Vishal Retail: Predator to become prey?

04 April 2009

By Sarimul Islam Choudhury

With a humble beginning in 1986 from Kolkata, the conglomerate currently operates 178 retail stores across the country. However, experts say, like every other business houses, this retailer of aam aadmi is having its tough times. No prizes for guessing. IndiaRetailing speaks about India’s premiere discount retailer Vishal Retail.

If you go by the pace of growth initially shown by the retailer, you will simply place Vishal as one among the fastest growing retail groups in India. Its outlets cater to almost all price ranges and offer over 70,000 product categories. Still, something seems going wrong and is pushing the industry to the back foot.

IndiaRetailing attempted to study the journey of Vishal Retail, especially the journey during the last two financial quarters when every sunrise brought a new twist to the company and how it has overcome the sitiuarion. The company started the third quarter of the financial year 2008-09 with a very positive note after posting a net profit of Rs 40.76 million by the end of the second quarter. In the second quarter ended on September 30, 2008, the total income of the company stayed at Rs 3607.55 million while the total expenditure stood at Rs 3276.51 million. At that time, the company had 154 stores across 97 cities covering a retail space of approximately 27.10 lakh square feet.

With the starting of the third quarter of the same financial year in October 2008, the company announced aggressive expansion plan to open 100 new stores to have a total of 260 stores across the country by March 2009. In sync with this policy, Vishal opened 11 outlets within a time span of just 15 days in November 2008. However, in mid December, it was in news that the promoters of the company who hold around 63.93 per cent stake in Vishal Retail are evaluating options to sell the stakes. At that time, the retailer’s shares fell to a life-time low of Rs 55.60 on November 21, 2008 from a peak of Rs 1,001 on January 15, 2008. But the company came out with a denial of stake sale and clarified saying that all are speculative and there is no chance of such happenings.

The quarter went by. The company started computing its balance sheets to submit the third quarter result. But surprisingly, after considerable sales happenings during the quarter backed by festivities, the company found the third-quarter profit dropped 86 per cent to Rs 2.15 crore. However, the company was found vibrant to beat unruly slowdown threats and tried to keep the expansion rolling in its way.

But the company could not hide from the reality and sometimes in the last part of January 2009, officially announced the shutting down of two of its stores – one at Color Scape Shopping Mall, Mulund, Mumbai and the other at Shyam Nager Scheme, Pal Link Road, Jodhpur in Rajasthan. At that point itself, the company was found lagging long behind from its projected growth of having 260 stores by March 2009, while in actuality the count was around 180 stores.

The struggle started. The retailer was desperately looking for alternatives to compete with the rule of the game. Besides adopting franchisee-owned-franchisee operated model and shop-in-shop formats, it has identified resizing and relocation of existing stores as a viable alternative to compete with the situation. Further, in a major development, the company brought the property owners on the table sometimes in February this year for renegotiation of rentals and came out quite successfully getting the job done. The approach turned quite successful and the company managed to reduce rentals by about 25 per cent across 40 stores nationally.

Speaking to IndiaRetailing, Ambeek Khemka, group president, Vishal Retail, said, "We spend approximately Rs 9 crore (Rs 90 million) on rentals annually and with this achievement we can save a considerable amount this year. This money will not only help make the company capital-strong in this economic slowdown but will also help fund the future expansion plans of the company."

When IndiaRetailing squeezed Khemka to learn whether or not the decision of relocating the stores was to avoid tough competition from other retailers in the adjoining areas, Khemka said, "There are various factors that contribute to business decisions like relocation and resizing. It is a strategic decision to cope up with the current economic scenario to cut down the expenses of rents and other liabilities. Besides, in some places, the format of the store needed change. It’s not competition; rather we consider competition as driving force to excel."

IndiaRetailing further delved deep and found that Vishal has 20 private labels under its brand portfolio – eight in apparel and six each in FMCG and non apparel category. When the private label apparel category contributes 35-40 per cent margin as against 30 per cent in branded apparel, 20 per cent of FMCG sales come from private labels including V Fresh, V Klean, V Needs and Skin & Body and the remaining 25 per cent of its turnover comes from non apparel category that includes footwear and luggage, home furnishing, toys, games, stationery and consumer durables. In total, about 20 per cent sales come from private labels and the margin is as high as 40-50 per cent, as against 15-20 per cent on the other brands it sells. Also, the company operates around 70 per cent of its stores in tier III towns and cities where the prices of land are going down day by day.

Despite all such things at its favour and successfully managing all the nuances of business, the company was found shutting its stores at regular intervals. Thus the question arises: Why is the company finding it very difficult to keep expenditures under control? Is shutting down of stores remain the last ditch option open to it?

Experts say, the company, at any cost, wants to survive the next two quarters, and to do so, it will have to shut down some of its unviable stores. But no one in retail industry wants to see Vishal to be another Subhiksha in India.