SUBHIKSHA- Downfall

Subhiksha Trading Services Limited (Subhiksha), was one of the leading retailers in India. Subhiksha, which was started as a discount store in 1997, was based in Chennai, India. Since September 2008, Subhiksha faced difficulties in operating its stores. The company had reportedly defaulted on its vendor payments which resulted in empty shelves on its stores. The employees of the retailer were not paid salaries since September 2008. On January 31, 2009, Subhiksha admitted in media that it was facing a major financial crisis. On February 11, 2009, following an attack on its stores and warehouses, Subhiksha announced that it was closing down all its 1600 outlets till May 2009.

SUBHIKSHA’s USP

Offering the branded goods at a lower price than their competitors, which could make them stand in the competitive retail industry.

PRICE CUTTING STRATEGY

Opening a chain of no-frills stores no air-conditioning and no fancy lighting. Shops are located not on the main road, but just off it, to take advantage of vastly lower rentals.

CAUSES FOR THE FAILURE

The first and big mistake committed by the management of Subhiksha is expanding the number of stores rapidly without sufficient funds in hand. They thought of raising equity but the things had gone too far before they woke up. The global markets had started collapsing and there were no possible chances of raising funds.

The company needed a solution to manage the payroll system. Although it didn't have any HR issues at the ground level, sending the payroll to employees on time was getting difficult. The system worked manually, with a central team taking care of running 2-3 payroll systems in a month depending on the availability of the band width and the entire process.

Subhiksha Trading Services has come under fire from television channels for not clearing advertising dues that run around Rs 8 crore.

Subhiksha is believed to owe Rs 35 crore against goods, Rs 18 crore against wages, and Rs 20 crore against lease rents. The company, according to the report, is also carrying a debt of Rs 700 crore at an average interest cost of 12 per cent per annum.

Expansion of Stores without adequate system control and IT Support. That’s why there was a huge Audit and abnormal losses in the system.

RECOVERY

Subhiksha, which was forced to shut all its stores as it ran out of cash, is in talks with over ten banks to restructure loans of nearly Rs 750 crore through a CDR (corporate debt restructuring) exercise. The company can resume operations after it gets cash of Rs 300 crore.

Reference:

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