Retailers get serious with bottom lines as slowdown deepens

Shut unviable stores, tread cautiously with new stores

Indian retailers, which expanded rapidly during boom years, are shutting unviable stores and moving cautiously on expansion as the economic slowdown prolongs and more pronounced.

Future Group’s Big Bazaar, the country’s largest hypermarket chain, has shut or relocated five stores since January and opened two new ones. The total number of its stores stands at 163 currently, with a net addition of two stores since December 2012.

The group had shut 10 unviable Big Bazaars last year and opened 18-20 new ones.

Its flagship company, Future Retail, had a total retail space of 14.12 million sq ft on March 31, compared with 14.19 million sq ft on the same day last year, meaning a reduction of 0.07 million sq ft. “We are treading cautiously. We take more pro-active calls to shut or relocate stores during the slowdown than when things were good,” said a Future Group executive, who did not want to be named.

“Nobody is opening stores blindly now. Every store has to be profitable,” the executive said. And, Future is not alone.

 

Big Bazaar, shut or relocated five stores since January while opened two new ones, net addition of two stores since December 2012

 

Aditya Birla Retail’s ‘more’ chain has opened two hypermarkets, and about 15 supermarkets since March this year. The company is aiming to open 100 supermarkets every year

Trent had total of 107 stores in FY 2013 as against 106 stores in FY 2012, indicating a net addition of one store

Mahindra Retail which runs Mom & Me has also shut half a dozen stores in the last two years though rating agencies warned that the chain’s slower than planned expansion could delay its break-even

Aditya Birla Retail’s More chain has opened two hypermarkets and 15 supermarkets since March this year. The company is aiming to open 100 supermarkets every year.

Aditya Birla Retail, which made a big bang entry into retail in 2007, has closed 150 supermarkets in the last four and half years, which included shutting 50 supermarkets in Mumbai, Pune and Gujarat last year. Aditya Birla Retail is yet to break-even at the entity level.
 

 

“While it is good to be a national player and have higher margins, the real challenge is to build scale at regional levels and bring in synergies in fruits and vegetables, and others,” said Vishak Kumar, chief executive, supermarkets at Aditya Birla Retail. “We are broadly moving in that direction (opening 100 supermarkets a year). It depends on real estate, viability and other factors,” Kumar said.

Trent, known as a cautious albeit profitable retailer, seems to continue with its slow-and-steady strategy.

Trent had a total of 107 stores in financial year 2013 against 106 in financial year 2012, indicating a net addition of one.

“We are definitely moving cautiously and focusing on profitability at the store level,” a Trent executive said. Though Trent opened a number of its department stores called Westside, it could  not open Star Bazaar, its hypermarket stores due to delay from mall developers.

 

Mahindra Retail, which runs kids and maternity-wear chain Mom & Me, has also shut half a dozen stores in the last two years, though rating agencies warned the chain’s slower-than-planned expansion could delay break-even.

“We have opened six stores in the last three months, with a few more in the pipeline for this financial year. The present retail market and the economic scenario demand greater prudence while investing in expansion,” said K Venkataraman, chief executive. Analysts say all retailers are battling rising costs and a slowdown in spending due to lower economic growth.

“Retailers plan stores for two years and open them. If economic growth goes down next year, what can they do?” said Abneesh Roy, associate director, institutional equities, research.

“Almost all costs are rising. Unless foreign direct investment comes, taxes are made liberal, and corruption is eliminated, nothing much can be done,” Roy added.