Retail Roundup

The spectacular collapse of Subhiksha underscores the endemic troubles of the entire organised retail sector in arranging money to carry on its business. Debt, as a form of funding both working capital and expansion, has dried up. And, even in these times of dire need for money, no retail company has the courage to enter the capital market for fresh equity. All retailers are stymied by the fund scarcity, but the big companies, such as Pantaloons, still can manage to raise some money from banks. The small ones are completely left to fend for themselves, scraping the bottom of the barrel of internal accruals to somehow survive. Subhiksha, couldn’t even do that, though it was not a small retailer. Jay Gupta, managing director of the discount retail chain, The Loot, a relatively small operation, complains that banks are willing to fund retail companies only against collaterals. Self-funding a running business with internal accruals is difficult, since goods are not moving off the shop shelves. Gupta says a number of retail companies are stuck with huge inventories. Spencer’s, one the oldest retail chains, has to make do with internal accruals. “We don’t get any funding from banks,” said a senior official of the chain, whose spokesperson, however, refused to comment. Banks wouldn’t touch start-ups and are generally unsure of the revenues that a running retail company can generate to be able to service loans. A senior officer of the State Bank of India (SBI), a big lender to the sector, explained: “Most retail chains,
including the established ones, have mothballed their expansion. Credit projections of many chains have to be scaled back. Not certain of the revenues that existing businesses can earn, banks are wary of lending.” Even real estate prices haven’t helped. Many retailers bought, leased or rented space at high costs. Some of them are trying to renegotiate the rentals and lease deals. Rented space is a double-edged weapon. Big chains that have rented out space for shops-within-shops are themselves facing renegotiation pressures to beat down the rentals.
All this, say analysts, is bound to impact the profitability of companies in the retail business. A recent Macquarie research report, which mentioned the difficulties in finding credit or fresh capital, said, “These have resulted in companies having to curtail their over ambitious store rollout plans.” The report said Pantaloons’ operations could support growth of around 1-2 million sq ft every year with limited funding. But Shoppers Stop would not be able to expand without external funds, it said. Pantaloons admitted that it would not be able to meet the projected target of 140 Big Bazaar stores by the end of June, against 108 now. “Expansion is happening selectively across formats and wherever feasible,” said an official of the chain, who also blamed it on developers who were not delivering constructed space on time.