Their comments came in response to a clarification sought by the stock exchanges into a news report that quoted Future Group founder Kishore Biyani as saying that “he will will sell a minority stake to the strongest global retailer” in the retail giant. Quoting sources, the report also said Biyani has held talks with Walmart and Amazon.
Share prices of Future Group companies jumped by 6-8% today after the news.
In their clarifications, Future Group companies clarified that no decision has been taken in this regard.
“..since there has been no such decision taken by the Board of Directors of the company, there is no disclosure obligation that would have otherwise triggered,” they said after stock exchanges asked why they did not inform the investors of the move.
Under India’s listing regulations, companies are bound to inform the stock exchanges when they take any decision that can have a material impact of their stock price.
In their clarifications, the companies said they were always on the look out for “various possibilities, including in relation to business association with third parties”.
However, such business associations are subject to “further feasibility studies,” they added.
Biyani is no fan of complicated regulations in the retail sector.
Under India’s foreign investment rules, a foreign company cannot have a fully-owned retailing operation in India unless it is selling only a single brand, like Ikea does.
However, foreign players are allowed to own 100% of wholesale, backend, supply chain and logistics companies.
As a result, companies like Amazon and Wal-Mart have entered the retail scene by creating large back-end companies that source, store and distribute goods. These goods are sold to Indian business partners who in turn sell them to consumers.
This has worked especially well online, where foreign funded companies control procurement, warehousing and the last mile supply of the merchandise, but the actual sale happens via an online vendor owned by Indian capital.
Biyani, in his latest interview to the Economic Times, said that his companies must now consider that “something like this” could happen. He seemed to be hinting at replicating the online model in the offline world.
“Our strategy had taken into account that something like this (the Walmart-Flipkart deal) could happen.. We have to consider our position more carefully,” the report quoted him as saying.
A replication of the online model to the offline world would involve an Indian retailer offloading functions such as sourcing, supply chain and warehousing to a foreign partner with enough funds and know-how to carry out such activities on a large scale and benefit from the economies of scale.