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Hypermarkets shrink on online pressure

Hypermarkets and departmental stores are no longer going to be mega-sized outlets. With shoppers going online for a host of items or preferring to buy at specialised stores, retailers have no option but to rein in costs.

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Inspired by the likes of social platforms Pinterest and Tumblr, Cooliyo is a community-curated collection of products across online stores, Co-founder of Cooliyo added. (Reuters)
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Trent Hypermarkets, a part of the joint venture between Tata and Tesco, has cut down the size of its stores by half, from what used to be an average size of 40,000–80,000 sq ft, to 20,000-30,000 sq ft.(Reuters)

Hypermarkets and departmental stores are no longer going to be mega-sized outlets. With shoppers going online for a host of items or preferring to buy at specialised stores, retailers have no option but to rein in costs. So stores that used to be 70,000-80,000 sq ft square large, a decade back, have shrunk to 20,000-25,000 sq ft. As Nirzar Jain, vice-president at Oberoi Mall, Mumbai, points out, large stores require large inventories, which translates into a higher investment. “Retailers only want to hold stock for which they see predictable throughput,” Jain observes.

Mukhesh Kumar, vice-president of Mumbai-based retail mall Infiniti, points out consumers today prefer to shop for home decor, electronics, consumer durables and apparel from specialty stores. “So departmental stores no longer need to stock many of these categories,” Kumar said, adding one section of consumers is uncomfortable buying groceries and fashion labels in the same trolley.

Pankaj Renjhen, MD, (retail) JLL India, observes that when revenues per sq foot are under pressure, merchandise needs to be consumed quickly. “Smaller stores also require less capital,” Renjhen explained.

To be sure, small is more profitable. Two retailers confirmed to FE that downsizing hypermarkets by 50-60% had helped drive up realisations from about R2,000–R2500 per sq ft to R3000 per sq ft. Moreover, as Dhanraj Bhagat, partner at Grant Thornton, points out, a smaller store means lower rentals for retailers, which translates into higher margins, given fewer categories of merchandise are being stocked.

Trent Hypermarkets, a part of the joint venture between Tata and Tesco, has cut down the size of its stores by half, from what used to be an average size of 40,000–80,000 sq ft, to 20,000-30,000 sq ft.

Similarly, the Landmark Group’s fashion and home store offering, Lifestyle International, is now experimenting with store sizes of 25,000 sq ft from an esrtwhile average of 30,000-50,000 sq ft when it started out in late 1990s.

Future Group-owned brand Big Bazaar has trimmed its store from 55,000 sq ft to about 35,000 sq ft in Infiniti Mall. Central, another brand promoted by Kishore Biyani, is now going to set up shop in a space of 35,000-40,000 sq ft and not across 70,000 sq ft as it is in Oberoi Mall. While costs and consumer patterns are the main reason for smaller hypermarkets, the lack of affordable and quality real estate is also a problem. The more popular malls have a vacancy of less than 10%.

New-age hypermarkets and departmental stores will focus on food, grocery and apparel.

As Arvind Singhal, chairman and managing director of Technopak, pointed out, e-retail portals have taken over the consumer durables and electronics markets. “Retailers will reinvent the apparel category because demand from middle-income groups is on the rise,” said Renjhen. Stores like Big Bazaar and Lifestyle have already launched and promoted their clothing brands, FBB and Code respectively. In the food and grocery category, Trent has started Star Market, a specialized retail outlet for food and grocery across 15,000 sq ft. “Along with fashion and groceries, hypermarkets and departmental stores will continue to stock kitchen appliances and linen which are selling well,” explained Singhal.

Small is beautiful

Stores that used to be 70,000-80,000 sq ft square large a decade back have shrunk to 20,000-25,000 sq ft.

While costs and consumer patterns are the main reason for smaller hypermarkets, the lack of affordable and quality real estate is also a problem.

The more popular malls have a vacancy of less than 10%.

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