Why Vishal has to handover its ownership.

Why Vishal Retail has fail despite of such a good reach and every household’s name in tire 2 & 3 cities is a big questions to all. I too also have wondered about it then I researched a little in World Wide Web and come with some surprising facts that led Vishal Retail to handover its ownership to Texas Pacific Group (TPG) and the Chennai based-Shriram Group.

Vishal expanded but without having enough capital. Instead of stabilizing and consolidating themselves first in different places and then moving to newer locations, tried to be the first in every town. When it was ramping up, it spread itself too thin, opening stores across the country. Given that it was selling over 20,000 items in its stores, this made its supply chain complex. They needed to expand, stabilize and then expand. But they wanted to be first off-the-block in every town.

They got the orders from the suppliers but when the stores didn’t work out, the entire supply chain got choked. Its distribution center led model failed as it couldn’t build an IT network. Buying at warehouses was mostly not aligned to what the customers needed and resulted in dead inventory. Vishal is saddled with huge stocks, valued around Rs 550 crore at the end. This is its one of the big problem that responsible for back-to-back quarterly losses. Vishal tried to develop private labels in every single category, but did not have the competence (had limited scale) to support these. Its ticket size has also come down, as it is doing a lot of deep-discounting to get rid of inventory.

Another mistake they have made was to grow the business through short-term debt. The mistake proved too costly. In June 2007, Vishal raised Rs 110 crore (Rs 1.1 billion) through an IPO but this was not enough to meet its scorching growth. It had 50 stores by then and was looking to add 130 more in a year. It tapped the short-term debt market, as it could not bring in a follow-on offer before a year after the IPO. Its capital structure remains a problem.