TOKYO -- Credited as the father of modern Indian retail, Kishore Biyani found success embracing the idea of big-box stores in a market dominated small, family-owned stores. But his aggressive expansion drive ultimately cost the maverick billionaire the crown jewel of his Future Group business empire.
With nearly 130 billion rupees in debt from opening new stores, combined with the coronavirus' blow to earnings, Future Group, the nation's second-largest retailer, signed an agreement in August to sell its retail, wholesale and logistics operations to top-ranked Reliance for 247.1 billion rupees.
This was a quick comedown for Biyani, who just in 2017 mapped out a big expansion plan as part of his so-called Retail 3.0 strategy.
"We will have 10,000 member-only stores by 2022," Biyani announced back then. His goal was to turn Future Group into Asia's largest retailer by 2047.
The group's two listed retail units logged 267.7 billion rupees ($3.67 billion) in revenue for the year ended March, the second-largest figure in India after Reliance's 1.62 trillion rupees. It operates roughly 1,900 locations across its supermarkets, general stores, clothing chains and other operations.
The units will be handed over to Reliance pending a green light from the authorities. Future Group plans to focus on its insurance and food businesses as it charts its way forward.
Biyani got his start in Indian retail, a field still about 90% controlled by small, family-owned shops, by selling clothing in the 1980s. He was among the first in the country to launch big-box stores modeled after the likes of Walmart, and succeeded in building a retail empire in a single generation.
But Future Group was overtaken by Reliance in revenue around 2014, to which Biyani responded by refocusing on expansion. The group's flagship unit, Future Retail, went public in 2016. It rapidly increased its presence through acquisitions, more than doubling its stores in three and a half years to 1,550 last fall.
Meanwhile, the group's interest payments and emphasis on low prices squeezed earnings. Future Retail and a second listed retail unit posted a combined net loss of 400 million rupees in the year ended March.
"My father was always angry that I had borrowed money and started a business," Biyani said at a 2018 economic forum in Mumbai. Though he used to make frequent media appearances, he has disappeared from the spotlight since the Reliance deal was announced.
There are some uncertainties surrounding the deal itself as well. This week, Amazon.com initiated proceedings against Future Group at the Singapore International Arbitration Center to block the sale of its retail operations.
Amazon entered India in 2013 and invested in Future Group in 2019. It entered into a partnership with the group this January, with Future Group setting up shop on the e-commerce platform. There was also a plan to have Future Group deliver items ordered on the Amazon site.
Amazon told Nikkei it could not discuss the details of its proceedings against Future Group, but said it was exercising a right that was part of their agreement.
The move may be an attempt to prevent Reliance from expanding its grip on India's e-commerce market. The retailer is working with Facebook on an e-commerce venture.
India's e-commerce market was worth $50 billion in 2018, or about 5% of the country's retail market as a whole, according to the Indian government. It is expected to hit $200 billion in 2026, and overtake the U.S. to become the world's second largest e-commerce market in 2034. Amazon is likely concerned about falling behind in the market without Future Group and its logistics network.
Uncertainties over the deal could affect Japanese companies operating in India as well. 7-Eleven, a unit of Seven & i Holdings, had signed a franchise agreement with Future Group to open locations in India this year. Nippon Express had taken a more-than-20% stake in a logistics unit of Future Group for about 10 billion yen ($94.7 million).
Seven & i said it is "in negotiations" with Reliance over the franchise agreement, but its plans to for new stores may face delays depending on how things with Amazon play out. Nippon Express said it is weighing its options internally.