Shut shop and relocate – the new retail policy to cut losses

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Mumbai | Published: September 16, 2018 3:48:07 AM

More than 500 stores have been shut in the last couple of years by brick and mortar retailers across formats, as they focus on improving profitability, cutting rental costs and cautious expansion.

Experts say in most cases, shutting down stores has helped companies cut losses.

More than 500 stores have been shut in the last couple of years by brick and mortar retailers across formats, as they focus on improving profitability, cutting rental costs and cautious expansion.

Aditya Birla Fashion and Retail closed 189 exclusive brand outlets; Coffee Day Global shut 120 stores; Trent Hypermarket, a joint venture between the Tata Group and Tesco which operates three formats — Star Bazaar Hypermarket, Star Market and Star Daily — shut all its 20 loss-making Star Daily stores; Benetton India rationalised its network of stores and closed down 56 stores; Raymond shut 30 loss-making stores, Shoppers Stop shut five stores; Costa Coffee shut 35 stores and Barista shut 40 stores, among others.

Experts say in most cases, shutting down stores has helped companies cut losses. Says Anil Talreja, partner, Deloitte: “Focus on online expansion and omni-channel presence has also resulted in brick and mortar retailers shutting stores and focusing on online presence. Retailers are focusing on cutting expensive real estate costs and want to sell more online. Going forward, we would see more consolidation in the sector in terms of store rationalisation and also acquisitions.”

As per a Jefferies report, the journey for organised retail in India, especially departmental and grocery formats, so far has been more bumpy than smooth. Sharp store expansion, lower same-store sales growth, high rentals, advent of competitive threat from online players and high cost of doing business have been some of the key problems facing the sector.

However, companies have plans to add stores as well in more viable locations. Aditya Birla Fashion and Retail (ABFRL, formerly known as Pantaloons), will add 350 stores in FY19 across formats, while it plans to shut around 3-4% of its loss-making stores to focus on profitable growth. Ashish Dikshit, managing director, Aditya Birla Fashion and Retail, has said, “We plan to add around 300 stores under Madura and various other brands while adding around 50-60 Pantaloons stores in FY19. At any given time, we keep on evaluating our performance of the stores and as we keep adding a large number of stores, it is obvious that we shut few stores whose performance is not as per our expectations.” As on March 31, Aditya Birla Fashion and Retail had 2,465 operational brand stores, which include 275 Pantaloons stores, 4,982 multi-brand outlets (MBOs) and nearly 4,054 points of sale in department stores across the country.

Denim fashion brand Benetton India opened 63 stores, while it shut 119 stores in FY17 to end the year with a total of 718 stores.

Raymond, known for manufacturing and retailing men’s wear across the country, was also on a rationalisation spree in the last couple of years. The company has 1,236 exclusive retail outlets operational in the country and plans to double the store count of its Flagship brand Park Avenue and add 100 stores in the next couple of years. Presently, the company has 100 Park Avenue stores operational in the country. Sanjay Behl, chief executive officer, Raymond, said, “Store renovation and shutting few loss-making stores has been a continuous process to reduce losses of the company. We will be adding about 150 stores in FY19 across formats and the majority of new stores will be based on a franchise model. Overall, our long-term strategy of improving our returns on investment remains intact.”

Raymond’s focus on renovation and shuttering down loss-making stores is likely to result in improvement of same-store-sales growth in the future. As per an Emkay report, the branded apparel revenue of Raymond grew by 17% year-on-year along with a same store sales growth of 20%.

Department chain Shoppers Stop, too, has shut at least five loss-making stores (across formats) in FY18, while it has re-sized a few. The company presently operates 83 stores in 38 cities. The company plans to add five stores in FY19. According to a Jeferries report, Shoppers Stop, post its clean-up exercise in FY18, is a turnaround contender, with increased focus on the department store business, reduced leverage, better return ratios and the omni-channel playout.

Similarly, focusing on profitability, coffee chains like Costa Coffee and Barista have shut around 35 to 40 stores each over the last couple of year across the country. Barista company presently operates 45 stores, after having closed down more that twice that number, most of them company-owned. The company now plans to add 500 franchisee stores over the next five years. At present, Costa Coffee has 46 stores operational in the country, after shutting almost half its stores over the last couple of years, but it is not known how many stores the company plans to add.

Coffee Day Global (CDGL), plans to add 125 and 135 outlets by March next year, the management has indicated. In 2017-18 too, CDGL set up 135 cafes but it also shuttered many, leaving a net addition of 40 outlets. The management’s objective is to have larger cafes with better facilities. A Venu Madhav, director, CDGL, pointed out that recently many outlets were small, covering around 500 to 600 sq ft and without washrooms. “We are looking at bigger outlets of between 1,000 and 1,200 sq ft in locations nearby,” he said.

For Trent Hypermarket, the management plans to add 25 new stores in FY19 and added 20 stores in FY18. Experts said store rationalisation and improved private label mix in hypermarket format and recovery in growth for Zara should improve profitability in the joint ventures. The company primarily operates stores across four concepts – Westside, Zudio, Star and Landmark. Westside has 125 stores operational in the country, while the Star brand has presence with 23 Star Market and 12 Hypermarket stores. The joint venture for Zara operates 20 stores in Delhi, Mumbai, Bangalore, Pune, Surat, Jaipur, Chandigarh, Chennai, Mohali, Hyderabad and Gurgaon.

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