Restructuring Pantaloon Retail: The 'Future Group' Initiative

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Case Details:

Case Code : BSTR227
Case Length : 18 Pages
Period : 2004-2006
Organization : Pantaloon Retail (India) Limited / Future Group
Pub Date : 2006
Teaching Note : Available
Countries : India
Retail

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A New Identity Contd...

Analysts felt that Biyani had restructured the Pantaloon group under a new identity in order to consolidate the group's leadership position and diversify into new growth areas in the Indian retail. Moreover, the attitudes and preferences of Indian consumers were changing, thanks to the increase in their disposable incomes and exposure to global products and trends.

The growth outlook for the Indian retail sector was positive given the estimated 300 million⁶ strong middle class, a fairly young population⁷, and organized retailing constituting just three percent of the total retail business in India. Commenting on the drivers for growth in the Indian retail sector, Biyani said,

"I believe that consumption will be the next big driver of India's economic growth. Rising incomes and increased exposure to global products and global consumption patterns have changed the average Indian's attitude towards consumption and savings. Increased and channelized consumption would lead to the development of the nation through improved and better infrastructure facilities, greater employment generation possibilities will emerge with increased consumption, leading to people wanting to spend more on themselves. This cycle is what will fuel the consumption boom in the country."⁸

Biyani realized that the company had to shed its previous image of being just a fashion and food retailer, if it wanted to tap the potential in diverse areas like home solutions, leisure & entertainment, fitness, communications, and financial services. However, some industry analysts said that the Future Group would have a tough task ahead due to competition from other organized retail players like Shoppers' Stop⁹, Trent Ltd.¹⁰, and FoodWorld¹¹. In June 2006, Reliance Retail Limited, a retail venture of Reliance Industries Limited¹², had announced ambitious plans to become the leading player in the Indian retail sector.

There was also the likely threat from international retail giants like Wal-Mart Stores Inc.¹³ (Wal-Mart), Carrefour SA¹⁴, and Tesco Plc¹⁵, if the sector was opened up to foreign investment.

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6] "President's Radio Address,"www.whitehouse.gov, March 04, 2006.

7] A 2001 census estimated that 45 percent of the population was under the age of 20, and 70 percent under the age of 35. (Source: Amelia Gentleman, "The I, Me, My Generation: A Buyers' Market,"January 26, 2006.)

8] "Interview - Pantaloon,"http://fibre2fashion.com, May 26, 2006.

9] Shoppers' stop, the retailing venture of the K. Raheja Corp. group of companies, was established in 1991. It is one of the pioneers of large format retail stores in India. For the financial year ended March 2005, Shoppers' Stop recorded gross retail revenues of Rs 5.1 billion. As of June 2006, Shoppers' Stop operated around 20 stores across 10 Indian cities.

10] Trent Ltd., the retail venture of the Tata Group, recorded revenues of Rs 2.46 billion for FY 2004-05 and operated 21 stores in India. It was established in 1998, and operates the Westside chain of retail stores.

11] FoodWorld is an organized retail venture of the RPG group. As of 2005, FoodWorld operated 80 stores across 12 cities in Southern and Western India.

12] Reliance Industries Limited is the flagship company of the Reliance Group, India's largest private sector enterprise. The Group has interests in exploration and production of oil and gas, petroleum refining and marketing, petrochemicals (polyester, fibre intermediates, plastics and chemicals) and textiles. As of 2006, the group had revenues of around US$ 20 billion. (Source: www.ril.com).

13] Wal-Mart Stores Inc. is the largest retailer in the world and is based in Bentonville, Arkansas, USA. For the year ended January 2006, Wal-Mart had revenues of US$ 315.65 billion and a net income of US$ 11.23 billion. (Source: http://finance.google.com).

14] Carrefour SA is a French retail group that operates a network of hypermarkets, supermarkets, discount stores, convenience stores and cash-and-carry outlets. For the year ended December 2005, Carrefour had revenues of 74.49 billion euros and a net income of 1.58 billion euros. (Source: http://finance.google.com).

15] Tesco Plc., is the largest retailer in the UK. For the year ended February 2006, the group's sales were 57.93 billion euros and a net income of 2.31 billion euros. (Source: www.hoovers.com).