Friday, January 21, 2011

Retail tales

Read this story about the erstwhile UTI Ventures (now called Ascent Capital)'writing off' and investment in KOUTONS RETAIL.

In informal circles, Koutons was considered to be one of the better retail plays, much like Vishal Retail was talked of as a focused and aware player. Both have fallen. This is the third large failure. The first to fall was SUBHIKSHA which had some high profile investors.Of course, the TVS Group had given up this sector after a very early try in 1990 or so.
Organised retail chains find it difficult to battle the local stores, which have upgraded themselves, have low costs, low rents and labour costs that are half or less.
Of course, there are scalable models like Star Bazar (do not know about their profitability). Real estate is one business. Retailing is another. Understanding both is key.
Clearly, the dice is loaded against the retail sector from an investment perspective. The rents kill. On top of that, Vishal and Koutons also had to face the problem of having their own brand in ready to wear garments. This is a foolish business to get in to, since the inventory risks are very high, given that both the retail cos did not have any brand worth a recall.
I am also amazed at the venture capitalists who put in money.
Or, maybe, the promoters are laughing their way to the banks (swiss or not, it does not matter).
A clear message that retail focused on the Bottom of the Pyramid (India's pyramid bottom is ninety percent of the population) is a dicey call.

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