Can Reliance go forward without Future Retail brands?

Reliance Retail, the retailing arm of India’s largest private company, seems to be readying alternative strategies now that the dispute over its acquisition of Future Retail – the operator of Big Bazaar super market chain – seems headed for a protracted hearing before the National Company Law Appellate Tribunal.

According to a report in Times of India, Reliance Retail is seriously considering removing Big Bazaar signs from several of the company’s outlets and replacing them with Reliance’s own brands.

In parallel, Reliance Retail has also sent letters to the employees of these Future Retail outlets asking them if they want to join Reliance Retail on similar terms as their existing contracts, reported Reuters.

Finally, the Reliance group has also sent letters to Future Retail asking it to vacate many of its stores for failing to make lease payments.

“Termination notices have been received for significant number of stores due to huge outstanding, and we would no longer have access to such store premises,” Future Retail said in a notification to investors on Saturday.

These Future Retail stores have been operating on space that has been taken on rent by Reliance Projects and Property Management Services.

Currently, it is Reliance Projects and Property Management Services that pays the rent on these properties to the original landlords — such as malls. In turn, Future Retail pays Reliance Projects and Property Management.

This arrangement was originally put in place to help Future Retail after it started facing cash-flow problems that affected its ability to make timely payments to mall operators and other landlords.

Besides paying lease charges, Reliance also helped Future Retail in sourcing merchandise by routing some of the purchases through itself.

By stepping in as an intermediary, Reliance guaranteed timely payments to mall operators and other suppliers, while ensuring that Big Bazaar and other outlets would continue to function even as it completed the acquisition of Future Retail.

However, things did not go as expected on the acquisition front after online retailer Amazon challenged Reliance’s acquisition of Future Retail, claiming that the promoter of Future Retail had a preexisting agreement with the US company that precluded any sale of its stake to a third party like Reliance.

With the Amazon imbroglio showing no signs of easing and now seemingly heading for the company law tribunal, Reliance Retail seems ready to give up on the hope of getting its hands on Future Retail brands such as Big Bazaar — the country’s oldest hyper market chain.

A strategy without such brands would require Reliance to eject Future Retail from many of its existing locations, take over the premises and convert these outlets into Reliance Retail outlets.


While such moves to take over Future Retail outlets is positive for the tens of thousands of employees working for Future Retail, it may not be the most preferred outcome as far as other stakeholders of Future Retail are concerned, including shareholders and lenders.

This is because their claims and rights are over Future Retail, the company, rather than on individual stores. Unless Reliance Retail takes over the company itself — rather than just the stores — their claims and rights do not get transferred to Reliance Retail.

Moreover, without these stores, Future Retail itself may not be able to provide them with expected returns on their investments. However, in case the NCLAT rules against the promoters, it is still possible for Future Retail to restructure its business and continue to operate its brands such as Big Bazaar by either opening new stores or focusing on online retail, particularly if Amazon comes to its rescue.

Future Retail said in its investor notice on Saturday: “The Company is scaling down its operations which will help us in reducing losses in the coming months. The Company is proposing to expand its online and home delivery business, to increase its reach to the customers.”