Retail news on 1st July 2009

ZASH INVESTMENTS SENDS LEGAL NOTICE TO SUBHIKSHA DIRECTORS

The Azim Premji-owned Zash Investments has sent a legal notice to the current and former directors of Subhiksha over their failure to perform their duties. Zash, which owns 10 % of Subhiksha, has said that the directors, including those belonging to ICICI Venture, another leading shareholder, did not fully probe the retail firm's financials and did not provide proper numbers when Zash bought a stake in the company last year. The move threatens to further derail Subhiksha's attempts to pull itself out of its liquidity crisis with the help of corporate debt restructuring. At the heart of the dispute is Zash's purchase of 10 % in Subhiksha from ICICI Venture in 2008 for Rs 230 crore. A few months after the deal, Subhiksha ran out of cash and asked its banks to moderate its debt obligations. It also shuttered all its 1600 shops across the country and could not pay its salaries. Zash is now demanding answers, saying that it was misled on the true financial position of Subhiksha. The notices have been sent to Rajeev Bakshi, joint managing director of ICICI Venture, Renuka Ramnath, former managing director of ICICI Venture who quit the firm a few months ago, independent consultant Rama Bijapurkar, former LIC chairman SB Mathur and Kannan Srinivasan, professor at Carnegie Mellon University. Bijapurkar, Srinivasan and Mathur have quit the Subhiksha board. In the meantime in a media update Subramaniam claimed the CDR process was on track. With the various stakeholders agreeing that considering the existing debt levels the entire revival would need to be equity financed so as to put the company on a sound footing. Subhiksha owes Rs 750 crore to 13 banks and has said that it needs another Rs 300 crore to get it operations back on track.


'PEOPLE' TO SEPARATE FROM PETER ENGLAND

A year back Aditya Birla Nuvo decided to increase its presence in the mass segment through Peter England 'People', launched as a family apparel store. However, it is undergoing course correction. The company has realized that People and Peter England have different brand characters. While Peter England is a more sober formal mid-priced brand for men, People is being positioned as a fashion-forward unisex brand, primarily targeted at the 20-30 year-old junior executive (both men and women). The company is therefore de-linking People - the family apparel format - from the mother brand to stand as a more youth-oriented, streetwear brand. The People chain will revive brands, such as Elysee, Byford, SF Jeans and Spin Off, which have been 'retired' by Madura Garments, in an effort to find relevance with the down trading customer. These brands had initially operated under Aditya Birla Nuvo's branded-apparel company Madura Garments. By design, the format will retail only these private labels within the Rs 249 and Rs 449 price band. Peter England itself will see the introduction of club wear in October and expansion of the casual wear sub-brand Elements to 25 % of the entire portfolio. From around 2,000 points of sale, including 350 exclusive brand outlets (EBOs), Peter England will grow to 500 EBOs by mid FY10-11 through the franchisee route. PEFR accounted for 25-30% of the Rs 900-crore garment segment revenue of Aditya Birla Nuvo in FY09.


RELIANCE RETAIL TO BREAK EVEN BY SEPT.

Reliance Retail is expecting to break even at the store level in all cities except Mumbai, where real estate costs are still high, by September following six months of stepped up efforts at reducing cost and increasing footfalls at the stores. The retailer, which runs over 900 stores, including 50 in Mumbai, has already broken even at the store level in around one-third of the 80 cities it operates in. The retailer is far more cautious now, choosing the right location at far lower rentals, compared to the overheated days of 2007.


METRO TO MONETIZE REAL ESTATE BANK

German retail giant Metro Cash & Carry is planning to float real estate joint ventures with local developers for its store network across the country. Under this proposal, Metro will transfer its land bank into the JVs and sell a majority stake to realty firms depending on the development potential at each location. This is an alternate to help the company monetize the surplus floor space index (FSI) in a market with significant real estate costs. Metro's Indian unit holds seven-eight acres at each of the locations where it sets up a store. Based on FSI calculations, this has thrown up opportunities for raising some money through stake sales after the store development. Globally, it will be Metro's first such initiative to tap real estate potential associated with its core business. Metro stores at each of our locations will continue to be fully owned by the company. In the past the company has received proposals from real estate firms to buy existing stores and lease it back, however, the company wants complete control over the stores. The world's fourth largest retailer entered India through 100% wholesale trading arm in 2003. Metro operates six big box distribution centers in the country at present, and has entered into a MoU with Punjab for starting six stores in the state.