After a year of slow growth, apparel maker and retailer Provogue is reworking its business strategy to boost revenues and prop up margins, a top company executive said.
Under the new strategy, Provogue plans to reduce the size of its stores, sell more of its vendor brands, slow expansion in its discount format, and scale down mall development.It is confident that this strategic shift, alongwith the perking up of the economy, will ensure a topline growth of 25-30 per cent every year going forward. Provogue's topline grew at 8 per cent between FY08 and FY09 due to adverse economic conditions, which forced shoppers to curb spending and downtrade.
The company made a net profit of Rs 70 crore on revenues of Rs 363 crore in FY09. Its net profit went up by 180 per cent in FY09 compared to net profit in FY08. However, the company's operating profit margins have gone down by 500 basis points in first quarter of FY09 compared to preceding quarter due to poor consumer sentiments.
Provogue, which opened its first store in 2001, today has 126 stores and over 100 shop-in-shops. The company plans to open 50 new stores in the next two years with an investment of Rs 35 crore to take its store count to 175. It has, however, decided against opening bigger flagship stores of 10,000 square feet for now. It would opt for smaller stores in the range of 800-2,000 square feet to save on rents and costs.
"We are very careful about expansion and want to make every store profitable. Rents were very high in the last two years and it did not make sense to open stores in some places. We close stores regularly... though it never exceeds 3-4 every year,'' said Salil Chaturvedi, deputy managing director of Provogue India.
After the consolidation in the last two years, Chaturvedi said the company is ready to grow aggressively. "We have built systems and back-end to handle business of $250 million. We are ready to go now,'' he said.
Though the company planned to have 20 Promart, its off-price shops, by mid-2010, it currently has only two stores in the country. Chaturvedi said the company is planning to expand Promart slowly, 5-6 a year as it is very cost-oriented model. "If you spread across the country, you will loose control over costs,'' Chaturvedi said.
Though it started selling products at discount in Promart stores, the company has realised that products of its vendors are fetching it 60 per cent of revenues and 50 per cent gross margins than those of well known brands. Hence, the company plans to sell 80 per cent of merchandise at full price and remaining 20 per cent at discount.
Prozone Liberty, the mall development arm of Provogue, has also scaled down its plans given the slowdown in the retail sector earlier. Originally, the company planned to build six malls, now it is going ahead with only three, in Jaipur, Indore and Aurangabad. The company is also exploring ways to use additional land in these sites for alternative uses such as residential development, he said.