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Shops looted as Indian retailer fails to pay bills

February 10, 2009 10:07 IST

India's biggest discount retailer said hundreds of its stores were attacked over the weekend, after it failed to pay its security guards because of liquidity troubles. The attack points to the potential socio-economic implications of the credit crisis hitting India's ailing retail industry.

Subhiksha Trading Services said about 600 of its discount food stores and warehouses were vandalised across the country, after it admitted it was on the verge of collapse as it had "mucked up on not raising equity".

R Subramaniam, founder and managing director of the group said: "At a time when our business is at a standstill ...the company seems unable to protect its properties as, due to non-payments to security agencies and staff, the properties have become vulnerable targets for looters".

Subhiksha, which expanded tenfold to 1,655 stores in two years, generating $470m in revenue, had been in trouble for months as it failed to pay suppliers and employees after its banks refused to lend it money. It was unclear on Sunday whether laid-off workers were responsible for the attacks.

Troubles at the chain underline the broader difficulties Indian retailers are facing because of a lack of credit, a slowing economy and high property prices - rents in the Delhi and Mumbai areas are among the highest in Asia.

Foodland Fresh, a smaller Mumbai-based retail chain, announced the closure of 39 of its 42 stores across the city last week in another sign of toughening economic conditions.

Key sectors of the Indian economy shed more than half a million jobs in the final three months of last year. Analysts predict that gross domestic product growth will fall well below 5 per cent this year, firmly ending India's double-digit growth hopes.

Since India's Retailers Association has cut the sector's growth outlook from 30-35 per cent to 15-20 per cent, several leading retailers, including Reliance and Argos, have announced plans to shut stores or curtail expansion.

Sandeep Mulik and Priyamvada Balaji, retail analysts at Fitch Ratings said: "Unlike in the past, resource optimisation and revaluating store viability will remain key priorities in 2009, which could lead to store closures and a scale back in expansion activities".

Reliance is considering cutting its wholesale team and closing 25 of its 590 Reliance Fresh flagship grocery stores.

The group owned by Indian billionaire Mukesh Ambani is also falling behind with its $6bn investment in a "farm-to-fork" supply chain project, launched in 2006, which was meant to change radically India's inefficient and mainly unorganised retail sector.

Argos, the UK online and catalogue retailer, pulled out of India last month after only two years.

The company said the Indian venture, a franchise arrangement with India's Shopper's Stop and HyperCITY retail groups, had been abandoned after failing to meet targets.

Kishore Biyani, the owner of Food Bazaar, recently said he had decided to rethink its retail strategy as the company would now be opening smaller stores instead of the typical hypermarkets.

Aditya Birla Retail, which controls 670 supermarkets and two hypermarkets, has recently told investors that it would revise its expansion plan and delay the opening of some of its stores.

Thomas Varghese, chief executive, said "We have not scaled back our investment plans but our expansion could get delayed by a few months".

Copyright The Financial Times Limited 2009

James Fontanella-Khan in Mumbai