According to sources, the company has three options to demerge the stores in the parent company, to close down the stores or even sell them to an Indian entity.
The company has four stores in Gujarat and Tamil Nadu two in Ahmedabad and one each in Surat and Chennai that need to be divested. The company may reorganise the stores into the parent company which does not have foreign investment. By doing this, store closure can be avoided, an executive said. Trent did not respond to an email query seeking responses.
The BJP government in Gujarat has opposed FDI in multi-brand retail, along with J Jayalalithaa's AIADMK that is in power in Tamil Nadu.
It makes sense for the company to demerge the four stores into a separate entity that does not have Tesco's investment. After the elections, if the FDI rule changes, Trent Hypermarket can buy back the entity or let them be in the new form, as the need arises, says Prashant Agarwal, joint managing director of consultancy firm Wazir Advisors.
In total, the company has 16 Star Bazaar hypermarkets and one Star Daily convenience store that it opened in October in Pune. Trent has been going slow on expansion of both these formats.
For instance, the company had not opened a single store in FY13, while it has opened three stores in the current financial year. Moreover, it has not opened another Star Daily store.
Tesco was the first international retailer to apply for a multi-brand retailing licence more than a year after the government opened up 51% FDI in multi-brand retail in September 2012. Tesco is forming an equal joint venture with Trent, by picking up 50% stake in Trent Hypermarket for about R850 crore. Tesco's investment plan was approved by the FIPB in December, just a week after the companies' proposal.
In 2008, Tesco tied up with Tata's Trent to provide back-end support to the Star Bazaar chain; earlier in 2004, the Tesco Hindustan Service Centre, which employs 6,500 people, was set up in Bangalore. The companies have stated previously that the first set of stores will be opened in Maharashtra and Karnataka.
In FY13, Star Bazaar reported revenues of R801 crore and a loss of R72 crore. Like other retailers in the space, the company is also looking to reduce the size of its stores to 30,000 sqft from the current 40,000-80,000 sqft.
To cut its rental costs, Trent is also looking for property outside malls because of high common area maintenance there, a Trent executive told FE.
For perspective, while high street rentals in Lokhandwala, Andheri, are going at R320 per sqft per month, a mall in Andheri commands a rental of R400 per sqft per month.