How Big Bazaar Turned ₹26,000 Cr to Zero | Unravelled

Unravelled by Shankar

26 Jan 202415:44

Summary

TLDRThe script narrates the downfall of Big Bazaar, once India's leading retail chain, from a market cap of Rs. 26,000 crores to near bankruptcy due to debt. It details the strategic battle between Amazon and Reliance Retail over Future Retail's assets, culminating in Reliance's acquisition and rebranding of Big Bazaar stores. The story also contrasts Big Bazaar's deep discounting model with D-mart's sustainable retail strategy, highlighting the importance of unit economics and debt management in retail success.

Takeaways

📉 Future Retail, owner of Big Bazaar, faced bankruptcy in 2020 with debts exceeding 25,000 crores to banks and vendors.
🛍️ Mukesh Ambani's Reliance Retail attempted to acquire Future Retail for 24,000 crores, aiming to strengthen its retail presence in India.
📚 Amazon objected to the Reliance-Future deal, citing a prior agreement that gave it the first right of refusal to purchase Future Retail shares.
🏪 Reliance circumvented the acquisition impasse by leasing properties to Future Retail and later rebranding them as Reliance stores after a rent default claim.
🛑 Amazon was left with legal battles over an asset that no longer existed, as Reliance swiftly took over Big Bazaar outlets.
👔 Kishore Biyani, known as the father of modern retail in India, started with Pantaloons and expanded to Big Bazaar, aiming to capture a larger consumer spend.
🎉 Big Bazaar's strategy included deep discounting and high sales volumes, which attracted customers but operated on thin profit margins.
📈 Future Retail's rapid expansion was funded by heavy borrowing, leading to a significant debt burden that became unsustainable.
🚫 The COVID-19 pandemic disrupted Future Retail's operations, causing a complete halt in revenue while debts continued to accumulate.
💡 D-mart, a competitor, succeeded with a different model, focusing on owning properties, efficient inventory management, and quick vendor payments.
💸 D-mart's strategy of asset ownership and low debt resulted in higher operating profit margins compared to Big Bazaar and Reliance Retail.

Q & A

What was the market cap of BigBazaar before it faced financial difficulties?
-The market cap of BigBazaar before facing financial difficulties was Rs. 26,000 crores.
Why was Future Retail on the verge of bankruptcy in 2020?
-Future Retail was on the verge of bankruptcy in 2020 because it was unable to pay its dues of over 19,000 crores to the bank and 6,000 crores to the vendors.
What was the initial offer made by Mukesh Ambani's Reliance Retail to Future Retail?
-Mukesh Ambani's Reliance Retail initially offered to buy out Future Retail for Rs. 24,000 crores.
Why did Amazon object to the deal between Reliance Retail and Future Retail?
-Amazon objected to the deal because in 2019, they had acquired a 49% stake in Future Coupons, which included a clause giving Amazon the first right of refusal to purchase more stake in Future Retail.
How did Reliance Retail circumvent the legal battle with Amazon over Future Retail?
-Reliance Retail circumvented the legal battle by leasing the properties from landlords and then sub-leasing them back to Future Retail, effectively becoming the landlord for Future Retail's stores.
What was the strategy behind Reliance Retail's termination of the lease agreement with Future Retail?
-Reliance Retail terminated the lease agreement with Future Retail on the grounds of default in rent payment, which allowed them to re-brand the stores as Reliance Retail stores, effectively removing the subject of the legal battle.
What was the business model of Future Retail that led to its downfall?
-The business model of Future Retail involved renting properties for its outlets and operating on razor-thin profit margins with a heavy reliance on economies of scale. This led to a high level of debt, which became unsustainable.
How did the COVID-19 pandemic impact Future Retail's financial situation?
-The COVID-19 pandemic led to strict lockdowns, causing the closure of stores and a complete halt in sales, while the debt and interest continued to accumulate, exacerbating Future Retail's financial crisis.
What is the key difference between Big Bazaar and D-mart in terms of property ownership?
-Big Bazaar rented properties for its outlets, whereas D-mart owns the properties where it operates its stores, which resulted in lower operating costs and no rent-related financial strain for D-mart.
How did D-mart manage to maintain a debt-free status while expanding its retail chain?
-D-mart maintained a debt-free status by focusing on profitable unit economics, owning the properties where it operates, and ensuring high inventory turnover rates, which allowed it to grow using profits rather than debt.
What was the inventory turnover time for D-mart compared to Reliance Retail?
-D-mart had an inventory turnover time of just 148 days, significantly lower than Reliance Retail's 287 days, which contributed to its higher profitability and efficiency.