Retail companies opt for lean & mean ramp-up mantra

Written by Vaishnavi Bala | Mumbai | Updated: Jul 21 2013, 10:55am hrs
Focusing on smaller shops in select locations, the top three listed Indian retailers will add about 1.98 million square feet of total space this year, 22% lower than the space they added during 2013 fiscal. Indias biggest retailer, Kishore Biyanis Future Retail, will add 1.25 million square feet of space in 2014 fiscal, lower than the 2 million square feet it added last year, said the companys joint managing director, Rakesh Biyani.

Tata Groups retail arm Trent said it is on track to open close to eight Westside stores this year with a store size of roughly 20,000 square feet. This amounts to space of 0.16 million square feet being added this year, compared with an area of 0.21 million square feet added last year.

The company has not indicated plans to expand its Star Bazaar chain of stores. It did not open any Star Bazaar store during FY13.

K Raheja Groups Shoppers Stop will be adding roughly 0.32 million to its total area as it plans to add eight-nine stores this year, but of smaller sizes than last year. This space would be slightly lower than the 0.35 million square feet that the company added through seven stores last year.

The primary focus is on making stores profitable. We will only open at places where we would be able to ramp up faster, justified Future Groups Rakesh Biyani.

Last year the company shut nine Big Bazaar stores, five Food Bazaar supermarkets and 20 eZone stores that were not profitable.

This year, the company will invest R400 crore on expanding its formats, 33% lower than its investment levels last year. Shoppers Stop has earmarked R125 crore this year on expansion, a tad lower than its last years investment levels.

We are being cautious in our approach to expansion and even in picking properties. We are not being too aggressive right now, Trents CFO P Venkatesalu said.

Tatas retail arm Trent closed four Westside stores during 2013 fiscal that were located in declining malls, the company said. Also, during the year, the company did not open any store of its hypermarket chain of stores, Star Bazaar, which is yet to break even. Star Bazaars high cost of operations have curtailed the formats ramp-up, the company said.

Shoppers Stops (standalone) space addition was 9.7% over the last year to 3.4 million square feet in 2013 fiscal compared with 29.2% in 2012 fiscal. However, among the listed players, Shoppers Stop is ramping up the fastest.

According to the companys managing director Govind Shrikhande, about 50% of the companys stores will be less than four years old by 2015-16. Shrikhande expects their sales to grow by 15-20% by then.

Retailers are looking at profitable and moderate pace of additions under 10% in 2014 fiscal against the range of 15-30% seen in the past two-three years, said a report by India Ratings & Research, a Fitch Group arm.

The agency expects this pace of additions to be maintained, which would help reduce major capex outgo.

Some of the stores opened during the past two years witnessed slower ramp up in sales and on the other hand involved higher operating costs, including on account of common area maintenance cost charge-outs,Trent said.

Over the past one and half years, Indias slowing economy and rising inflation has taken a toll on discretionary spending by consumers. Slow economic growth the lowest in a decade has affected peoples appetite to buy clothes and consumer durables.