When Shashwat Goenka took up the challenge to turn around Spencer\u2019s Retail, which has been reeling under losses for years, the 23-year-old son of Sanjiv Goenka, chairman of RP-Sanjiv Goenka Group, must not have realised how difficult a task that would be. The retail chain remains in the red and reported losses of R164.5 crore in FY 2013-14. Analysts believe losses will come down in FY15 to levels of R120 crore; a recent report by Deutsche securities pegged it at R121 crore adding Spencer\u2019s will not turn profitable in the next three years. Nomura expects the retailer to grow at close to 20% every year for the next three years, and estimates a loss of close to R45 crore in FY17. Although, it has been around for 15 years, Spencer\u2019s has not managed to get the business model right and has closed down about 200 stores. Almost all of these were not profitable and the bigger problem was that there were a larger number of smaller stores that generated less revenue and smaller margins. \u201cWe went through a consolidation and we have exited stores which were non-performing. We didn\u2019t want to be in the western part of the country,\u201d said Goenka, sector head, Spencer\u2019s Retail. The retailer is now focusing on large format hypermarkets and while 79 smaller stores will stay open, all its expansion will be in hypermarkets\u201434 at the last count. In 2013-14 nine new hypermarkets were opened, and another five are expected by the end of this year. Spencer\u2019s pace has been somewhat slower than that of its peers, namely, Future Group\u2019s Big Bazaar, Food Bazaar, FBB and eZone, which added 20 new stores last year. Future Group too is looking to focus on hypermarkets and the home retail segment. Spencer\u2019s new hypermarkets will be set up across two categories \u2014regular and compact; the first will be built across 60,000-70,000 sq-feet while the compact outlets will occupy 25,000- 30,000 sq-feet. Goenka believes there\u2019s a problem with the product mix in the Spencer\u2019s stores. The apparel category was hardly contributing three per cent to the company\u2019s revenues. It was, therefore, important to get a higher share of revenue from apparels, which\u00a0 fetches gross margins of 35-45%, twice that of the foods business. \u201cIn the food and daily retail business, which comprises the bulk of Spencer\u2019s sales, the industry reports gross margins of 19-20%. Despite tweaking its model, Spencer\u2019s has not been able to turn around,\u201d said Arvind Singhal, chairman of retail advisory firm, Technopak. Spencer\u2019s margins in the foods business are about 18%. While Goenka had hoped the company would break even last year, it didn\u2019t. \u201cEvery time we thought we were close to it (breaking even) something went wrong,\u201d he said. A break-even could be some time away since apparel\u2019s contribution to revenues will hit 15-20% only in the next few years. But the business has been overhauled. The entire supplier base was changed to cater to the tastes of customers from the upper segment of society. A new team was put in place with a new head to run the business and the new design team now works closely with the vendors. In the foods business, too, a bunch of new premium products has been introduced which are expected to fetch higher margins.\u00a0 \u201cWe were always a food-first hypermarket and we had to focus on the non-food part to deliver on the bottom line and profitability. You need to focus on categories which give you higher margins,\u201d said Goenka. Same store sales for Spencer\u2019s improved by 7.7% to R1,383 in FY14; in FY15 so far, the numbers have crossed R1,400. \u201cOur cash flow forecast for Spencer\u2019s Retail indicates that CESC would need to infuse an additional funding of R 440 crore during FY15 and FY17 into the business,\u201d Nomura observed. Goenka\u2019s immediate task will be to convince shareholders of CESC where the money will be spent.