How Reliance Retail became India’s biggest retailer
What makes Reliance Retail thrive when its peers struggle with thin margins? A deceptively simple formula: Take a cold, hard look at the business, pick segments that aren’t working, and shut them down.
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Soumya Gupta
13 Jun 2018
DHIRAJ SINGH/BLOOMBERG VIA GETTY IMAGES
How do you become India’s largest, most profitable retailer? It’s a question that has foxed most listed retailers in India, who struggle with thin margins or move at a snail’s pace.
Not if you are Reliance Retail.
The country’s largest retailer has taken merely 12 years to leave its competitors behind. Despite a large revenue base of INR69,000 crore in FY17-18, the company has been growing at a scorching speed seen only in new, smaller businesses. In the quarter ended March 2018, Reliance Retail’s revenues were up 134%, and profit before interest and tax (PBIT) rose a whopping 291%. What helped Reliance Retail reach the top and keep growing at this unheard-of pace? A close look at its financial statements and assorted legal documents reveals that the formula is pretty simple: focus. The company did not respond to ET Prime's e-mailed request for comment.
In 2006, when Mukesh Ambani had begun his retail foray, Reliance Industries (RIL) ventured into several lines of businesses. Apart from recognisable retail formats such as apparel chain Reliance Trends, grocery chain Reliance Fresh, and hypermarket Reliance Smart, RIL had set up separate entities for several other formats. A sample below, sourced from the company’s amalgamation scheme filings before the Bombay High Court, shows the diversity.
Reliance Autozone: A one-stop shop for automotive products and car-care services, from entry-level to premium-level cars.
Reliance Replay Gaming: Gaming and entertainment offerings.
Reliance Home Store: Sourcing and selling furniture, fixtures, household items, and gadgets under the brands Reliance Living Furnishing, Reliance Living Homeware, and Reliance Home Kitchen.
But Reliance Retail’s category mix looks very different today. Over the last 10-12 years, through a series of restructuring exercises, it has whittled down its focus to three booming businesses — apparel, electronics, and grocery. Down with the unprofitable
When it started out with retail in 2006, RIL first focused on what it knew best — oil. It went about setting up petrol pumps across the country to compete with state-owned oil-marketing companies such as Indian Oil and Bharat Petroleum.
Over the next couple of years, it branched out into new segments via subsidiaries, as noted above. ET Prime could not come up with a definite count, but there were 10-15 such entities that were either new retail formats or housed support functions for the existing ones.
After the retail foray, RIL restructured its business twice — in 2011 and then in 2013.
In 2011, it merged nine retail entities with Reliance Fresh, which runs the grocery-chains business. While some of these entities ran supply and support functions for the grocery-retail business, others were specialty formats. These included beauty-products chain Reliance Wellness and Reliance Home Store — both were subsumed into the much larger grocery business by 2011, after the merger proposal was approved by the Bombay High Court. That laid the ground for the company to exit both businesses in the next couple of years.
Similarly, in 2013, RIL merged its bookstore chain Timeout (Reliance Leisures) and Reliance Autozone again with Reliance Fresh. Soon enough, the company shut both businesses.
This reflects a sound (and unemotional) business philosophy — take a hard look at businesses, identify segments that aren’t working, and exit them. And the results have been remarkable:
After the first restructuring exercise in 2011, Reliance Fresh posted a loss of INR273 crore.
By FY14, it had beenrenamed Reliance Retail and was registering a profit of INR272 crore.
"Each product area and retail format has its own dynamics. For instance, food and grocery are a large portion of India’s consumption basket but offer thin margins and need to be handled efficiently," says Devangshu Dutta, founder of retail-consultancy firm Third Eyesight.
"Fashion offers higher gross margins, but has a slower stock-turn and also needs more merchandising inputs. Furnishings — especially private label — can offer very rich gross margin, but are much slower moving and require significant inventory and space to create a credible experience," he adds.
The apparel playbook
At present, Reliance Retail lists only its larger formats as part of the business. This includes shoe retailer Reliance Footpint360, jewellery-store chain Reliance Jewels, and a whole host of new apparel businesses, including Project Eve and e-commerce venture AJIO.com.
Clearly, RIL placed its bets on the businesses it knew would do well. Which is why it dominates apparel retail with not just its own retail formats and the private labels sold there, but a large array of foreign premium and luxury brands for which it has licences in India. At present, there are 24 brands, including the UK major Marks & Spencer and iconic Italian brands Diesel and Gas. It has also brought to India the Japanese brand Muji, which sells stationery and household items in addition to apparel.
Reallocating investments from loss-making categories to better prospects like apparel would have helped RIL expand its reach in this line of business. As it stands today, its apparel business stretches from “value” formats like Trends to the priciest foreign wear like men’s formalwear brand Ermenegildo Zegna. No other retailer can claim to serve so many consumer segments.
The success of this approach is reflected in Reliance Retail’s standing against other retailers in India. Although they all bet on the same businesses — apparel, electronics, and grocery — peers don’t match the scale and growth rate that Reliance Retail has been able to achieve. The trusted lieutenants
Manoj Modi, known as Ambani’s “right-hand man”, has led most of RIL’s leading projects and is a director on the board of Reliance Retail apart from Reliance Jio. On LinkedIn, Modi identifies himself as CEO of Reliance Retail, while Subramaniam V, another long-time executive at RIL, is managing director and a wholetime director. Subramaniam also serves as additional director of Reliance Brands and managing director of Reliance Retail Ventures.
Gaurav Jain heads strategy and business development for Reliance Retail. He has been with the business since 2005, even before it formally launched operations.
Besides, there are CEOs or heads of the various lines of business in Reliance Retail. Most well-known among them are Damodar Mall, CEO of grocery retail, and Darshan Mehta, CEO of Reliance Brands. Others in the retail leadership team include (designations according to LinkedIn and retail-conference profiles):
Akhilesh Prasad: CEO, Reliance Trends
Brian Bade: CEO, Reliance Digital
Sunil Nayak: CEO, Reliance Jewels
John Wilcox: CEO, Reliance Market
Gopalakrishnan Sankar: CEO, Reliance Footprint
Kaushal Nevrekar: chief merchandising officer, Reliance Digital
However, who this council of CEOs reports to could not be ascertained, especially since some of these business verticals are held in their own subsidiary while others, like Reliance Digital and Reliance Footprint, are subsumed into other entities.
With great growth comes great powers
With Reliance Retail’s rising clout in RIL’s empire, Mukesh Ambani has taken special interest in it. "FY 2017-18 turned out to be a watershed year in the history of Reliance," Ambani wrote in his letter to shareholders in the FY18 annual report. "Our new-age consumer businesses achieved leadership positions nationally —their growth rates [are] outpacing the best in the world. Jio, now the world’s largest and fastest-growing mobile data network, stunned the world and made us proud by turning profitable in the very first year of operations. Reliance Retail is the only Indian retailer to rank among the world’s Top 200 global retail chains," he said.
"Our aim is to have the consumer businesses contribute on [a] par with the energy and materials business over the next decade, when we celebrate our golden jubilee."
Your move, rival retailers.
(Clarification: The second graphic in the story contained some data errors. We have corrected this.)
What makes Reliance Retail thrive when its peers struggle with thin margins? A deceptively simple formula: Take a cold, hard look at the business, pick segments that aren’t working, and shut them down.
Share Gift this article
Soumya Gupta
13 Jun 2018
DHIRAJ SINGH/BLOOMBERG VIA GETTY IMAGES
How do you become India’s largest, most profitable retailer? It’s a question that has foxed most listed retailers in India, who struggle with thin margins or move at a snail’s pace.
Not if you are Reliance Retail.
The country’s largest retailer has taken merely 12 years to leave its competitors behind. Despite a large revenue base of INR69,000 crore in FY17-18, the company has been growing at a scorching speed seen only in new, smaller businesses. In the quarter ended March 2018, Reliance Retail’s revenues were up 134%, and profit before interest and tax (PBIT) rose a whopping 291%. What helped Reliance Retail reach the top and keep growing at this unheard-of pace? A close look at its financial statements and assorted legal documents reveals that the formula is pretty simple: focus. The company did not respond to ET Prime's e-mailed request for comment.
In 2006, when Mukesh Ambani had begun his retail foray, Reliance Industries (RIL) ventured into several lines of businesses. Apart from recognisable retail formats such as apparel chain Reliance Trends, grocery chain Reliance Fresh, and hypermarket Reliance Smart, RIL had set up separate entities for several other formats. A sample below, sourced from the company’s amalgamation scheme filings before the Bombay High Court, shows the diversity.
Reliance Autozone: A one-stop shop for automotive products and car-care services, from entry-level to premium-level cars.
Reliance Replay Gaming: Gaming and entertainment offerings.
Reliance Home Store: Sourcing and selling furniture, fixtures, household items, and gadgets under the brands Reliance Living Furnishing, Reliance Living Homeware, and Reliance Home Kitchen.
But Reliance Retail’s category mix looks very different today. Over the last 10-12 years, through a series of restructuring exercises, it has whittled down its focus to three booming businesses — apparel, electronics, and grocery. Down with the unprofitable
When it started out with retail in 2006, RIL first focused on what it knew best — oil. It went about setting up petrol pumps across the country to compete with state-owned oil-marketing companies such as Indian Oil and Bharat Petroleum.
Over the next couple of years, it branched out into new segments via subsidiaries, as noted above. ET Prime could not come up with a definite count, but there were 10-15 such entities that were either new retail formats or housed support functions for the existing ones.
After the retail foray, RIL restructured its business twice — in 2011 and then in 2013.
In 2011, it merged nine retail entities with Reliance Fresh, which runs the grocery-chains business. While some of these entities ran supply and support functions for the grocery-retail business, others were specialty formats. These included beauty-products chain Reliance Wellness and Reliance Home Store — both were subsumed into the much larger grocery business by 2011, after the merger proposal was approved by the Bombay High Court. That laid the ground for the company to exit both businesses in the next couple of years.
Similarly, in 2013, RIL merged its bookstore chain Timeout (Reliance Leisures) and Reliance Autozone again with Reliance Fresh. Soon enough, the company shut both businesses.
This reflects a sound (and unemotional) business philosophy — take a hard look at businesses, identify segments that aren’t working, and exit them. And the results have been remarkable:
After the first restructuring exercise in 2011, Reliance Fresh posted a loss of INR273 crore.
By FY14, it had beenrenamed Reliance Retail and was registering a profit of INR272 crore.
"Each product area and retail format has its own dynamics. For instance, food and grocery are a large portion of India’s consumption basket but offer thin margins and need to be handled efficiently," says Devangshu Dutta, founder of retail-consultancy firm Third Eyesight.
"Fashion offers higher gross margins, but has a slower stock-turn and also needs more merchandising inputs. Furnishings — especially private label — can offer very rich gross margin, but are much slower moving and require significant inventory and space to create a credible experience," he adds.
The apparel playbook
At present, Reliance Retail lists only its larger formats as part of the business. This includes shoe retailer Reliance Footpint360, jewellery-store chain Reliance Jewels, and a whole host of new apparel businesses, including Project Eve and e-commerce venture AJIO.com.
Clearly, RIL placed its bets on the businesses it knew would do well. Which is why it dominates apparel retail with not just its own retail formats and the private labels sold there, but a large array of foreign premium and luxury brands for which it has licences in India. At present, there are 24 brands, including the UK major Marks & Spencer and iconic Italian brands Diesel and Gas. It has also brought to India the Japanese brand Muji, which sells stationery and household items in addition to apparel.
Reallocating investments from loss-making categories to better prospects like apparel would have helped RIL expand its reach in this line of business. As it stands today, its apparel business stretches from “value” formats like Trends to the priciest foreign wear like men’s formalwear brand Ermenegildo Zegna. No other retailer can claim to serve so many consumer segments.
The success of this approach is reflected in Reliance Retail’s standing against other retailers in India. Although they all bet on the same businesses — apparel, electronics, and grocery — peers don’t match the scale and growth rate that Reliance Retail has been able to achieve. The trusted lieutenants
Manoj Modi, known as Ambani’s “right-hand man”, has led most of RIL’s leading projects and is a director on the board of Reliance Retail apart from Reliance Jio. On LinkedIn, Modi identifies himself as CEO of Reliance Retail, while Subramaniam V, another long-time executive at RIL, is managing director and a wholetime director. Subramaniam also serves as additional director of Reliance Brands and managing director of Reliance Retail Ventures.
Gaurav Jain heads strategy and business development for Reliance Retail. He has been with the business since 2005, even before it formally launched operations.
Besides, there are CEOs or heads of the various lines of business in Reliance Retail. Most well-known among them are Damodar Mall, CEO of grocery retail, and Darshan Mehta, CEO of Reliance Brands. Others in the retail leadership team include (designations according to LinkedIn and retail-conference profiles):
Akhilesh Prasad: CEO, Reliance Trends
Brian Bade: CEO, Reliance Digital
Sunil Nayak: CEO, Reliance Jewels
John Wilcox: CEO, Reliance Market
Gopalakrishnan Sankar: CEO, Reliance Footprint
Kaushal Nevrekar: chief merchandising officer, Reliance Digital
However, who this council of CEOs reports to could not be ascertained, especially since some of these business verticals are held in their own subsidiary while others, like Reliance Digital and Reliance Footprint, are subsumed into other entities.
With great growth comes great powers
With Reliance Retail’s rising clout in RIL’s empire, Mukesh Ambani has taken special interest in it. "FY 2017-18 turned out to be a watershed year in the history of Reliance," Ambani wrote in his letter to shareholders in the FY18 annual report. "Our new-age consumer businesses achieved leadership positions nationally —their growth rates [are] outpacing the best in the world. Jio, now the world’s largest and fastest-growing mobile data network, stunned the world and made us proud by turning profitable in the very first year of operations. Reliance Retail is the only Indian retailer to rank among the world’s Top 200 global retail chains," he said.
"Our aim is to have the consumer businesses contribute on [a] par with the energy and materials business over the next decade, when we celebrate our golden jubilee."
Your move, rival retailers.
(Clarification: The second graphic in the story contained some data errors. We have corrected this.)
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