Pantaloons Retail (India) Ltd - Strategy in the Face of Economic Downturn

Saishree D | Tapmi, Manipal

When Kishore Biyani started Pantaloons Retail (India) Ltd.(PRIL), he must have hardly expected to hit in such a manner in the short time frame. What started off as India’s first brand for formal trousers back in 1987, transitioned into what is now the country’s largest retail giant with its footfall in every arena the modern-day consumer believes to be part of his/her lifestyle. How has retailing helped shape the needs of the modern-day consumer and direct his/her quest in fulfilling these needs?
PRIL, the flagship company of the Future Group, operates through a large number of formats that target different aspects of consumerism. These largely centre on:-

• Sports and Fashion - Pantaloons, Central, Brand Factory etc.
• Food – Food Bazaar, Fair price etc.
• Home products – e-Zone, Staples, Home Town etc.
• Leisure and Entertainment – F123, Bowling Co. etc.

Assessing the damage
To ascertain the strategic moves PRIL has adopted given the current economic scenario, we must first examine the environment it operates in as a result of this slowdown. We will then be able to understand the necessity for these strategic steps. This has been explained using the Five Forces Model prescribed by Michael Porter.

Threat of Entry – MODERATE
PRIL’s rivals Shopper’s Stop and Vishal Retail only grew by 3.3% and 17.8%, with operating margins falling over last year‘s. This hardly seems a lucrative opportunity to any big names scanning the horizon. In addition to this, the latest budget did nothing to spur growth when it
made no mention of the relaxation in FDI norms for the retail sector – a longstanding demand by the major players in the sector, along with recognition as an industry. However, considering AT Kearney’s predictions of the potential in the Indian retail market, the threat of foreign entrants looms large in the near future with the first Wal-Mart in India opening just a few weeks ago.

Threat of Suppliers – LOW
Market share generally reflects the focal firm’s influence over its consumers, competitors and suppliers. Rather than the traditional ‘Producer-push’ format of supply-chains, large retailers enjoy the advantage of the ‘Consumer-pull’ format. The Pantaloons’ supply-chain is said to be the most cost-effective in the world.

Threat of Substitutes – LOW
Substitutes to this sector may largely come in the form of Internet, wherein direct selling of consumer goods may take place. But considering this phenomenon has not gained momentum in India, its chances of posing a major threat to the sector is fairly low.

Threat of Buyers – HIGH
The retail sector has always faced trouble retaining consumer-loyalty. The gloom of the meltdown has spread rather rapidly in the consumption segment with same-store sales in most retail chains dropping to abysmal numbers. In the current scenario most consumers prefer deferring purchases of retail items, and hence pose the largest threat.

Threat of Rivalry – LOW
PRIL’s immediate competitor, Vishal Retail is running out of cash and closing stores all over the country. Although they have no hopes of opening these outlets just as yet, they do plan on reworking their format through expansion by way of franchisee units. Many foreign ventures with domestic firms are falling out while previously established foreign retailers are looking for alternate strategies.

PRIL’s strategic moves
The growth in the retail sector has now dropped to below 7% and consumer spending has tightened. Pantaloons’ sales fell in February, and the company saw dipping consumer demand and rising costs. But despite these conditions, Edelweiss Securities expects Pantaloons Retail (India) Ltd. to survive the carnage pretty well. In fact, PRIL’s shares rose by over 60% come March. This, when PRIL’s competitors are completely pulling out of the sector! How has PRIL managed to do this?

PRICE

• Kishore Biyani’s ability to forecast the future definitely paid off for PRIL. Back in January 2008 the CEO initiated the cost-cutting campaign ‘Garv se kaho hum kanjoos hain’. Through emails to his employees, Biyani made sure to instill awareness of the dim future amongst each of his employees and to devise processes to meet the requirements within 6 months.
• PRIL started converging back-end operations 6 months ago, and plans on continuing in the future. This exercise that primarily involves converging the back-end operations of all similar lines of businesses has proved profitable in terms of cost-saving on resources.
• The company took steps towards strategic realignment and cost-control techniques way back in 2006. Through a series of scenario planning exercises and continuous review of business plans, it was able to bring out the best possible levels of ‘efficiency, productivity and resilience to the external environment’.

PLACE

• As per Fitch Ratings, the company is now concentrating on supply-chain efficiency, high-margin private labels, and reworking lease rentals. PRIL is one company that has always promised value and quality at lower prices.
• Hence maintaining low prices is at the heart of all strategies they will be implementing in the future.
• The company has also succeeded in cutting its 5-level supply-chain structure to a 2-level one.
• A very strategic decision in terms of real estate helped the company gain considerable cost advantage over its competitors. It had acquired land for reasonable rates a few years ago, as it expected the increase in real estate prices.

PROMOTION

• In addition to all the above, PRIL also introduced shopping festivals, end of season sales, exchange fairs and days dedicated to low-price shopping. Through a partnership with McKinsey & Co., they were able to develop a process-driven approach towards discount planning and inventory management.

OTHERS

• Future Group had plans of restructuring its flagship retail company into a holding company (under the name of Future Markets and Consumer Group) early this year, but put these plans are on hold in the hope of the new budget’s FDI norms for the retail sector. Despite the disappointment the budget posed, these plans will not be completely scrapped but pursued in the near future when the situation starts looking up for the sector.
• The new budget has brought out incentives for consumers to get back to their old spending habits, like the abolition of Fringe Benefit Tax and the increase in income tax ceiling. PRIL hopes to exploit these opportunities to motivate consumer spending.

PRIL is currently India’s largest retail chain and continues to dominate the sector while its competitors bite the dust. An insight into this company’s immunity reveals how its restructured strategy worked to its favour.