Reliance-Future Retail deal may not impact revenue market share

Expert opinion is divided on whether the Future group’s assets will make a big difference to Reliance Retail’s strategy to gain market share in the $91 billion organised modern retail market which includes e-commerce and physical retail or whether it’s more of a prestige battle between Mukesh Ambani and Jeff Bezos for control of a company?
 
Many say that, based on revenue numbers, the Future group does not make much difference to Reliance’s revenue market share at all. Reliance Retail, despite the pandemic, hit revenues of Rs 157,629 crore in FY21. The Future group’s revenues are merely 7 per cent of this, compared to around 18 per cent in FY20.

 
The reason is that Future group’s founder Kishore Biyani’s flagship companies — Future Retail and Future Lifestyle Fashions —plummeted due to the pandemic and cash problems. The Future group’s overall revenues have crashed to under Rs 12,000 crore in FY21 from over Rs 30,000 crore when the deal with Reliance Retail was stuck. 
 

For instance, Future Retail saw its revenues go down by more than a third from Rs 20,118 crore in FY20 to only Rs 6,210 crore in FY21.  Similarly, Future Lifestyle Fashions saw a dramatic fall in revenues by nearly a third from Rs 5,985 in FY20 to a mere Rs 2,160 crore in FY21.

 
During the same period, the company’s net losses went up from a profit before tax and exceptional items of Rs 21.64 crore in FY20 to a staggering loss of Rs 870.51 crore in FY21.
 
What’s more, Future’s current revenues will add less than 2 per cent market share of overall modern retail revenues for Reliance Retail which currently controls over 23 per cent of the revenue market share. 
 
Reliance has also been aggressively building stores, despite the pandemic, hitting a total of 12,711 in FY21 out of which 1,500 stores were added in the pandemic financial year alone. 

 
In contrast, Future Retail’s total number of stores stood at 1,500. Ankur Bisen, senior vice president of Technopak said: “The Future group’s value comes from its stores, some strong brands which it owns and revenues. But its value has surely taken a beating,” he said.
 
Yet there are others who say that, despite all the concerns, the fact remains that the Future group has over 16 million square feet of space under lease with many large stores in key locations and shopping malls. For Reliance to negotiate such lease deals will take years.
 
And while Reliance might have more stores, in terms of space covered, it is only slightly more than double (33.8 million square feet). In FY21, Reliance added 3.2 million square feet of space. If it continues at this pace, it will take the company over five years to reach the same area which the Future group offers in one fell swoop through acquisitions, enabling Reliance to make a quantum leap.