With online shopping becoming increasingly popular, brick and mortar retailers are having a difficult time. Most top of the line players—Shopper’s Stop, Trent and Arvind Limited—have struggled to grow profits in the last three years. Just how tough the going has been can be seen from the fact that in the three months to March, Shoppers Stop reported a same store sales growth of just 3.1% year-on-year. In fact, FY17 turned to be a tepid affair for the retailer which has been in the business for over 15 years; it reported an increase in net sales of just 3.4% at Rs4,910.14 crore. Few retailers were able to report double digit growth in their top lines; Future Lifestyle and Fashion posted a 9% rise in its net sales to R3,800.44 crore, much like Arvind Limited at Rs9,235.54 crore. The Tata Group owned Trent—which runs the Westside and Star Bazaar—saw its net sales fall 26.4% to Rs1,833.92 crore.
With top lines under pressure, retailers have found it hard to cover the high costs on rents, employees, inventory costs and other expenses.
Moreover, gross margins have been under pressure. For instance Shoppers Stop reported -0.79% gross margin in 2016-17. In 2016-16 it reported a gross margin of -0.2%. EBITDA margins too were under stress. Trent reported EBITDA of Rs125 crore in FY17 compared to Rs141.0 crore in FY16. Shoppers Stop’s EBITDA too marginally declined in FY17 to Rs199.33 crore. Again, the Ebitda margins of Shoppers Stop, fell to 4.1% in 2016-17 from 4.5% in 2015-16. Consequently,Shopper’s Stop reported loss of Rs78.37 crore in 2016-17 compared with a loss of Rs40.28 crore in the previous year. Arvind’s profits were lower in 2016-17 at Rs313.84 crore compared with Rs314.19 crore in 2015-16.
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Trent, however managed to report a profit of Rs84.95 crore in 2016-17, thanks to higher total income which grew 15% in 2016-17 to Rs1894.43 crore. Nevertheless this was smaller than the profit of Rs129.33 crore in 2014-15. High inventory costs have plagued retailers, in the three months to March, partly due to high stocks post demonetisation. For instance while sales at Future Lifestyle and fashion rose 16.11% y-o-y to Rs987.73 crore in the March quarter, inventory costs increased 17.1% year-on-year to Rs619.03 crore. The high rents have stymied expansion plans of most retailers who have been adding fewer stores. For examples, while Shopper’s Stop used to add around 9 to 10 stores in FY13, FY14, the retailer added just 7 stores in FY15.
The company plans to open 5 Shoppers Stop in FY18 and has earmarked a capital expenditure of around R80 to R90 crore. Shoppers Stop is also looking to marginally downsize or shut three of its loss making stores and 4 Hypercity stores, while the company plans to renovate 7 stores in FY18, Govind Shrikhande, customer care associate and managing director, Shoppers Stop told FE. Pinaki Ranjan Mishra, partner and National Leader, Retail and Consumer Products, Ernst & Young, said “the other reason for higher inventory cost could be due to brick and mortar retailers holding longer period of sale this year to make sure of keeping enough stock so that they don’t disappoint customers. Also addition of new stores could have resulted in some addition in inventory costs.”
Future Lifestyle and Fashion Retail which has formats like Central, Brand Factory and also exclusive brand outlets has total 372 stores operational in the country with total space of 5.4 million sq ft space, as of March 31, 2017 up from 369 stores operational in FY16. Shoppers Stop has 80 stores operational in the country as of March 31, 2017. Shoppers Stop along with its subsidiaries Crossword Bookstores and Hypercity Retail India and joint venture companies Timezone Entertainment and Nuance Group India operates more than 57.38 lakh sq ft in the country. Part of the Tata group, Trent which operates Westside and Star Bazaar, has 83 Westside departmental stores across the country and Star Bazaar at present has 9 Hypermarkets, 13 Star Market and 19 Star Daily.