Forget 1929 and 2008, The COVID-19 pandemic shall be remembered to be the biggest economic catastrophe that the world has seen. Millions of such companies failed to survive over the past ‘six’ months of the pandemic. Struggling to cope up with rising debts, rent, and salaries of its workers, it is very obvious to consider the maintenance to never happen as per idea. One such company, Future retail takes a hefty chunk of the news.
The Future Group (1) run by Kishore Biyani is India’s largest retail company. Selling all consumer-friendly products at consumer-friendly prices, they have witnessed success grow at stupendous rates over their course of time. One of the principal reasons for their success is the value they set on consumers more than any other element of economics.
The history of the Biyani deal might not be of immense importance, but it does have a value on the questioning existence of such companies in a large market like India. With a population of 1.3 billion people, it only requires companies like the Future group to succeed with a unique marketing technique. Their products are priced way below the MRP Thus, pandering it to the middle-class consumer sector. They celebrate their consumers with new deals and offers that make people rush to purchase products.
The History of the fall
Kishore Biyani’s forced sale of the Future Group came out of spite due to 7,000 Crore losses that they faced over the months, a very huge amount for a market that would throng daily to buy new products. Never in Biyani’s history have they ever had a sale slump for any reason. Biyani had accrued debt for many years. The debt of their entities rose to a staggering 13000 crores (approximately) as of March 31st, 2019. The Reserve Bank of India’s moratorium scheme helped companies like his to have some time in finishing of paying debts.
The COVID-19 pandemic had reduced his chances of repayment and this made his investors buy more shares to act as collateral against Future Group. Biyani’s failed investment includes EasyDay, Nilgiris, and many more that didn’t quite have an impact. Each of his investments failed quarter by quarter. His dream of reaching 21,000 Crores by 2021 didn’t make it to his zenith. Much to his dismay, his Rs. 999 a year loyalty scheme didn’t work out too. His cloth retail, Pantaloons retail has a heavy debt and thus he sold it to the Aditya Birla group for Rs. 1600 Crores.
The Reliance Deal
Even though The Future Group had a pre-existing deal with Amazon, Biyani reached out to Reliance to prepare a deal worth 24,000 crores. Reliance is one of the biggest companies in the world which handles various sectors like Fashion, tech, and so on. Biyani knew that selling his venture would mean a monopoly for Reliance over the market and thus, it could gain traction by attracting the potential customers of other retails.
Rating agencies like Fitch had downgraded the credit ratings and considered Biyani heading into the defaulters’ category if the company didn’t pay back the 100 crore interest. Biyani agreed to a deal with Reliance under which, RRVL (Reliance Retail ventures Limited) will acquire the Future group assets like Big Bazaar, EasyDay, Nilgiris, Brand Factory, etc.
Reliance had been in the news for a while after due to the acquisition of stakes in UAE holdings like Mudabala, KKR, and so on. Hence, it purely makes a fair play for Biyani to achieve the sale to Reliance in wake of the rising profits for them as well as the aatmanirbhar movement and “Make in India” movement that the country has been attempting to implement.
The Future group’s wholesale business, logistics, and warehouse will be sold as a slump sale to Reliance Venture as well and all regarding venture as well in an Rs. 24713 cash deal. FEL is allowed to maintain manufacturing and insurance ventures. Reliance also supported the idea of a 2800 Crore investment to carry out further production in ties with Reliance along with barring Biyani from entering into the Retail business for 15 years.
Reliance also had assured of maintaining the business ecosystem of the Future Group and continues the existing marketing groups and strategies that make the Future Group successful. Isha Ambani states the acquisition “ With the transaction, we are very pleased to provide the renowned formats and brands of Future Group as well as preserve its business ecosystem, which has portrayed a significant role in the development of modern retail in India. We will continue the growth momentum of the company and active collaboration with private merchants as well.”
The Amazon Deal
In 2019, Biyani signed an e-commerce deal with commerce giant, Amazon. The deal was a 49% stake acquisition in Future coupons. The deal was worth 2000 crores. This means, that amazon could have Future Group products on its marketplace and they agreed to for delivery of products in select cities within 2 hours of purchase.
Amazon also had a “Call” feature where they could acquire all of Future Retail’s holdings in the next 10 years. The signing of the deal with Reliance in August 2020 is what sparked a furor between the two giants. Amazon indicated the violation of a clause within the agreement. The Future Group came back with a statement saying it had just sold its assets and not its stake and thus didn’t violate the terms of the contract. Amazon and the Biyani-led group are willing to seek arbitration at the Singapore International Arbitration Centre.
The selling of the Retail giant has setback the future of many such retail stores in India. Economic collapses and rising cases of debt for Biyani, he had his chance and took a giant leap at it. Many might say that it’s the best strategy for India’s economic boost, and the rest say that it wouldn’t value well for International ties with Amazon. The recent Moratorium scheme might have given Biyani a breather for the payment of debts and also for many more for the benefit of a more vigorous growth rather than cluster failure.