Faced with a difficult retail environment and on the lookout for a winning formula, Reliance Industries is mulling the merger of its diff erent formats to make its retail arm more efficient.The company is considering merging the management of hypermarkets (Reliance Hypermart), supermarkets (Reliance Super) and convenience formats (Reliance Fresh) just a year after these formats started as separate profit centres , according to people familiar with the development. The idea of the merger is still at a conceptual stage and the company hasn’t taken a final decision. A Reliance spokesperson denied that the company was proposing any move to merge its three formats. Reliance Retail, which operates around 650 stores under different formats, has already taken several measures to cut operational cost, ranging from rationalising manpower to cutting office expenses. It has also reduced by almost one-third the size of its hypermarket in Ahmedabad.
The merger of three formats will potentially kick in economies of scale and help the company rationalise its human resources, thereby bringing down overall recurring expenditure. Sources said the company is close to taking the first step in this regard by merging the respective IT and HR functions of Reliance Super and Reliance Hyper. Lack of experience in retail adds to Reliance’s woes Sources say the company’s decision a year ago to have all three formats as separate profit centres was aimed at bringing in higher efficiency and more accountability. Three formats , even if they offered several similar products, targeted different audience and needed to have separate strategies, the company had felt then but it is now re-examining this. India’s potentially multi-billion dollar retail industry has attracted mammoth interest from Indian and overseas corporate heavyweights in the past few years. Reliance too jumped on the retail bandwagon two years ago with a bigbang announcement. The outlook for the retail sector, however, has changed since then. Lack of experience in retail has only added to Reliance’s woes. The company though is not alone in battling a tough time in retail industry. A 16-year-high inflation, high interest rate, slowing Indian economy and the world teetering on the brink of recession is spelling trouble for domestic retailers. They have been struggling to keep up sales even at the cost of losing a fair share of their margins. Due to this, despite its financial muscle and ability to attract the best talent in the industry, Reliance has, in its short journey in retail, regularly kept revising strategies. The biggest strategic shift has been its decision to forge joint ventures in over half-a-dozen speciality formats and logistics spaces. Unlike other retailers, which have been more cost-conscious, Reliance is said to have been more extravagant and possibly because of that, sources say, it may be forced to take stricter measures. The company has had more employees than required on its payrolls, augmenting its costs. However, Reliance is also more capable of withstanding difficulties.
6 months ago