K Raheja Group company, Shoppers Stop, which operates large-format department stores, hyper markets under HyperCity, and specialty stores like Crossword and Mothercare, posted a 54% drop in its consolidated net profit to R4.32 crore for the quarter ended December. Govind Shrikhande, managing director, Shoppers Stop, tells Vaishnavi Bala that the company will now focus only on margin growth, not on ramping up market share. Edited excerpts:

Shoppers Stop has again seen a steep fall in profits. How are you countering this loss?

Overall, profits have fallen due to losses at HyperCity, and the other factor is our large investment into new stores. We are reducing operating costs at HyperCity and also cutting extended discounts to increase margins. However, after a long time, the department store has seen good growth in like-to-like sales of 12% this quarter.

This was mainly helped by the festival season and the wedding season. The third quarter is generally a good quarter for us. But this may not be entirely sustainable.

What kind of profit levels are you foreseeing going forward during the fourth quarter and the next fiscal?

I don?t see much change in profitability for at least the next four quarters.

We are investing heavily into new stores. We added 20 stores in the last 24 months, and are now looking to add 16 to 18 stores over next two years.

So by 2015-16, 50% of the stores will be less than four years old and, hence, they will grow by 15-20%.

So by when do you expect to see positive results from all the investments that the company is making now?

All the investments that we are making now will start paying us back 24 months down the lane. By that time, HyperCity will also turnaround.

So by 2015-2016, we will see a complete change in our overall profits.

You have been trying to turnaround HyperCity for more than a year. How effective have efforts been?

We are cutting down on space as that was eating away at the margins. For example, out Amritsar store?s space has now been reduced to 50,000 square feet from 100,000 square feet and we are looking at some other stores for the same. Also, we are increasing the share of fashion from 7.5% to 15% in three years, because fashion is high-margin business.

During the winter discount sale this time, most companies have again extended their discount season. What is Shoppers Stop?s strategy with regard to this?

Our call is to chase profitable growth, not market share. We will not have any extended discount season, but have only three-four weeks of discounting.

In the third quarter, we set the trend by not offering any discounts. It is important for retailers to wake up to the situation that the more discounting they do, the more it will hurt their bottomline. Most retailers are in the red. To give you an example, a retailer on an average, can lose about 10% of margins during an extended discount season.