Business Today

"Be your own eyes and ears"

The downturn transformed the king of retail in India both as a person and as a businessman.

Virendra Verma | Print Edition: January 10, 2010

The first thing that the downturn exposed us to was our high fixed costs—rent, power and employees. For rent we collaborated with mall owners and moved from a fixed cost rental to a revenue-sharing model resulting in a savings of 0.6 per cent of sales which translated to a 10 per cent savings on overall costs.

Kishore Biyani, MD, Pantaloon Retail (India)
To save on power costs lights in stores were selectively switched off and average temperature of air conditioners was raised from 22 to 25 degrees Celsius. The latter helped bring down the air-conditioning cost significantly. We studied the people cost and realised that, on an average, each office employee was occupying 200 square feet of space. We brought this down to 150 square feet. This reduced our office space requirement by 25-30 per cent— a huge saving considering we occupy 6-7 lakh square feet across India. We formed a costcontrol board within the company.

It monitored all costs and suggested ways of reducing some. The entire cost management exercise resulted in bringing down per square feet cost of our outlets to Rs 95—a big cut from the peak of Rs 140 per square feet.

Don't rest on past laurels.
Don't let markets tempt you.
Go for profitable growth, not just growth.
Revisit all costs, reassess all employees.
Become more humble and self-reliant.

However, we realised that we may have gone a bit too far with cost cutting. For example, we realised that customers were a bit uncomfortable about temperature at our stores. The average temperature, of 25 degrees Celsius, at our stores was too high, which we brought down back to to 22 degrees. The average per square foot cost of our stores is now Rs 105, which is reasonable.

Pantaloon also had high debt. We changed the maturity profile of the debt by linking payment of principal and interest to cash flow. So, instead of making a fixed amount every month irrespective of sales, we decided to link debt payment to cash generated through sales. In retrospect, it is also clear that we went into certain businesses (e.g. saloon) ahead of the time.

Though I believe that home stores business has great potential, we may have started at the wrong time. The sales from these stores started falling along with the dip in new home sales. Basically, we learnt that we need to have profitable growth rather than just growth. But I have no regrets. If the slowdown hadn’t happened we would have not adopted to new ways of doing business.

I also learnt that one should not rest on past laurels but move on. One shouldn't be swayed by the market and all the praises showered by others. You are not the smartest just because somebody told you so. Stock markets are like Maneka, the mythological seductress, tempting you to take decisions that may not be the best at that point of time.

The downturn scared people and made them humble. I have become more philosophical and talk of Mahabharata, Ramayana and Gita. This wasn't the case in good times. People are more open, listen to others and adopt measures that could help the company they work for. The downturn has ingrained the message of cost saving in the minds of people. If you go to our stores you may find the temperature to be 25 degrees Celsius, despite our instructions to reduce it.

During the crisis we did an introspection of our employees and divided them into four categories based on what they were up to. The categories were: Rama, Krishna, Duryodhana and Ravana. In the Rama category are employees who follow the company rules; Krishnas are the ones who do not follow all the rules, but work in the interest of the company. Ravanas are those who have their own rules and follow them whereas Duryodhanas have no rules and follow none. Our objective was to turn all employees into the first two kinds. Lots of cost saving we did was a result of this exercise.

Though it looks like the good times are coming back, there is a need to better understand the consumer. For instance, the needs of a white-collar worker in Mumbai are very different from the self-employed in small cities. Keeping this in mind, I have decided to travel to all the cities where Pantaloon has outlets. Earlier, we used to work like a kingdom—I used to sit in the head office and people and vendors would come to meet us. The time has come to be your own eyes and ears. The journey into the downturn was exciting— even though there were some very painful days.

— Kishore Biyani, 49, MD, Pantaloon Retail (India)

(As told to Virendra Verma)

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