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Presented by Group 4
Subhiksha- Background
Founded in 1997 by R. Subramanian
Business Model
Low cost Network: Large number of stores per city Moderate assortment Every Day Low Pricing (EDLP) Deep discount Closeness to customers location Investments in furniture and fixtures: Minimum Purchases were done on cash to get maximum margin
The Rise
1 shop in 1997 grew into 1650 shops in 2008 largest retailer in India at that time Revenue increased by 700% in the period 2006-2008 (Rs 3.3 bn to Rs 23.05 bn In March 2008, Subhiksha was named as one of the worlds top 50 Local
The Stumble
August 2008- Reports of Subhiksha not paying salaries to staff and defaulting on rent
The Case
Case Objective
To Understand Subhiksha business model To understand the benefits of revamping a store and opening a new store To use decision making criteria under risk and uncertainty to determine the decision made by Subhiksha was a sound one
Case Questions
1. With reference to the Indiranagar store and Shastri Nagar stores, was the decision to expand to new regions instead of revamping the existing stores and generating revenue from them a sound one? 2. Can any of the decision making tools, if employed, show that the decision was wrong?
Case Methodology
The operations of two stores are explained New store at Indiranagar and Revamped store at Shastri Nagar The case analysis focuses on the aggressive expansion phase where they deviated from their previous norm & started 300 new stores in every 6 months on average The cost of operating of each store is found out from the data, and profits calculated Possible decisions and outcomes are formulated
Outcomes(Gross profit) High Moderate None 16142500 7861635 -8700000 4541650 183300 -8533350 13624950 549900 -25600050 27249900 1099800 -51200100 0 0 0
Highest EMV
Revamp 50 Stores
0.3333 16142500 High
Revamp 50 Stores
5101378
13624950
27249900 0
Maximin Criteria
Outcomes(Gross profit) Selection Criteria MAXIMIN Criterion -8700000 -8533350 -25600050 -51200100 0
Alternative High Moderate None Revamp 50 stores 16142500 7861635 -8700000 Open 50 new stores 4541650 183300 -8533350 Open 150 new stores 13624950 549900 -25600050 Open 300 new stores 27249900 1099800 -51200100 Do Nothing 0 0 0
Outcomes(Gross profit)
Selection Criteria
Alternative High Moderate None Equally Likely Revamp 50 stores 16142500 7861635 -8700000 5101378.3 Open 50 new stores 4541650 183300 -8533350 -1269467 Open 150 new stores 13624950 549900 -25600050 -3808400 Open 300 new stores 27249900 1099800 -51200100 -7616800 Do Nothing 0 0 0 0
Opportunity loss table Outcomes(Gross profit) Selection Criteria Alternative High Moderate None Minimax Regret Revamp 50 stores 11107400 0 8700000 11107400 Open 50 new stores 22708250 7678335 8533350 22708250 Open 150 new stores 13624950 7311735 25600050 17066700 Open 300 new stores 0 6761835 51200100 42666750 Do Nothing 27249900 7861635 0 27249900
Conclusions
From the result of our analysis, we can conclude that their decision of aggressive expansion was based on a highly optimistic perspective of the outcome This backfired on them as the optimistic view is not suited for the retail business scenario in India A fairly safe option would have been to revamp their already established and prosperous stores In early 2008, when they were in serious debt, they should have gone for
Recommendations
Also, the current retail business scenario in India has changed.
Organized retail has grown significantly and retail stores are now easily
accessible. They no longer possess their old stores as they used them to pay off their debts Not only do they not possess their initial competitive advantage in terms of accessibility and first mover advantage, they also have to start from scratch by obtaining new stores Thus we recommend that they start with a new model designed on the basis of the current retail scenario
References
1. Chabra, P. (2008). Subhiksha Failure: On the wings of some vanity & wax. Retrieved October 13, 2013, from Business & Economy: http://www.businessandeconomy.org/29042010/storyd.asp?sid=5192&pageno=2 2. Dr. L. Suresh Mallya, D. P. (2012, jan-jun). CRITICAL EVALUATION OF A FEW INDIAN ENTREPRENEURS. AMET International Journal of Management , 65-66. 3. Dr. S. Mani, A. S. (2011, MArch). SUBHIKSHA THE RETAIL PHENOMENON THAT FLATTERED TO DECEIVE. PRERANA -Journal of Managementthought and Practtices , 47-49. 4. Goswami, D. P. (2010). Subhiksha: To Make-over or not to Make-over? Journal of Case Research , 81-98. 5. H.M. Jha Bidyarthi, A. K. (2010). From Subhiksha (Prosper) To Iksha (Perspire):The Topsy-Turvy Story of Indian Retail Business Model. American Journal of Economics and Business Administration , 153-156. 6. Janat Shah, R. P. Subhiksha: Managing store Operations. Boston: HArward Business School. 7. K. Suvarchala Rani, D. S. (2013, June). Small Format Retail Chain: The case of Subhiksha. Pacific Business Review International , 5 (12), pp. 56-60. 8. Sriram, R. (2011, Aug 25). Why Subhiksha Trading Services collapsed. India.