Essar exits durables, electronics retail biz

Written by Sohini Mitter | Mumbai | Updated: Jun 9 2012, 09:22am hrs
The $30-billion Essar Group, which has interests in steel, oil, energy, real estate and telecom, has exited its consumer durables and IT (CDIT) retail business citing poor margins.

In December 2009, Essar, through its telecom retail chain The Mobile Store (TMS), had acquired X-cite a chain of large format electronics stores run by Impact Retail, a franchisee of Kuwait's Al Ghanim Industries. Essar has shut down all of X-cite's 15 stores in India.

When contacted by FE, a TMS spokesperson said: We are currently studying the CDIT retail market to make a meaningful impact on the consumer experience. As of now, we have closed our unprofitable big box and neighbourhood store format and, once our plan is finalised, we will approach the category with a meaningful and differentiated proposition for the consumer."

The spokesperson added that the company is "committed to the mobile handset retail business" and is also "working on reaching out to the customer through other channels like ecommerce, corporate/institutional sales." At present, TMS has 900 outlets in 150 towns.

Essar's exit from the CDIT business reflects the tough operational environment in the category, with other electronics chains, such as Future Group's eZone and Mukesh Ambani's Reliance Digital, also struggling to make profits. Barring the Tata Group's R3,000-crore electronics chain Croma, the CDIT segment has been a tough nut to crack for retailers as operations yield very low margins.

Sustaining high margins in the CDIT segment is tough, say consultants. While gross margins in food and grocery are 18-20%, in apparel 35-40% and in luxury goods as high as 60%, consumer durables and electronics give margins of only about 10-12%, said Arvind Singhal, chairman of consultancy Technopak Advisors, in an earlier interaction with FE.

CDIT is a tough business to sustain, even more now as much of the buying happens online.

When Essar bought X-cite two years ago, it had seven stores spanning 95,000 sqft of retail space, covering key cities like Delhi, Gurgaon, Bangalore, Hyderabad, Pune and Ahmedabad.

X-Cite was subsequently rebranded as The ElectronicStore and its network expanded in other cities, such as Mumbai, Kolkata and Chennai.

At the time of acquisition, Essar had said: As a market leader in organised telecom retailing, for TMS to enter the CDIT retail industry is the next logical step. TMS is looking at leveraging its existing scale of operations that spans 1,300 stores across 200 cities to tap the CDIT market potential.