'Rent does not stop, interest does not stop': Biyani explains why he sold retail biz to RIL

Future Group founder Kishore Biyani has said that several acquisitions over the last few years, exacerbated by the coronavirus crisis, drove him to sell his chain of retail stores to Mukesh Ambani-led Reliance Industries Ltd (RIL).

Biyani added the homegrown retail major lost around Rs 7,000 crore in the first three to four months of the COVID-19 pandemic because of the closing of stores, which only compounded the problems for Future Retail.

"I think with this business, we got into a trap, to be very honest with COVID-19...if you look at the first 3-4 months, we lost nearly Rs 7,000 crore in revenue and there was no way we would have survived losing Rs 7,000 crore. The problem is, rent does not stop and interest does not stop," he said in a conversation with B.S. Nagesh, Founder, TRRAIN, and Chairman and Non-Executive Director, Shoppers Stop.

Biyani's talk was part of an hour-long chat at the Phygital Retail Convention hosted on Wednesday, October 14.

Also Read: RIL-Future Group Deal: How Kishore Biyani, Indian retail sector's poster boy bowed to winds of change

Citing reasons for the slump sale of Future Group's retail stores, warehousing and logistics business to RIL amounting to Rs 24,713 crore, Biyani stated that there was no way the company could have survived after losing around Rs 7,000 crore revenue.

Acknowledging that the group had made too many acquisitions in the last 6-7 years, especially of small-format stores, Biyani said that the "there was no other answer but to exit."

He further noted the group had other options as well, but needed to find a "holistic solution" to clear its ever-growing debt, rather than to split up with one entity or format.

Biyani also cautioned that the worst is yet to come for retailers. "We have designed business to be profitable at 90 per cent of our targets. In any scenario... we will not be able to touch 70-80 per cent (of target) ... If you look at long-term planning 5 to 10 years -- it will not be easy for physical stores," he pointed out.

In August this year, billionaire Mukesh Ambani's Reliance Industries announced acquisition of the retail and wholesale business and the logistics and warehousing business from the Future Group as going concerns on a slump sale basis for aggregate consideration of Rs 24,713 crore.

Through the deal made in August with Reliance Industries, the Ambani-led firm will acquire Future Retail that owns the BigBazaar and sells everything from groceries to cosmetics and apparel, and Future Lifestyle Fashions Ltd, which operates fashion discount chain Brand Factory.

Also Read: BT Buzz: What next for Kishore Biyani after selling Future Retail to Mukesh Ambani's Reliance?

Future Retail operated 1,550 stores. Its flagship brands BigBazaar, FBB and Foodhall, Easyday, Heritage Fresh and WHSmith and Future Lifestyle Fashion operates 354 stores.

Investment from Reliance would help Future's founder Biyani pare debt.

Last week, US online retailer Amazon slapped a legal notice on Future Group, alleging that the retailer's Rs 24,713 crore asset sale to Reliance Industries violated an agreement with the e-commerce giant.

"We have initiated steps to enforce our contractual rights," a spokesperson for the Seattle-based e-commerce giant said. "As the matter is sub-judice, we can't provide details."

Amazon had last year bought a 49% stake in one of Future's unlisted firms, Future Coupons Ltd, with the right to buy into flagship Future Retail after a period between 3 and 10 years. Future Coupons owns a 7.3% stake in Future Retail.

Also Read: Future-RIL deal: Amazon's arbitration proceedings against Future Group may start in Nov