Rakesh Biyani, who has been promoted from director to joint managing director from April 1, has been asked to take charge of the Rs 12,200-crore P&L account, ruthlessly hack costs, especially in supply-chain and distribution, and improve the profitability of each store.
Exactly a year ago, Kishore Biyani, CEO of Future group, had directed Rakesh and other family members to step back in order to give professional managers a free hand. Rakesh, who then withdrew into background roles, has now been running the show for a couple of months, say company sources.
The shift from professionals back to the family is being seen as a crisis-time measure at the retail giant, which manages 16.5 million sq ft of retail space across its myriad formats. At holding company Pantaloon Retail, about 60% of EBITDA is being eaten away by interest payments on a debt pile-up of almost Rs 5,000 crore.
For almost two years now, Kishore Biyani has been talking about wiping this out by diluting equity in core businesses and selling non-core units. But he has had little success.
Many of his grandiose plans in every corner of the retail ecosystem, including brands, private labels, media, logistics, real estate and retail financing, remain largely unrealised. With hopes of FDI in retail receding and fund-raising becoming harder, Rakesh has been given the task of easing a cash crunch by slashing costs.
EXPENDITURE TRIMMING NEEDED
Company sources say he has been asked to trim expenditure to at least match the Rs 150 crore plus quarterly interest outgo.
"A promoter family member is more capable to take big decisions compared to professionals during challenging times," says group HR head Sanjay Jog explaining Biyani's volte face.
Adds Sailesh Haribhakti, chairman and non-executive independent director on the board of Pantaloon Retail:
"I think it is fair to have the intellectual honesty to make corrections wherever necessary. Rakesh's mandate to focus on efficiency of operations will ensure that we have a solid run rate of cost reduction".
Already, the workforce is trimmer by 3,500 people or 9% of total employees; 12 exits in high-paying senior management jobs have not been replaced; a massive organisational restructuring to cut hierarchy levels between the customer and the CEO is underway; so is a product and brand review across categories to improve profit margins, and plans to slash distribution costs by a third are on course.
Pantaloon has also trimmed its geographical management spread from five zones to four and divided responsibilities among the remaining zones, thereby reducing people. There is now only one CEO of Future Value Retail, Sadashiv Nayak, who was earlier joint CEO along with Sanjeev Agarwal. The latter has quit.
Damodar Mall, director for integrated food strategy focuses on future businesses apart from overseeing Aadhaar, KB's Fair Price and food parks. Devendra Chawla, has taken over as CEO of the overall food business including buying and planning operations at Big Bazaar.
Kailash Bhatia, CEO of Pantaloon Retail has been given additional responsibility of fashion merchandise and apparels at Big Bazaar too. Rakesh Biyani now wants lesser number of professionals to deliver more.
But despite such large-scale, crisis-mode changes, two big concerns remain. First, the stock market is not convinced yet. The stock has dipped 41% in the last 12 months, when the BSE Sensex has gained 11%. (It has done better this calendar year though, gaining 25.7% when the Sensex just held its ground).
Second, there are no breakthroughs yet on plans to raise money. Though several deals are reportedly in the works, no cash has come in yet.
"I wouldn't fault Biyani for his inability to raise funds given the tough economic environment and regulatory issues, but he shouldn't have given guidance in terms of future plans," says Abneesh Roy, associate director (research) at Edelweiss Capital. "Investors would be happier if the company focused on getting its retail operations right in terms of better inventory management and improving sales of existing stores."
However, despite all the pressure, the Future Group is all clear on three vital indicators - salaries to employees, repayments to bankers and payments to vendors are all happening on time.
MAN ON A MISSION
Kishore Biyani is convinced Rakesh is the man for the turnaround. "The kind of strength that Rakesh brings to the table in terms of supply chain management and planning mechanisms is unmatched by even the professionals," he says.
Backed by a board diktat to cut costs, the group has initiated a big revamp of supply chain and logistics and manpower rationalisation. The younger Biyani is seen as the expert in the group in efficiently managing supply chain, distribution, merchandising and cost-cutting given his long years of experience in setting up stores right from scratch.
His mandate is to deliver benchmark profit margins across all formats. He has been asked to focus on inventory management, efficient sourcing, and recruiting new customers through product innovation and customisation.
Says Rakesh: "The fast pace of growth has not allowed us to consolidate our business to deliver optimum efficiency. Despite a lot of investment in improving our technology backbone, we were disappointed with the few key operations matrices. We realised we had delivered (only) incremental improvement in efficiency compared to our scale and investment."
He is rolling out large scale changes across formats - all aimed at conserving cash and improving profit margins. Future Value Retail-comprising 290 Big Bazaar and Food Bazaar stores account for 60% of the turnover of Pantaloon Retail. The division has now cut the tail end of its product range and increased shelf space for the best selling products.
"With vendor rationalisation we have reduced product lead times reducing our stock cover. Focus on product lifecycle management has increased product sell through," says Rakesh. Every product and brand is now being reviewed through the prism of profitability.
Says a leading analyst at a foreign brokerage research firm: "They are making all the right noises about cutting flab. But it is not as simple as that. The group has to change its DNA - it is imperative to get out of the expansion mode and face the recessionary mode."
Pantaloon has also consolidated various small distribution centres across the country into a few large one, thus saving space and money. For example, it collapsed 6 distribution centres with total 11 lakh sq feet of space into one 5 lakh sq ft centre at Nagpur. "We are on course to cut our distribution cost by 30% plus.
We are targeting a 12-14% increase in availability at our stores which could lead to additional 10% sales in next 12 months," Rakesh says. Without such savings, the group may slide into a financial crisis under the burden of its interest payments.
In the past, Biyani opened too many fronts - book retailing, electronics, sports, salons, apparel. Much of this was funded by debt. Revenues grew by over Rs 10,000 crore in five years, but its borrowings also increased from Rs 700 crore to almost Rs 5,000 crore. In other words, the company had to borrow roughly one rupee to generate every two rupees of annual revenues. Now it is struggling to service all that debt.
With additional inputs from Sagar Malviya