Domestic retail players in talks for common back-end ops

Spencer’s, Next Retail, Future Group seek tie-up to amortise costs, gain scale, share margins.

Shrugging off the stonewalled foreign direct investment (FDI) proposal, several domestic retailers are in talks to collaborate for a consolidated back-end, which, when established, will help them reduce costs and improve margins.

Three retailers — Spencer’s, Next Retail and Future Group — said they were in talks with various players for a merger of back-end operations.

“We are in talks with several domestic players for a tie-up at the back-end,” Sanjiv Goenka, chairman of the RP-Sanjiv Goenka Group that controls Spencer’s. “In fact, before the FDI rollback, talks had progressed with a foreign partner as well. The (current) move will help us amortise costs, gain scale and share margins.”

Spencer’s currently has 220 stores across operating area of one million square feet. It plans to add a million square feet in the next couple of years.

That talks are on within the industry was later confirmed by Kishore Biyani, group CEO of Future Group and MD, Pantaloon Retail. “We have held talks with several players for a tie-up at the backend,” Biyani told Business Standard. “No plans have so far been finalised, but we are hopeful.”

Biyani’s Rs 12,000-crore Future Group, incidentally, already has a separate entity — Future Supply Chain. It services much of the the Group’s back-end function. Spencer’s is in the process of setting up a separate entity to deal with procurement at the back end as well.

While it has tried to branch out and service other retailers, currently 80 per cent of their business comes from Future Group’s operations itself. When asked, Damodar Mall, group customer director of Future Group, said consolidation, if and when it happens, might be at the level of these separate entities.

“There is a model where a common supplier is set up for servicing multiple clients,” Mall said. “I would not comment specifically on the progress of talks, but any consolidation would happen at the level of separate entities that retailers will set up.”

Venugopal Dhoot, chairman of consumer durables major Videocon, which runs the retail format under the name ‘Next’, confirmed that talks with at least one player were at an advanced level. When contacted, Dhoot declined to name the company, but did say the talks had “gained momentum”. However, companies are now loath to enter final-stage discussions, because they are waiting for the budget, and looking to rope in a foreign partner.

“The discussions are going on in a faster pace now,” Dhoot said. “We are waiting for the Budget this year. If the foreign direct investment in retail gets cleared, some foreign players too are in talks.”

Another senior official at Videocon Next, on conditions of anonymity, later said the company was in “advanced talks” with Spencer’s for a tie-up at the procurement end for consumer durables. On its part, Spencer’s refused to comment on specific partnerships. A senior official at Spencer’s, however, said Videocon was one of the players in discussion as well.

Next, which started operation in 2007, is among the bigger players in the consumer durables retail segment and has over 600 stores in the country. In 2008, the company bought Planet M from the Bennett Coleman Group.

This is how a retailer explained the plan: “If our back-end is Rs 10 crore a month and four retailers come forward to pool the backend expenses, based on their respective strengths, the combined cost will not be Rs 40 crore. It could, in fact, be reduced by almost half in some cases. This would help players break even quickly.”