Globus takes metro route, stocks in-house labels in margin play

Written by Vaishnavi Bala | Mumbai | Updated: Apr 14 2014, 05:33am hrs
GlobusIn 2007, the chain had hoped to add 10 stores a year to take the tally to 50 by 2010.
Fashion retailer Globus, which was compelled to give up a fourth of its revenues and shut down two of its biggest stores in Delhi and Mumbai last year because they were losing money, has decided to change tack, reports Vaishnavi Bala in Mumbai.

The chains 39 stores will now focus fully on private labels, which typically bring in better margins. The new model, managing director Vinay Nadkarni believes, will help it come back to cities like Bangalore that it exited a few years ago. Private labels will fetch us margins that are 40% higher than those that we earn on other brands, Nadkarni told FE.

In 2007, the chain had hoped to add 10 stores a year to take the tally to 50 by 2010. But instead, it has been forced to scale back partly because the competition is becoming keener. Fashion retailers like Forever21 and Vero Moda, for instance, are churning out new designs every fortnight at similar price points and customers are spoilt for choice.

Nadkarni hopes to counter the competition with the chains labels.

Its good that customers are more conscious of fashion and are looking for new designs because that should bring them into our stores more often, he said.

Losses at the Rajan Raheja chain widened to R32 crore from R23.7 crore in FY12, with the top line growing just 5% to R230 crore. Nadkarni believes sales will be a sluggish 5-6% higher this year too.

Although there is some pick-up in demand, consumer sentiment remains weak and more people are postponing purchases to the discount season, he said.

Globus foray into tier-II cities turned out to be disappointing since revenues didnt keep pace with estimates.

The learning: Even if rentals in metros are 40% higher, profitability is better since per sq ft revenues are almost double. Currently the chain reports a top line per sq ft per month of Rs 700.

Which is why Globus plans to expand in places like Mumbai, Delhi, Bangalore, Hyderabad and Chandigarh but with smaller stores 8000 sq ft versus the big box 40,000 sq ft it had earlier. Of course, break-even time in a metro is two years, almost twice the time taken in a tier-II town, but its nevertheless a better proposition, say experts.

They also point out that Globus must keep pace with the latest fashion trends.Globus needs to reposition itself in terms of the product mix, prices and even designs. Theres more of a focus on party and evening wear and less on day wear and office wear, which is possibly why it has not been able to compete with fast fashion players or even the pure-play Indian private label retailers, said Prashant Agarwal, joint MD, Wazir Advisors, who added that the higher price points might be keeping customers away.

The retailing business of the company faced considerable challenges during the year due to the current economic slowdown in the country, Globus said in a filing to the registrar of companies. The imposition of excise duty on garments in the Finance Bill, 2011, eroded the margins further and, therefore, the overall gross margins saw a drop of 3.43% over last year, the company had pointed out.