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Future Retail prunes costs as it aims to break even

Future Retail has pruned its fixed costs across corporate overheads, operations, people and marketing. With the company targeting break-even for small stores by September this year, it has shut 177 small-format outlets. It will open new stores, both big and small, only in existing profitable markets. There will not be any discounting. It is a first price right strategy making the MRP attractive enough without offering additional discounts.

But the bigger play to improve profitability will be through online sales. Last year, Amazon agreed to acquire a 49 per cent stake in Biyani’s Future Coupons, which owns 9.8 per cent of Future Retail, with an option to buy the entire holding at a later stage. Amazon can exercise its option to buy promoters’ shareholding in Future Retail between the third and tenth years. Amazon’s partnership will translate into at least 15 percent of Future Retail’s overall sales coming from its online initiatives by 2023 and will earn significantly higher margin compared to physical stores. Future Retail and Amazon have started using each other’s network to sell products from apparel to grocery, helping both retailers cross-leverage physical stores and the online channel to widen distribution. While Amazon is now an authorised online sales channel for Future Retail, its stores and warehouses will be used as distribution centers by Amazon for quicker delivery.

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