Pantaloon Retail, the country’s largest retailer, is looking to scale back its expansion plans in the next financial year if weak consumer demand persists in the coming quarters.
Although Kishore Biyani-led Pantaloon would be able to meet its annual target of two million sq ft of retail expansion in the current financial year that ends June 2012, the company would look at 1.2 to 1.4 million sq ft in the coming years if subdued demand continues, said two executives in the know. This financial year, the chain has already opened 1.5 million sq ft in the first two quarters (till December 2011).
The company has added 33 stores or one store every third day in the December quarter and plans to open 75 stores or an average of one store every second day in the March quarter of FY 2012.
The company is not signing new properties at the moment, said an executive.
“We will look at the June quarter as to how the demand looks like and take a call after that,” said a spokesperson of Future group, the parent of Pantaloon Retail, when asked about the company’s plans to scale back expansion plans in the coming years.
In the December quarter, Pantaloon showed its lowest same-store sales growth figures in over two years, signalling a continued slowing in consumer spending and economic growth. Same-store sales growth refers to the sales growth from stores in the business for a year or more and is a key yardstick in judging the performance of stores.
The company’s net profit also dropped 71 per cent year-on-year in the December quarter of the current financial year.
Pantaloon is reviewing its plans to save cash, as it battles high debt and inventory levels.
Pantaloon’s stand-alone debt (which includes its lifestyle and home formats, such as Pantaloon, Central, eZone and Home Town) rose 30 per cent in the December quarter to Rs 2,837 crore, as compared to June 2011 levels. Analysts expect the gross debt (which includes its unit Future Value Retail, that runs Big Bazaar, Food Bazaar and others) at over Rs 5,000 crore.
Even as the company’s inventory level has dropped two per cent sequentially, at Rs 2,341 sq ft, it is one of the highest for it in the last many quarters, analysts say.
In 2009, in the middle of the economic slowdown, Future Group had deferred its plans to have total retail space of 30 million sq ft to FY 2013 or FY 2014 from FY 2011 in a bid to conserve cash. However, the group is unlikely to meet its target given its plans, analysts say.
Currently, the company has 16 million sq ft of retail space across its formats.
“Looking at a weak consumer sentiment and a cash crunch, the company might relook at its expansion plans going ahead, there is a rationalisation in that,” says Sangeetha Tripathi, senior equity analyst with Sharekhan Ltd.
Adds Abhishek Ranganathan, equity analyst at MF Global Sify Securities: “Since they have significant debt on the books, by not opening new stores, they can save capital. Even if they scale back expansion for a few quarters and reduce working capital requirements, they would be better off.”
However, Shoppers Stop, the largest operator of department stores, does not think it has to scale back its plans due to a slowdown in consumer demand.
“There is a slowdown, but we don’t see it impacting our expansion plans,” Govind Shrikhande, managing director, Shoppers Stop Ltd, told this paper recently. “Our cashflows are funding our plans. Our LTL (like-to-like) sales may come down and the growth target may come down but it will not halt our plans.”
In the December quarter, the company has seen a one per cent drop in LTL sales growth.
Shoppers Stop has opened 11 department stores in the current financial year, beating its own target of 10 stores for the year and plans to open two more. The company plans to hit the 50-store mark by the end of FY 2012 and take the total store tally to 66 in the next two years, by opening eight stores each in FY 2013 and FY 2014.
“Their (Shoppers Stop) balance sheet is clean and they have cashflows to sustain new openings,” said Ranganathan.
Another listed retailer, Trent, is closing stores in value Fashion chain Fashion Yatra and restructuring operations of Sisley of Italy’s Benetton Group with which it has a master franchisee agreement. However, the company is expanding its department store Westside and hypermarket Star Bazaar.