After rapid expansion, Mahindra Retail to shut 10% of its stores3 min read . Updated: 07 Aug 2013, 12:27 AM IST
Mahindra is struggling to raise funds and has seen seven senior executives quit over the past six months
Bangalore/Mumbai: Mahindra Retail Pvt. Ltd plans to shut more than 10 stores and cut costs after an ambitious expansion drive led to rapid cash burn and losses.
The retailer—which sells specialty children and maternity products including apparel, toys and wellness items at the Mom & Me and Beanstalk chains—is also struggling to raise funds and has seen seven senior executives quit over the past six months, two people familiar with the matter said.
Mahindra Retail will shut at least 10% of its stores before the end of the year, one of them said. The firm has over 115 stores.
The senior executives who left the company in recent months are: Deepinder Kapany, who was heading the Beanstalk chain; chief operating officer Johhny John; marketing head Dhananjay Chithathoor; Srikanth Suri, general manager, human resources; Rajesh Syal, a senior operations executive; apparel head Lisa Pinto; and D.J. Ramdas, head of non-apparel products, the people cited above said.
“These people were paid very high salaries, so it helps Mahindra to save costs," the first person cited above said.
Mint couldn’t reach the executives for comment.
Mahindra Retail declined to comment on the specifics of the store closures but chief executive K. Venkataraman said in an emailed statement, “Retail Industry is cutting costs as a rule everywhere, and Mahindra Retail too does where we deem fit. Closure of non-performing stores, and some churn in management are unavoidable realities of the business, much as new stores and new management replace the lost ones."
Mahindra Retail is the latest cautionary example of a well-funded retailer that expanded too soon too fast to capture the rising demand. Kidswear retailers Lilliput Kidswear Ltd and Gini and Jony Ltd as well as others such as Koutons Retail India Ltd were all forced to cut back significantly over the past two years after finding themselves with a bloated store base and hundreds in crores of losses.
Over the past year, even the more successful retailers such as Shoppers Stop Ltd and Lifestyle International Pvt. Ltd have seen a drop in growth as a weak economy and high inflation hurt demand on the one hand and rising rental costs and wages dented margins on the other.
The market for kids products—estimated to be around $11.8 billion, according to a report by RNCOS E-Services Pvt. Ltd—is almost entirely unorganized and companies have found it notoriously difficult to build a profitable business in this niche.
Backed by the deep pockets of the Mahindra Group, Mahindra Retail started in 2009 and expanded to over 115 stores earlier this year. The company initially opened stores as large as 7,000-10,000 sq. ft. Now, a majority of its stores are around 3,000 sq. ft.
Its management led by Venkataraman set a target of $1 billion in revenue and opening hundreds of stores.
“The plans were very ambitious but it was like pie in the sky. The real estate costs themselves were as high as 30% of the revenue and a few stores were burning ₹ 1 crore every year. There were no systems and processes put in place to back up the expansion," the second person cited above said. “The management was given a lot of autonomy. There was practically no interference from the group side. They were showed ambitious targets and they went along with it. But it didn’t make business sense to expand so fast," the person said.
This person said Mahindra Retail lost over ₹ 75 crore in cash last year on revenue of nearly ₹ 200 crore. Mint couldn’t independently verify the figures.
The two sources also said Mahindra Retail had held talks with Reliance Group and Premji Invest to sell a stake but the talks did not lead to a deal.
“The demand is definitely there though kidswear is the least organized category. But the challenge is getting the product assortment right considering the relatively higher number of SKUs (stock keeping units), picking the right locations, negotiating the appropriate rentals, etc.," said Raghav Gupta, principal, consumer and retail, at Booz & Co.
Premji Invest declined to comment. An email sent to Reliance remained unanswered.
Mahindra Retail’s Venkataraman said, “As a policy we do not share financial information, and discussions with PEs are confidential. However, discussions happen from time to time with interested parties on investments and funding as a matter of routine."