Even as sales recover, retailers continue working on costs

Retailers may be getting into 2010 with higher monthly sales, but they are not going to ease the cost-cutting measures implemented during the downturn anytime soon.

The biggest expenditure for any retailer is real estate, followed by the cost of manpower and sales or advertisement expenses.

Future Group, one of the largest in the country, intends to continue to stick to six large formats — Pantaloons, Big Bazaar, Food Bazaar, Central, Home Town and eZone — while integrating several of its smaller formats into the larger ones.

It has merged operations of formats such as Depot and Lee Cooper, into shop-in-shops, along with other shop-in-shops like Fashion@Big Bazaar, Blue Sky, Dori, Ethnicity, aLL, Celio, Staples and Navras.

“Given the huge investments in setting up stores, smaller formats do not always justify the initiative. So, we have decided to focus on growing the smaller formats through our consolidated large formats. It also helps increase the average billing size per store,” says Damodar Mall, Future Group director.

Future Group is also moving towards larger warehouses at the back end. It has shut 20 smaller warehouses to consolidate into bigger ones, spread over 200,000 sq ft.

It is also partnering with vendors in the garments and general merchandise segments to reduce inventory holding and distribution points. The company is also in talks with transport operators to configure trucks and revisit logistics to keep costs in check.

The economic downturn has helped, putting retailers in a position to negotiate better rentals and financial structuring, and to ask for and get minimum guarantee or revenue sharing rather than pure rental arrangements with mall owners, says Shubhranshu Pani, managing director - retail services, Jones Lang LaSalle Meghraj.

Spencer’s Retail aims to squeeze out Rs 140 crore from savings in 2010. Vineet Kapila, president, said: “We are focusing more on how to maximise margins for every category that we operate in.”

The company is planning to strengthen its private labels portfolio, while being selective in choosing the areas it intends to expand in. It is also redoing its supply chain and back-end operations in certain categories to improve margins.

In supply, some retailers are redoing the freight mix and planning to bring down movement, as in using less trucks each day.

Spencer’s Retail is also realigning its logistics and supply chain strategies to bring down expenditure by close to 20 per cent. The initiative, which Spencer’s started earlier this year, has already managed to bring down costs by almost 10 per cent.

According to Amit Mukherjee, head of supply chain and information technology at Spencer’s Retail, “The initiatives include reducing space per distribution centre to bring down real estate costs, and encouraging more direct supply to stores especially at the larger stores.”

Ramesh Nair, managing director, logistics and warehousing services, Jones Lang Lasalle Meghraj, feels retailers can reduce costs by 15-20 per cent by rationalising real estate portfolios, pruning store sizes to enhance the productivity, and implementing effective supply chain management.