What exactly has gone wrong with the Future Group

Recently, the press has been rife about banks scouting for a buyer for the Future Group. The group floated by Kishor Biyani has run into a mountain of debt and the retail lockdown has only worsened matters for the Future group. To understand what went wrong, it is essential to see how they got there.

It happened in India

Just before the Lehman crisis blew up in the US, Kishor Biyani, the promoter of Future Group, had authored a book “It happened in India”. The analogy was hard to miss. In many ways, Biyani was considered the Indian equivalent of Sam Walton, founder of Wal-Mart, world’s largest retail group. It was always Biyani’s dream to create an Indian version of Wal-Mart and the book was Biyani’s tribute to the man and the company he wanted to replicate. The title was clearly based on Sam Walton’s original book, “It happened in America” a literal treatise on the US retail growth story and the consumption boom. Biyani fancied the Indian economy and himself on the same cusp as the US was 50 years ago. Between 2000 and 2007, the valuation of the Future group had grown geometrically. Even the Lehman crisis did not really perturb the group. By late 2011, the Future group was back in action and its valuations had started growing. The group also got investors interested as it consciously adopted a sum-of-total-parts (SOTP) approach to unleash the real value of the stock.

Three things went wrong

What went wrong with the group that it ended up defaulting on its debts? There were 3 things that went awfully wrong for the Future group. Firstly, the original strategy of setting up stores in glitzy malls to attract footfalls wasn’t working. Rental costs were just adding up. It was D-Mart that was actually replicating Wal-Mart model by opting for owned stores in residential areas. Secondly, Future group underestimated the potential of ecommerce to disrupt their business model. Flipkart and Amazon sank billions of dollars into ecommerce and the glitzy mall model was looking more unviable by the day. Finally, a sharp spike in debt burden of the group came back to roost as defaults quickly dried up the funding sources for the group. COVID-19 was just the last straw on the camel’s back.

Rethinking the retail model

For the Future group, the clear mandate is to rethink its retail model. Clearly, the mall model had a degree of novelty but it did not deliver the profits. Amazon is seen as a likely investor in Future group and that could be a blessing for the group. It gets the backing of a global name, a formidable ecommerce engine and can leverage its own customer insights and customer data. The 20-year old retail model is not working. Retailers need to go to the customer; either online or offline. That is the only way Future Group can have another go!