By Sruthijith K K, ET Bureau

THE ECONOMIC TIMES

New Delhi 23 July, 2009

Wadhawan Retail has decided to shut its Spinach food and grocery stores, multiple people familiar with the development, including one senior executive of the group, said.

Most of the 45 Spinach outlets will down shutters by the end of this month and many suppliers have snapped their relationship with the company because of huge outstanding bills, several current and former company executives said.

About 600 employees are likely to be affected by the development, they said.

Spinach has some 35 stores in Mumbai and about 10 stores in Kolkata, down from a 2008 peak of 55 stores in Mumbai and 15 in Kolkata.

Wadhawan Retail is part of the `12,000-crore Wadhawan group that has interests in real estate, retail, financial services, education and hospitality, and runs operations in India, the UAE and UK.

It runs retail stores under the Smart Retail brand in South India, Sabka Bazaar in the National Capital Region, and Spinach in Mumbai and Kolkata.

Wadhawan Retail CEO Ashok Bhasin was unavailable for comment. When contacted, a company spokesman said, "We don't comment on market speculation."

Recently there has also been a steady stream of exits from Spinach, which has been in trouble for more than a year now.

Two executives from rival retail firms, who spoke on the condition of anonymity, said their companies were inundated with resumes of job seekers from Spinach Retail.

Wadhawan Retail will also review the operations of its Sabka Bazaar stores starting next month, an executive said.

"The company suffers from a lack of focus from the promoters, who are busy in real estate, which is their core business," a retail consultant said on the condition of anonymity.

He said the company has been downsizing for a while, but he didn't know if there has been a decision to close the stores.

The group ventured into retail business in late 2005, with the target of launching 750-1,500 stores across the country.

In June 2007, it acquired NCR-based Sabka Bazaar and The Home Store from Home Stores. And in September the same year, it bought a chain of stores called S*Mart and rebranded it Smart Retail. In 2008, Ashok Bhasin, a global director at Whirlpool Corporation, USA, joined the company as CEO.

"Food retailing is a tough business," said Devangshu Dutta, CEO at retail consultant Third Eyesight. "Fresh produce is what drives footfalls, but that is also a very difficult category to manage. Ensuring the freshness of the produce is tough," he said.

Mr Dutta said that margins on FMCG products are really slim. "On top of that, there is a certain level of shrinkage all retailers suffer from. It's important to maintain a really lean operation," he said.

India's modern retail industry, which holds the enormous potential of nearly a billion future customers with rising disposable incomes, has so far claimed a number of players, small and large, who expanded too soon, or committed one of the several possible cardinal errors in the business.

Last year, Subhiksha Trading Services wound up operations due to financial difficulties.

Vishal Retail, which operates Vishal Mega Marts, is in the process of restructuring more than Rs. 740 crore of debt. Unsecured lenders have filed winding up petitions against the firm.

Even as the government is calibrating its policy approach towards domestic and foreign retailers, many early movers are struggling to stay afloat in the retail business.

Clearly, Wadhawan is no Popeye; Spinach has failed to give it strength.

With inputs from Ratna Bhushan