The Rs.540-crore retail chain, Megamart, part of the textile and apparel major Arvind Ltd, is undergoing a strategic makeover in its business model to cope with increasing cost pressures.
The retail format has moved out from its earlier discount model and is now on an expansion roll with 10 stores coming up in the next three-four months.
Megamart, the Bangalore-headquartered retail chain, which had aggressive growth during the past two years, witnessed a lull in its business in the current financial year, impacting margins and growth plans.
?Megamart had problems in FY13; so, we are going for a strategic change in the business model,? Suresh J, managing director and CEO, Arvind Lifestyle Brands and Retail, told FE. Megamart is part of the R1,400-crore Arvind Life Style Brands and Retail, the fully-owned subsidiary of Arvind Ltd.
Megamart was paying excise duty on MRP while consumers were paying much less under the discount model. This was not working out for the firm, especially in the past one year.
The company started the discount model by selling unsold stocks of Wrangler, Arrow and other brands.
But later, even when it introduced brands within Megamart, such as Ruggers, Excalibur and Cherokee, the company continued with its discount model.
?Once this business model changes and the old stock is sold out, it will have a positive impact on our EBITDA by around 4-5%,? Suresh said.
The retail chain, which has posted a CAGR of 26% over the past three years, expects to continue with its current growth rate in the next few years.
Megamart, which started operations in 1995, had moved to the value-retail model in 2006.
It is now aiming to achieve a topline of R700 crore for FY14 and R950 crore for FY15. Megamart, which currently has 200 stores across India, of which 80% are in four south Indian states and about 17% in Maharashtra, plans to open larger store formats.
Currently the average store size is about 3,000-4,000 sq feet, while the new format will be in the range of 10,000-15,000 sq feet.
?We are pretty strong in south India. Our plan is to exhaust ourselves in the markets we are present in before going to other geographies. There is enough scope in these five states where we are dominant. Once we do that, we will go to other markets,? said Suresh, adding that new stores will come up in Visakhapatnam, Bangalore, Vellore, and Chennai.