THE SCALE OF THINGS TO COME
PANTALOON RETAIL INVESTMENT PLANNED Rs 500 crore by 2006-07 SALES TURNOVER Rs 10,000 crore by 2010 RETAIL SPACE 10 million sq. ft by 2008 STORES 99 stores in 2005-06 EMPLOYEE STRENGTH 100,000 by 2010 RELIANCE RETAIL INVESTMENT PLANNED Initial investment of Rs 3,375 crore, scale up to Rs 15,000 crore by 2007-08 SALES TURNOVER Rs 90,000 crore by 2010 RETAIL SPACE Not available STORES 1,575 by March 2007 EMPLOYEE STRENGTH 500,000 by March 2007 Source: Company and market estimates

Over seven days in January, Kishore Biyani, the 44-year-old maverick Chairman of the Pantaloon Group of companies, was closeted in meetings with Mukesh Ambani, Chairman of Reliance Industries. No, they weren't thrashing out a joint venture or an acquisition. Rather, the agenda was how Pantaloon and Reliance could carve out their own huge spaces in the retail sector, avoid head-on competition, and thereby jointly take on the multinational retail giants once they get the green signal to set up shop in India. Whilst Biyani was the sole Pantaloon representative in the discussions, Ambani had in tow his point man for the retail business, Manoj Modi. A week down the line, however, sources in the know reveal the dialogue broke down abruptly, and the proposed non-compete clauses never saw the light of day. The sources also reveal this cessation of discussions didn't upset either of the concerned parties. For, each was apparently content to walk out with some particulars about the other's game plan for the retail business.

Ever since that meeting, rumours have been flying thick and fast in the retail industry circles that Biyani, perhaps overawed by the size and scale of Ambani's retail blueprint, might have been looking to sell out to Ambani. After all, he and his family own a little over 44 per cent in flagship Pantaloon Retail, valued just under Rs 2,000 crore at current market prices. Biyani rubbishes such stories. Mukesh Ambani is a good friend, he maintains. "We are confident enough to lead the business," he says bravely. "Right now we don't know the face of the competition. The competition is only on paper."

Ambani Thinks Big

Make that reams of paper. To be sure, the sheer size and scale of the Reliance retail blueprint-in typical Ambani style-make the existing industry players, including Pantaloon, which is the leader by far, appear puny. Consider the investment outlay: By March 2008, Ambani would have sunk all of Rs 15,000 crore into his retail business, 30 times the Rs 500 crore Biyani has earmarked for 2006-07. Big investments equal big sales-Reliance is aiming at a mind-boggling turnover of Rs 90,000 crore by 2010, 10 times Biyani's projection for the same year. By 2007, Ambani hopes to have 1,575 stores all over the country as against Biyani's current total of 99 Big Bazaars, Food Bazaars, malls, Fashion Stations and sundry outlets. The employee strength of Reliance Retail will be five times Pantaloon's in four years (5 lakh as against 1 lakh). And for good measure Ambani also poached retail veteran Raghu Pillai, who Biyani had recruited (from RPG) to spearhead the retail business.

Leading in retail: Pantaloon is #1, but for how long

"One person out of 12,000 doesn't matter," says Biyani, with reference to Pillai's exit. Getting the right people is going to be a big challenge for everybody. "Today, our attrition rate at 8 per cent is the lowest; the industry attrition rate is 25 per cent-plus," adds the entrepreneur who's seeking to professionalise the business he's built with a burst of high profile recruiting (see: No More A One Man Show?). Some more top-level appointments are expected in the coming days, including some who will be relocating from overseas. As bt went to press, headhunters also revealed, N. Shridhar, Chief Financial Officer, Britannia, was set to join the group's financial services arm.

Yet, the projections coming out of Reliance are enough to give most entrepreneurs sleepless nights-and perhaps putting out such huge figures may just be a prong of a psychological battle that's being fought in the marketplace even before the first Reliance store is flagged off. But true to type, Biyani isn't rattled-if he is, he's doing a superb job of hiding it-and he's still talking about size and scale. No, he isn't attempting to match Ambani on the retail front. Rather than take on the Reliance might head on, Biyani is seeking to build size and scale beyond conventional retail, across the entire consumer space. This involves forays into an assortment of formats and businesses, right from mobile phones and storage products to health, beauty and fitness products, from pharmacies and salons to furniture and furnishings, consumer durables and electronics, and from gold and jewellery and footwear to the entire gamut of financial products. The objective is clear: To capture not just a share of the consumer's wallet, but virtually the entire wallet, not just in terms of consumption, but even savings (which is why Biyani has even bagged a licence for a non-banking finance company). The plan: To meet the entire family's need under one roof. The group objective these days is: "We will provide Everything, Everywhere, Every time to every Indian customer in the most profitable manner."

New Identity

"That's my new card, with the new group identity," says Biyani as he whips out a visiting card from the pocket of his blue-checked shirt. On it is a logo of a flying bird-a sone ki chidiya (gold bird), as Biyani puts it-with the words "Future Group, India tomorrow," embossed below it. "We never created a group identity in the past...We cannot be known as Pantaloon. It was originally a trouser brand," says the entrepreneur who started up Pantaloon Retail (India) in October 1987, then incorporated as Manz Wear Private Ltd. The company went public in September 1991 and later changed its name to Pantaloon Retail (India) in July 1999.

Biyani, who can be often spotted on Sundays outside his own hypermarkets and food bazaars observing consumer behaviour, has restructured his businesses into six loose verticals: Future Retail, Future Space, Future Logistics, Future Capital, Future Brands and Future Media. Whilst Future Retail will continue to be the core, the other verticals will directly or indirectly serve it: For instance, Future Logistics will drive efficiency across the businesses, Future Brands will be the custodian of all present and future brands (developed or acquired), Future Capital is the financial arm that will tap consumer savings as well as serve as a medium for customers to pay, Future Space will manage properties and malls (and not just those of the group), and Future Media will capitalise on media opportunities within retail and attempt to shape consumer preferences.

As an animated Biyani blitzes through a 24-slide presentation on the Future Group on his Acer laptop, one gets a peek into the man's mind, and his vision for tomorrow. He divides India into three separate zones or countries within country. For Biyani, India I is the urban class (where the target consumers are men and women), India II is the suburban class (target: Youth) and India III is the semi-urban (target: Kids). And Biyani wants to capture that all. "It's not just a name, but a new way of thinking," quips Biyani.

PANTALOON VS THE REST Biyani has raced ahead of the current competition.

B.S. Nagesh of Shoppers' Stop Noel Tata of Trent Rajan Raheja of Globus Stores PANTALOON RETAIL Total outlets: 99 Number of cities covered: 25 Retail space under use: 3 million sq. ft Footfalls: 12 crore per year Conversion rate: 45 per cent Average bill per customer: Rs 700 Employee strength: 12,000 (Source: Company) SHOPPERS' STOP Number of large department stores: 20 now/39 by 2007-08 Retail space covered: 7.50 lakh sq. ft now/25.02 lakh sq. ft by 2007-08 Number of cities covered: 10 Footfalls: 30,000 every day Conversion rate: 27 per cent Employee strength: 2,400 (Source: Company) TRENT (TATA GROUP) Number of stores: 27 now/100 by 2010 Number of cities: 14 Retail space covered: 4.5 lakh sq. ft Number of employees: 1,200 (Source: Market) GLOBUS STORES Number of stores: 12 now/22 by 2008 Number of cities: 8 Area covered: 2.5 lakh sq. ft Footfalls: 1 lakh per week (Source: Company)

Follow The Leader

If Biyani's thinking like a visionary, he's only following in the footsteps of Mukesh Ambani, who has, over the decades, known to have conceptualised integrated blueprints for Reliance, encompassing the entire textiles value chain. Ambani is also known for his faultless project execution skills, amply reflected in the petrochemical units and the refinery he's put up, as well as, to a lesser extent, the nationwide rollout of the CDMA-based telecom services for Reliance Infocomm (now a part of Anil Ambani's empire). And in retail too, the Reliance Chairman is going about the task in a systematic manner, with economies of scale, integration and value-addition being the underlying themes once again. Be it lifestyle retail or agri-retail or consumer electronics or apparel or foods and groceries, as well as the procurement, supply chain, quality control and integration prongs of the strategy, Ambani is putting in place a grand game plan that also seeks to grab the consumer's wallet. Just like Biyani is planning to do. The only difference, of course, is one of resources, which is apparent in the investment outlays of both the entrepreneurs.

Betting big: From kidswear (a JV with Gini & Jony Apparel) to a bowling company (a JV with Galaxy Entertainment), Biyani has gone to whole hog

Yet, it's not as if Pantaloon-and in fact all the other players, including Globus, Shoppers' Stop and Trent-are going to be wiped away once the Reliance retail juggernaut begins to roll. As Alok Agarwal, Senior Analyst at Motilal Oswal Securities, points out: "Today it's too early to talk about who will survive or perish. A shakeout will happen six-seven years down the line." Vinay Nadkarni, CEO, Globus Stores, adds that competition will be healthy, as it will expand the organised retail business pie. "India's growing economy and the rising income levels augur well for the nascent modern retail industry," believes Nadkarni.

It's this huge potential being presented by the Indian middle class that Biyani is seeking to tap. And he isn't wasting too much time, experimenting with scores of formats, some of which will work and some which won't. He will hawk communication products through multiple formats like mBazaar (small outlets), mPorts (independent stores) and mPod (touch-screen interactive kiosks). He's going to put up a 1 lakh-sq. ft mother store to sell furniture, furnishings and everything else connected with a home (plumbing, paints, masonry). Other formats include Tulsi (pharmacies), Star & Sitara (salons), Ginger (health café), Lotus (Yoga centres), Health Village (all under a single roof), Shoe Factory and futurebazaar.com, an online marketplace. "All these businesses are scalable," says Biyani. "Wherever the consumer spends, we more or less have a concept ready. Our portfolio is almost complete," says Biyani, hastening to add: "These are at the prototype stage right now. Let's see how they shape up."

Inevitably, though, Biyani and Ambani will have to compete head-on, specifically in areas like clothing and textiles; food & grocery; books, music and gifts; and health & beauty, as these are clearly some of the areas with huge potential in modern retail. Till a few years ago, Biyani's flurry of joint and new ventures may have been prompted by the threat of the entry of foreign retail, but this value-creation will now doubtless hold him in good stead when facing off with Reliance. For instance, Pantaloon's recent joint ventures with Liberty Shoes, Planet Sports, Galaxy Entertainment, Capital Foods, Gini & Jony Apparel and Lee Cooper give him a foot into an entire gamut of retail services, right from footwear to apparel to restaurants to foods. "In the next two years, we want to build a formidable size and scale," says Biyani in his typical understated manner. "Business is all about forecasting. We do make mistakes, but we don't treat them as mistakes. It's a learning process," he philosophises.

Fight To Finish

There are those out there who feel he can take the battle to the competition. Krish N. Iyer, former Managing Director, Pyramids & Crossroads, says: "Entrepreneur-driven Pantaloon is well poised to grow even if the competition comes. I'm very bullish on Pantaloon's business model." It's this entrepreneurial drive coupled with the rapid consumer-driven growth in the retail sector that's enabled Biyani to grow revenues at a compounded annual rate of a massive 70 per cent over the past five years, with the topline expected to hit Rs 2,000 crore in 2005-06. Funding compulsions of the next two-three years-of Rs 400-500 crore-will be taken care of via internal accruals and borrowings.

Of course, a topline of Rs 2,000 crore could soon look like small change once Biyani's other plans take off. Consider, for instance, what Future Capital, the financial services arm, is up to. Its two real estate funds, Kshitij (the domestic fund) and Horizon (the international one) have a combined corpus of $430 million or Rs 1,935 crore (Indivision, a consumer fund, is looking to raise $400-500 million or Rs 1,800-2,250 crore). The money raised through Kshitij and Horizon has been committed (almost Rs 1,900 crore) in the development of 20 malls, covering 27 million sq. ft (these malls have been developed for third-party retailers). Says Shishir Baijal, MD & CEO, PHF Investment Advisory: "We will soon close our $350-million (Rs 1,575-crore) international fund, which will solely finance large market city formats in big cities like Mumbai, Delhi, Bangalore and Ahmedabad."

Clearly, Biyani is attempting to make sure he's able to finance future growth in businesses that will guzzle cash big-time. Observers wonder whether-despite his well known anti-FDI (foreign direct investment) stance-Biyani might have few options, but to hop into bed with an international retailer. Biyani can't see such an eventuality-"We are not here to sell," he maintains-and the mega plans he has up his sleeve are proof that he means business over the long term. By creating six verticals, the founder of Pantaloon has opened the doors to infinite options for value creation, including bringing in partners (strategic or financial) in any of the business groups, and even listing a couple of them on the markets. As for the competition from Reliance, here's a small piece of Biyani's game plan that indicates his seriousness to take the fight to the Ambani camp: By May, Biyani should have 28 Big Bazaars up and running and, as BT went to press, he was scouting for land to put up at least one more such format-in Jamnagar.