K Raheja Group firm Shoppers Stop will undertake a series of measures, including re-aligning product mix, cutting down on store space, and, if needed, close unprofitable stores as it looks to turn around its loss-making hypermarket format HyperCity.
HyperCity?s losses widened to Rs 20.94 crore for the second quarter ended September 30, from Rs 18.2 crore last year. This was one of the factors to drag down Shoppers Stop?s consolidated losses to R5.58 crore for the second quarter, from a profit of R10.23 crore last year. Shoppers Stop has 54 stores, 41 Crossword, 12 hypermarkets under HyperCity, and five Mothercare stores.
When asked if the company would close unprofitable stores to revive the subsidiary, managing director Govind Shrikhande said, ?With respect to HyperCity, one has to look at that also along with rightsizing. Because if you don?t see the scope of making money in a store, one would look at it seriously.? Currently, the subsidiary has a total retail space of 12.3 lakh square feet in nine cities. For the latest quarter ended September 30, its like-to-like sales grew a tepid 2%.
From the fourth quarter onwards, the company expects an improvement in HyperCity numbers on a quarter-on-quarter basis. The company, which has also been reducing the space of HyperCity stores from an average of 1 lakh square feet to 50,000-60,000 square feet, also, said it will cut space of about three HyperCity stores over the third and fourth quarter, totalling about two lakh square feet.
?We are looking at a profitability mark in 30 months. Fashion business is helping the margins, and so is phasing out mobile phones. You will continue to see some more changes in the (HyperCity) business in terms of rightsizing and other things,? Shrikhande said on a conference call with analysts.
The company is bringing a change in the product mix at the hypermarket. To offset the weakness in the food business, the company is also planning to increase high-margin fashion products to 15% from 7%. Food products, which make up for about 65% of total volumes at HyperCity, have relatively low margins.
?HyperCity has been hurting the company for some time now and we expect it to be a drag for at least two-three years. They are changing product mix and cutting store size, but we do not know whether that would have a big impact,? an analyst with a domestic brokerage said.
The company said only five HyperCity stores contributed positively to the company?s earnings before interest, taxes, depreciation, and amortisation this quarter. It said it will maintain its 51% stake in HyperCity as it expects the format to become profitable and hopes that it will benefit from FDI in multi-brand retail. However, the company has not taken a call regarding FDI, as ?rules are not too friendly to execute any plans?, Shrikhande said.
?Shoppers Stop is the most well-run company on the retail side. Efforts are being made to turn around the unit, but I am not sure about the time frame. It all depends on consumer sentiments, tax laws etc,? believes Abneesh Roy, an analyst with Edelweiss Securities.