What businesses can learn from Kishore Biyani’s inglorious exit

Earlier this week, Biyani resigned as the Executive Chairman and Director of Future Retail Limited, which is a part of the 19 Future group companies operating in the retail, wholesale, logistics and warehousing spaces. In his letter tended to the Board of FRL as well as the resolution professional who is currently managing the company after it was put into the insolvency process by its creditors, Biyani claimed the company was facing insolvency resolution process as a "result of unfortunate business situation" (sic). “I have to accept reality and move on," he added in the letter, a copy of which was also submitted to the exchanges where the FRL stock is listed.

The first statement is technically correct, but does not tell the full story of how Biyani’s retail empire came to this pass. While the final nail in the coffin may have been driven in by Covid restrictions, which led to non-essential businesses – including his large format stores – remaining shut for months, the real reason is the mountain of debt the group had taken on in order to fund both its expansion as well as diversifications into a bewildering array of related and unrelated businesses, including financial products and insurance.

At last count, Biyani owed lenders over ₹15,000 crore, over ₹7,000 crore to vendors and landlords, and around ₹2,000 crore to employees and other “unsecured creditors". These debts were accumulated years before the pandemic struck.

The second statement is simply restating the obvious. Biyani had no option but to exit. After all, he was no longer in control of the company’s operations, which had passed into the hands of the court-appointed resolution professional. He had already lost control of a bulk of his stores located in premium locations to Reliance Retail. In 2020, lenders had shot down Reliance’s ₹24,713 crore bid to acquire Future Group’s retail and wholesale business as well as its logistics and warehousing business. The deal would have given Reliance Retail control over 1,800 stores spread across Future Group's Big Bazaar, Fashion Big Bazaar, Easyday, Central and Foodhall branded stores spread across the county.

That deal was separately blocked by lenders, as well as by online retail giant Amazon, which claimed the under the terms of its ₹1,400 crore investment in Future Coupons – listed as one of promoters of Future Retail – Future could not sell retail its retail assets to certain specified companies, including Reliance. With Reliance eventually withdrawing its bid over valuations, Biyani struggled to keep operations going. This included a side deal with Reliance to sub-lease some stores. Reliance pulled the plug on this last year, citing default in lease payments to take over hundreds of Future Group stores.

How did Biyani, who had earned the sobriquet of “India’s Sam Walton" after his retail successes, and who had managed to stave off – at least in the first round – challenges mounted by India’s largest business houses, including Aditya Birla Group, the Tatas and even Reliance in its first foray into retail, and at one stage had even acquired Walmart’s joint-venture retail foray in India, Easy Day stores, come to this pass?

The short answer is hubris, the belief that one could keep all the plates one was juggling up in the air indefinitely. Consider what Biyani was trying to do when the pandemic struck. He was continuing to expand at dizzying speed, and had reached more than 420 cities with his network. He had acquired a whole lot of smaller and regional retailers – apart from Bharti Retail’s Easy Day business, he had also acquired Chennai’s niche retailer Nilgiri’s, and Bengaluru retailer Heritage Fresh. He had also launched a gourmet foods retail brand, Foodhall, bought over Delhi’s upmarket world grocery and gourmet food retailer La Marche, a property retail business E Zone, Raheja’s Hypercity malls, and started an insurance arm with Italian insurer Generali.

At the same time, he was trying to develop his private label apparel and consumer goods brands into full fledged consumer businesses, and had created a food park to backwardly integrate with his private label food and grocery brands. After selling off his original launchpad – Pantaloon Retail – to Aditya Birla Fashion in 2012, Biyani had once again forayed into high end fashion retail with Fashion Big Bazaar. Other diversifications included forays into films, and an out-of-home and point-of-sale media business. He had also tied up with the government-owned National Textile Corporation to build two apparel parks, one for women’s wear and another for children’s clothes.

This was an extraordinarily diverse and difficult set of businesses to manage. Add to this the fact that almost all of this was debt-funded, and at a time when e-commerce giants Flipkart and Amazon were eating into his core retail business. Add to this poor communications with lenders, an inability to retain talent – Future alums include big names in retail like Renuka Ramnath and Damodar Mall – and it was a recipie for disaster.

With his exit – if lenders allow it – Biyani will join the likes of Jet Airways’ Naresh Goyal and those businessmen who will be remembered, not for the empires that they built, but the value that they destroyed.