Bangalore/Mumbai: Mahindra and Mahindra Ltd has changed the chief executive of Mahindra Retail Pvt. Ltd, which runs the Mom and Me and Beanstalk chain stores, after the kids wear retailer went on an expansion spree for several years that led to hundreds of crore in losses.

Mahindra has brought in Prakash Wakankar from its private equity arm Mahindra Partners to replace K. Venkataraman as CEO at Mahindra Retail. Wakankar is a former CEO of the Indian business of confectionery maker Perfetti Van Melle and also headed Mahindra Holidays and Resorts in a brief stint more than a decade ago.

Venkataraman, who started the Mahindra Retail business more than five years ago, will take on a role at Mahindra Partners, said Mahindra Retail chairman Zhooben Bhiwandiwala.

After starting out in 2009, Mahindra Retail expanded rapidly to more than 140 stores only to realize that demand was not nearly as strong as the company expected even as it over shot its cost budget every year. For instance, real estate costs accounted for as much as 25-30% of sales, according to two people familiar with the matter. That is roughly double of what many retailers pay for rent.

For the year ended March 2013, Mahindra Retail reported a loss of 114.1 crore on sales of 196.7 crore, according to documents with the Registrar of Companies.

Mahindra Retail will now franchise stores rather than spend its money on opening outlets, increase online sales through Flipkart, Amazon and others, improve its products and merchandising, Mahindra’s Bhiwandiwala said.

“The past few years have been difficult for Mahindra Retail, but now we have a clear strategy in place and we hope to do better," Bhiwandiwala said.

He said that because of the company’s decision to franchise stores it will spend significantly lesser money over the next 15 months than what it has had to spend so far.

“Capex (capital expenditure) requirements will be much, much lower over the next 12-15 months. We will need to make large investments only after that," Bhiwandiwala said.

Last year, the company shut roughly 10% of its stores and lost most of its senior executives, some of whom left due to differences with Venkataraman, the two people cited above said on condition of anonymity.

Despite shutting stores, Mahindra was forced to pump in as much as 200 crore over the past 18 months to keep the business afloat, documents with the Registrar of Companies showed. Mahindra hired McKinsey and Co. last year to help it turnaround the ailing retail business.

Retail consultant Technopak Advisors Pvt Ltd and IDBI Trusteeship Services Ltd own minority stakes in Mahindra Retail. Mahindra tried to rope in PremjiInvest and Reliance Group as investors, but both firms declined to put in money in Mahindra Retail after looking at its books, Mint reported last year.

Selling kids’ products has been a difficult business. Companies like Lilliput Kidswear and Gini and Jony were forced to shut most of their stores over the past few years after finding themselves with a bloated store base and hundreds of crores in losses.

According to Harminder Sahni, managing director at Wazir Advisors, a retail and consumer products consultancy, “There’s still scope to build a large profitable business in the kids products market. There’s enough demand for premium products, especially for gifting purposes, and there’s a lack of brands. Apart from Mothercare, there are mostly regional brands so there’s enough opportunity for more national brands."

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