Perform or Perish: Reliance Retail's warning to stores

Economic Times

02-05-2025

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Kolkata: Reliance Retail 's top deck has given an express direction that all new stores must break even within 6-12 months, failing which they will either be shut down or replaced with another retail format, executives aware of the details told ET.This marks a shift from the leading retailer's earlier practice of allowing up to two years to assess a new store, and reflects a sharper focus on profitability and margins as it prepares for an initial public offering (IPO).In a closed-door meeting with analysts last week, the company management had said the IPO plans will be shared in due course, one of the executives said.The ₹2.91 lakh-crore turnover company will also scale back its aggressive expansion, another executive said. It plans to open 500-550 new stores every year, down from more than 1,000 stores earlier.In FY23, the company had opened over 3,300 stores.Over the last three financial years, it had also shut over 3,650 stores that were not profitable.Reliance Retail sells electronics, groceries, apparel, shoes, beauty products, gold jewellery, eye wear, medicine and handicraft through its stores across several formats and brands including Reliance Fresh , Digital, Trends, and MyJio."The days of crazy expansion are over, but store count will definitely go up every year... Otherwise revenue growth rate will become slower," another person aware of the plans said."With higher due diligence in location selection, over 90% of the stores should achieve the breakeven target. Some may still not as market shifts by the time a store may come up," he said.At the end of March 2025, Reliance Retail owned and ran 19,340 stores pan India.An email sent to Reliance Retail remained unanswered till Thursday press time.Reliance is also pivoting towards a premiumisation drive across apparel and grocery retail. The luxury retail business will continue to be under Reliance Brands through which it sells global brands like Armani Exchange and Hugo Boss.Reliance Retail's chief financial officer Dinesh Taluja told analysts in an earnings call last week that its premium grocery formats Freshpik and Gofresh are finding very good acceptance and it plans to launch more of these in the affluent areas.The company is also repositioning its value fashion store Trends for younger consumers with latest technology in the lines of another format Azorte.To be sure, Reliance Retail has improved its margins in the last two fiscals with the clean-up "streamlining" exercise-a push to improve margins through store rationalisation and improved operational efficiency.The company's Ebitda (earnings before interest, taxes, depreciation, and amortisation) margin improved to 8.3% in 2024-25 from 8.1% in the preceding year. In FY23 and FY22, it was 7.6% and 6.2%, respectively.Taluja told analysts the company is "pretty much done with the streamlining," but did not share any details.One of the executives cited above said streamlining was a one-time exercise to improve financial parameters and Ebitda. "Going forward, unit economics and profitability will dictate expansion and new initiatives. The improvement in Ebitda will also improve valuations," he said.Reliance is eyeing profit even in high cash burn areas like ecommerce. Taluja said the company intends to do its 30-minute online delivery business to take on quick commerce "in a profitable manner with a very strong unit economics."Deliveries will be made from the store nearest to the consumer, avoiding the need for the company to set up dark stores.Taluja said considerable fixed costs of dark stores are being taken care of by the store sales, whereas 30-minute delivery aids incremental sales with only an incremental cost incurred to deliver these orders.