Slowdown and a threat from e-commerce – a double whammy for Future Retail, posts a 15% fall in profits

  • Future Retail has seen a 15% fall in profits in the third quarter.
  • It has seen its profits go down to ₹170.73 crore from ₹201.43 in the same quarter the previous year.
  • Future Group, which has been impacted by the slowdown and rise in e-commerce, has recently partnered with Amazon to go digital.
Kishore Biyani’s Future Retail has posted a 15% fall in profits in the third quarter. The parent of Big Bazaar chain, saw its profits go down to ₹170.73 crore from ₹201.43 in the same quarter the previous year.

Its income too went down by 3% from ₹5,306 crore in the same quarter the previous year to ₹5144.5 crore this quarter. The brick and mortar retail major has been under the throes of an economic slowdown last year, which has affected consumption and also taken a toll on consumer confidence, which slipped to a six year low.

As more consumers went in thinking twice about discretionary spending and inflation affecting basic needs like pulses and vegetables too - it had a proportional effect on Future retail. Last year, the company lost more than consumers and purchases. Its stock price has taken a hit, with a 22.1% decline in value in the last six months.

Furthermore, Future Retail has other troubles in the offling. The rise of grocery retail startups like BigBasket, Grofers along with the likes of Amazon, Flipkart, Swiggy entering the segment - are eyeing a bigger slice of the shrinking pie. Now, its biggest competitor offline is also headed online. Reliance Jio’s foray into the segment with the JioMart app is another hurdle Future has to face.

Braving the storm

Six months back, the company has started cleaning up its balance sheet and operations. Analysts said that the company is taking up strategic initiatives in the next 12-18 months. These include – significant cost saving measures, driving higher throughput from large format stores, and cutting down its debt, as per an Axis capital report.

In January this year, Future Group has made good on some of its promises. First, it signed a long-term business agreement with e-commerce giant Amazon. As per the deal, Amazon would be Future Retail’s authorized online sales channel. Second, it raised $500 million through dollar bonds.

As it struck a deal with the e-commerce major, it has been shutting down small stores.

As of September 2019, it had already shut 130 stores. “FRL will not open small stores until the format achieves operational profitability; hence, no store to be opened in FY21,” said an Edelweiss report.

Its partnership with Amazon is Future Group’s attempt to converge online and offline worlds.

Amazon also signed a deal over Future’s consumer products – Tasty Treat for snacks, Voom for fabric care, Dreamery for dairy, Karmiq for dry fruits, Mother Earth for organic staples, Kara for personal care, CleanMate for household cleaning etc - which will now be sold online.

“This arrangement will allow us to build upon each other’s strengths in the physical and digital space so that customers benefit from the best services, products, assortment and price,” said Kishore Biyani, chairman and managing director, Future Retail.

The total effect of these moves however will take another six to nine months to show on its earnings performance.

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