Recession is hitting the retail industry quite badly and Shubiksha has announced that it has closed 90 stores in the last 1 month.
“We were paying huge rentals for these stores, which was a huge drain on the company’s finances. This, coupled with less-than-expected footfalls, drove the operational costs to unsustainable levels.
High rental rates have always been the bone of contention for organized retail owners. The retailers had taken up space on rentals as high as Rs 250 per sq ft. “At one point of time, the retailers were paying close to 40 per cent of their operational cost as rent, leaving hardly any room for profits” – source
The retail industry has seen severe decline in consumption and it’s expected that there would be 20-30% cut in the growth rate.
Vicious circle of consumption!
I do not think they are hit by the recession but it due to their wrong business plan.
Shubiksha deals in FMCG and Deli(fruits and vegetables) only. The problem is all these have very low margin. And in the competitive world, other keep on cutting margins and some stores even going to the extent of using these as loss leaders.
Simple business sense tell, with low margin, you can not operate a business. Rather going to something which had more margin, shubiksha opted for mobile phones, again a product with low margins. In a business you need to have a margin of 10% to survive. If you are not able to make that, it is time to think of strategies, either to increase margins for the same line or to diversify.
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In a situation when so much competition around, subhiksha had performed a harakiri. The stores had no visual appeal / ambience, even worst than some nice pop and mom super stores. Also the staff was very ordinary with no knowledge of customer delight. to make things worst the shelfs are almost empty most time of the month.
The solution to all the above problems would be to open smaller stores with one category of FMCG products from various brands at discounted price. and let the consumers know the exact days on which these categories would be available. Better will be to manage stocks and ambience of the not so well doing but known pop and mom shops. So for one week they can stock eatables, next week the detergents and soaps, next week, next week cosmetics / beauty products / next week footwear / next week hoisery etc. this will give them higher sales to floor area sales and for customers also products will be available at supermarket prices in their neighbourhood while the whole model will also take care of smallest businessmen.
The high rental paid by most of large retailers are driving prices to unrealistic levels so much as to create sure losses in the american way
There are the same models which are repeated in almost all retail outlets , then are all of them loss making or will go the shubiksha way,
I wonder if upcoming retailers must go in a slow planned manner for products and territory expansion
I feel the down fall of shubiksha is mainly because of its mismanagement and bad stratagies.They was not employer friendly company.I remember one of my friend was telling the MD of this company will behave like a rowdy to the employees.They have a room for special treatment for employees( for man handling).Even i remember he was telling because of this that MD was in police station in new year 2000.01/01/2000.