Private equity backed retail chain Subhiksha is planning to shut around 10% of its 1600 stores across India, reports The Economic Times. The retail chain is faced with severe cash crunch and is unable to pay store rents and employee salaries. The eleven year old retail chain promoted by R Subramaniam is also looking at relocation of some of its stores as its sales volumes have declined but the rentals remain high. By relocating some of its stores, Subhiksha plans to gain on the falling rentals across the country. The beleaguered retail chain is implementing a SAP supply-chain solution to streamline operations. This could temporarily affect the operations of the stores.
The report adds that Subhiksha has not paid the salaries to its 15000 employees since October 2008. Subhiksha has also faced allegations of default in store rental payments from property owners. Subhiksha has also been defaulting on its rent payments. It is looking to renegotiate rentals with the real estate owners.
Besides, employee salaries and store rentals, subhiksha has also been defaulting on the payments of suppliers. Fruit and vegetable vendors have already stopped supplies as the retailer has not been able to make payments to them. FMCG products’ suppliers have stopped supplying products to Subhiksha, too.
Till two years back, Subiksha was expanding rapidly and company’s turnover had gone up seven times in two years, from Rs 330 crore in 2005-06 to Rs 2,305 crore in 2007-08. The company had been built on an equity base of Rs 32 crore and had raised Rs 180 crore as shareholder funds.
The crisis had started hitting Subhiksha in beginning of 2008 as the company ran out of cash. Due to unavailability of sufficient cash, the retailer was not able to buy fresh stock which led to the collapse of its trade cycle in October, 2008.
The company needs Rs 300 crore to bring it back on its feet. The report adds that the promoters of Subhiksha have been trying to raise this amount and have held negotiations with two retail chains for selling stake but no deal has been finalised so far. Wipro’s Azim Premji had bough 10% stake in Subhiksha last year for Rs 230 crore from ICICI Venture, which still holds 25% in the company.