.
 REASON:- 6
MANAGING THE VENDORS


 Subhiksha tried to build scale on bulk

quality purchases from vendors & a
liberal credit term extended to them.
 Hardly “good” vendor management
 REASON :- 7
INVENTORY MANAGEMENT


 Credit defaults caused supply breakages.

 Hence it led to situations where either

there were huge store inventories

going bad…..….or the stores simply did
not have stocks!
 Inconsistency resulted in with store

franchise !
 Furthermore, uncontrolled practices like

reselling to other retailers made

companies squeeze supplies.
 Company started resorting to indiscipline

and unfaithful practices

 REASON :- 8
Adequate system control and IT


Support


 There was a huge Audit and abnormal

losses in the system. And when they
have started implementation of SAP the
time has gone for survival of
Subhiksha.



 REASON:- 9
MAINTAING THE HEALTH AND HYGIENE


NORMS
 Maharashtra FDA, the state government’s
regulatory authority for food and drugs,
had asked Subhiksha to suspend
operations of its warehouses at Bhiwandi
(Mumbai) for 20 days as well as had
cancelled licensees of three of its vendors,
charging that they had failed to
maintenance health and hygiene norms as
prescribed by the regulator.

 REASON:- 10
 BARGAINING POWER OF THE
SUPPLIERS
 wholesale suppliers in Azadpur subzi
mandi, or vegetables market, have
stopped supplying fruits and
vegetables to Subhiksha’s outlets in
the National Capital Region (NCR)
surrounding the national capital. This
comes in the wake of the company
holding up payments for two to six
months against normal credit period of
one month.
 REASON:- 11
LACK OF STRONG HR AND STAFF


POLICY


 Due to this Shubiksha was not able to

retain the talent which he initially bring
into Junior, Middle and high level
management. Whatever was remaining
with it is all family bound with no
commitment policy.

 REASON:- 12
 HUGE RENTAL AND LEASE BILLS


 They are paying huge rentals for these

stores which is a huge drain on the
company finances. There is no check in
these cost no doubt this is necessary
defeat competitors and bring
profitability in the future but it only
drove the operational cost to
unsustainable level
 REASON:- 13
 Venture in the mobile phone segment
 Wrong assumption that telecom segment

is a sound, and profit making segment.

Subhiksha stores always sell handsets
at below DP while its benchmarking is
to match DP. No control on inventory of
mobile accessories and there stock
value and were unable to circulate the
working capital.

 REASON:- 14
 Strong competition
 It has to compete with its high profile

competitors like RPG, Reliance retail

and Future group etc. Reliance Retail
has set up 700‐odd stores in the past
two years, almost at the rate of one
store per day.
 Future Group has begun opening a new

no‐frills discount retail chain called KB’s

Fair Price Stores, a format that is similar
in concept to Subhiksha stores.

 REASON :- 15
DISCOUNTS AS USP


 The only USP was discounts…hardly a

sustainable competitive edge!.
 Footfalls & Turnover being the guru
mantras: subhiksha never understood
its customers.
 To meet turnovers & targets, reselling it to
retailers & emptying their inventories.
 In effect, target pressures impacted the
USP since consumers choose to buy
outside the store since the store was
“sold out”.
 REASON :- 16
QUALITY OF GROUND LEVEL


 Personnel recruited to run operations

were locals.
 Tendency towards dishonest practices
in face of turnover pressure!
 Scored “own goals” by playing into
turnover traps.
 Quality of store service was bad,
adherence to rules of retail were
minimal
 REASONS :- 17
DIFFUSED FOCUS


 Subhiksha sold fresh vegetables,

medicines, groceries, mobile phones,
accessories & more….
 How robust was the business model &
manpower to handle such diversity ?
 REASON:- 18
OVER CONFIDENCE AND


AGRESSIVENESS


 Their over confidence and aggressiveness

are the main reasons for their loss.
They should have gone for an IPO when
the things were well and good to
prevent such downfall. If they had
responded in right time they wouldn’t
have been put through such bad
phases.
Vague messages in advertisements
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