After years of operating in the red, India’s leading furniture and home solution retailers have revived their expansion plans, riding on increasing demand and real estate market which has bounced back. Lifestyle retail chain Shoppers Stop told analysts last month that its home solutions format ‘HomeStop’, which was struggling for two years, has started raking profit. The format is now generating profits at the same level as its flagship namesake departmental store, Shoppers Stop, with an EBITDA of 8 per cent.
Future Group has started generating store-level profitability for its home solution format, Home Town, and is quite close to break-even. Other leading home solution retailers like Godrej, Style Spa and Ebony Gautier too are fine-tuning their business strategies for profitable growth. "Furniture and home solution retailing is a very tough business and difficult to make money, but most of the players have learnt it the hard way," Shopper’s Stop Ltd MD Govind Shrikhande told ET. "Hence, the retailers are confident of reviving their expansion plans," he says.
Shoppers Stop plans to set up three HomeStop stores every year to expand its current network of five outlets. Kishore Biyani-owned Future Group says it will roll out 20 home retailing stores every year as it wants to triple its revenues from this business over the next three years. And Ebony Gautier intends to set up its fifth store in Hyderabad by August and two more this year. Biggies like Godrej Interio and Style Spa are planning to expand with newer formats. Godrej wants to scale up nationally its one-store pilot format Godrej Interio U&Us which is into customised furniture, while Style Spa plans to make a foray into premium furniture retailing.
"Indian consumers are ready for premium furniture" says Style Spa MD Arun Mahajan. Style Spa will soon roll out nine premium sofa stores in partnership with two Italian furniture brands, Cheatud’ax and Milano and Design. While the Cheatud’ax stores will sell sofas imported from Italy and sell them at Rs 3.5-5 lakh each, Milano and Design will sell sofas designed in Italy at Rs 2.5-3 lakh.
What’s driving expansion and profitable growth is heavy-duty restructuring which most of the home solution retailers have adopted. This includes scaling down store sizes, tightening supply chain and relooking at sourcing plans. Margins in furniture average anywhere between 5-10 per cent, compared to 15-30 per cent in categories like apparel, footwear and jewellery. "Unless rent is around 7 per cent of total sales, a home solution store will not be viable. Now that retail rentals are shooting up to Rs 80-90 per sqft in prime locations, cutting down store sizes will drive profitability," says Anil Mathur, CEO at Godrej Interio, the Rs 300-crore furniture retailing arm of the Godrej Group.
The learning curve has been steep for all. "We started with bigger size stores, but quickly realised we can expand faster if we reduced their sizes," says Ebony Gautier CEO Abhijeet Mitra. Analysts, however, don’t agree much on such scaling down of store sizes for home solution retailing. "Furniture and accessories take a lot of display space. Hence, lowering store sizes may deliver immediate profitability but can impact long-term sales," says AT Kearney partner and VP Debashish Mukherjee.
Instead, he says retailers could set up large destination stores on city outskirts where rentals would be relatively lower, given that it’s a category for which consumers are willing to travel. Future Group president (home division) Mark Ladham adds the home solution business will grow through the hub-andspoke model. "We will continue to build Home Town stores over 60,000-80,000 sq ft at low-rental locations as destination outlets, which will be supported by multiple satellite stores," he says.
Source : Economic Times