The Raheja-owned Shoppers Stop, which was so far an up market department chain, is becoming a full service retailer soon. It is increasing its stake in the promoter group's hypermarket chain Hypercity from 19 per cent to 51 per cent.
By doing so, Shoppers Stop will join the select league of retailers such as Kishore Biyani's Future Group, Tata's Trent and Mukesh Ambani's Reliance Retail - all of whom operate both hypermarkets and department stores.
Analysts say the margins in food and groceries are less at 10-20 per cent compared to 50 per cent in apparels and accessories, but they are important footfall drivers for retailers.
Though Hypercity will be run independently, the idea behind bringing Hypercity under Shoppers Stop fold is to "capture a higher share of the consumer's wallet", says Govind Shrikhande, chief executive officer Shoppers Stop.
While lifestyle accounts for 15 per cent of the consumer's spend, 60 -65 per cent comes from food and grocery and it is this segment Shoppers is setting its sight on.
Industry-watchers agree. "Over a period of time, hypermarkets have performed well for retailers. Unlike fashion where there are 300-400 players, hypermarkets barely have four to five large players,'' says Susil Dungarwal, founder of Beyond Squarefeet.
Funding the higher stake acquisition in Hypercity isn't a problem as the company is planning to sell four million shares at Rs 500-550 through a qualified institutional placement in the next two quarters.
The company plans to have a total of 26 Hypercity stores from seven at present. Hypercity Vice Chairman BS Nagesh says Hypercity's current stores are set to see a break-even by financial year 2012 and at the company level, the chain will become profitable by FY 2013.
Shrikhande also sees the combined strength of the two retail firms create more synergies for each other. "We can get good deals while signing properties and ensure two anchor tenants for malls,'' says he. Anchor tenants are considered important in driving footfalls into malls and getting vanilla retailers in.
"We can also develop common loyalty programmes for both the chains,'' he says. Currently, 75 per cent of Shoppers business comes from its loyalty card programme, First Citizen.
Besides, both the chains can negotiate well with media houses on advertising deals.
BEYOND HYPERCITY
It is not only Hypercity that will keep Shoppers Stop busy. The 18-year-old retailer is planning a big expansion of its department stores, to catch up with competition. The store count will be doubled in the next four to five years at an investment of around Rs 300 crore (Rs 3 billion).
The retailer, which runs 30 department stores and opened its first store in 1991, was considered a laggard compared to even relative newcomers such as Reliance Retail and Aditya Birla's More, which have over 1,100 and 750 stores respectively. But Shoppers Stop wants to leave that image behind.
"We took 20 years to open our first 30 stores, but we want to open the next 30 in less than five years,'' Shrikhande says.However, the company does not want to lose its focus on metros, as only less than 20 per cent of its stores will operate in tier II cities in the next four years. Reason: While tier I cities give the company revenues of Rs 11,000 a sq ft, tier II cities give around Rs 7,500 sq ft.
The one thing which will not change, according to Shrikhande, is the positioning of Shoppers Stop as a 'bridge to luxury' brand, meaning in between premium and luxury brands
CHALLENGES
Like its peers, Shoppers had to face the slowdown of 2008-09, when customers curbed spending to save cash. The retail chain had to face losses and decline in same store growth during those difficult quarters. The retailer also pulled out of catalogue retailing, gourmet venture and reduced the focus on airport retailing to cut losses.
Shoppers Stop, however, saw a big turnaround in the third quarter of FY 2010 by increasing top line and margins.
Shrikhande says the company has worked hard on rent, power and manpower costs. "Half the 24 upcoming stores are on revenue sharing with mall owners,'' he says. In power, Shoppers has cut costs by 40 per cent in the last two years. Another 20 per cent came from switching to Tata Power from Reliance.
In manpower, the idea of fixed staff per store was removed. "We do not commit fixed costs unless it is absolutely necessary,'' he says. And the company saw 80 basis point growth in margins in the last quarter and expects an additional 40 to 50 basis point growth in the coming quarters.
