And now Biyani needs to cope with a slowdown. Coupled with PRIL’s debt burden is a 30 per cent drop in footfalls experienced by retailers across the country. While Biyani insists his stores have not seen any drop in footfalls, he admits that customer conversion has taken a hit — that basically means that the number of customers has not decreased, but the sales have.

Consulting firm KPMG says that for the first time in six years the same store sales of retailers is in the negative. At least 70 per cent of respondents surveyed by it reported a drop in footfalls. “People are downtrading, but they have not stopped buying,” insists Biyani. “The consumption story is not over in India, as portrayed by the media. Retail is a $350-billion market here, and it is a large canvas to capture for organised retailers.” What he doesn’t say is that when people downtrade, it also means lower margins for the retailer. So though Biyani has managed to increase some revenues, the margins have actually worsened.

In response to the slowdown, PRIL — which already owns 48 Pantaloon mid-market apparel stores , 110 Big Bazaars hypermarkets and 148 Food Bazaar supermarkets, besides 160 KB’s Fair Price Shops (the neighbourhood store format) — has decided to scale down its ambitions. It is going slow on setting up 30 Big Bazaars or adding another 1.5 million sq. ft that it had planned by June 2009. Predictably, the target of expanding even more aggressively to 30 million sq. ft has been pushed back from 2011 to 2013, denting the revenue target of Rs 20,000 crore by 2013. Plans to enter the cash-and-carry business have also been shelved.

Food Bazaar and KB’s Fair Price Shops have been the biggest casualty as organised retail struggles to cope with higher rentals, power and staff costs, which constitute 18-25 per cent of the revenues. Biyani’s bets have come down to managing these stores, which are constantly threatened by kirana stores. He confesses that it is the end of an era for the neighbourhood supermarkets. “This year, we will add only 2.5 million sq. ft and will not expand in suburbs of cities any more,” he says. A report by CLSA Asia Pacific Markets lays out the mistakes in the Indian market and states that small-sized food and grocery or supermarket format is unviable.

Earlier, in 2006, Biyani decided to exit the home furnishing format ‘Mela’ within a month of its launch. Fashion Station, a discounted private-label fashion merchandise, was converted to Fashion@Big Bazaar. Such slam-bang experimentation is common in all high-growth sectors, but Biyani has also had to look over the shoulder at the competition closing in on him.

Leader’s Resolve
In 2006, a host of existing and wannabe retailers were snapping at Biyani’s heels. While some such as RPG group-owned Spencer’s Retail were still some steps behind Biyani’s PRIL, others such as Raheja group’s Shoppers Stop were neck and neck in sales. But what threatened Biyani’s numero uno status the most was Reliance Industries’ announcement of a Rs 25,000-crore plan to enter the retail sector and dominate it with 10 million sq. ft of space and 1,000 stores by 2010.

As the leader in organised retail, Biyani had to act to keep ahead. And he did. PRIL grew 2.5 times from 5 million sq. ft to 12 million sq. ft in a span of two years until March 2009. It came at a steep price. The expansion raised his interest outgo by five times, from Rs 43 crore to Rs 200 crore in fiscal 2009. PRIL’s interest coverage ratio (which shows how easily a firm can pay interest on outstanding debt) has fallen to 2.20 times — it was 5.17 in 2006 and 2.69 in 2007. This means making interest payments are becoming more difficult than it used to be.

Here’s the nub of the problem. While PRIL’s revenues seem to be growing nicely, its other financials are actually deteriorating. The company recored a profit of Rs 102 crore in the first nine months FY09, a 27 per cent rise compared to FY08. But on consolidated basis PRIL reported net loss of Rs 61.55 crore in FY08 because of high depreciation, rentals and wages.

The company also seems to be running out of cash. “They have not generated any cash from operations (in the past five years). The downtrading of domestic consumption is affecting retailers. Apart from such shrinkages, higher debt costs are also pinching them,” says Indrajeet Kelkar, retail analyst at Dolat Capital in Mumbai. And its return on investments are not all that hot either.