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Shoppers Stop set to put Hypermart on profit path

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Retail major Shoppers Stop (SSL), which recorded a 39 per cent drop in its net profit during the fourth quarter (Q4) of the financial year 2010-11, plans to adopt a two-fold strategy to improve its bottom line in the first two quarters of the current fiscal. It also plans to put its hypermarket arm, Hypercity, on the “path to profitability in the next five quarters”, SSL’s managing director Govind Shrikhande said.

The April to September period will see the retailer resize its hypermarkets from 1,00,000 square feet to 60,000-70,000 sq ft to improve store-level efficiency, bring down cost of operations and obtain better margins. SSL has 10 hypermarkets across the country. The company will also invest in its home retailing arm, HomeStop, and drive growth as it offers margins that are 5-10 per cent better than in the food and grocery segment. The company is yet to take a final call on the amount to be invested in HomeStop. Home retailing currently comprises less than 1 per cent of SSL’s overall business.

SSL competes with Future Group, Reliance Retail, Trent and Aditya Birla Retail in the multi-format retail space. Its other formats are Crossword , Mother Care and MAC (premium cosmetics and accessories). The company reported consolidated sales of R606 crore in Q4FY11, growing by 59 per cent year on year.

Hypercity, which completed five years of operations this month, recorded a loss of Rs.16-17 crore at the PAT level in Q4, thereby bringing down SSL’s net profit by 39 per cent to Rs.7.7 crore as against Rs.12.6 crore in Q4FY10. Says Shrikhande, “We’ll cut down the size of hypermarkets. Throughput will be constant at 80-90 per cent, but our operational costs will decrease by 40 per cent. We’ll open 10 department stores and 3-4 hypermarkets this year, which will give us more negotiating power on margins. Margins from Hypercity should grow from 20 per cent to 22 per cent, rising by 200 basis points.”

Analysts feel that SSL has been conservative in its approach, even after being in business for 19 years. Arvind Singhal, chairman, Technopak Advisors says, “Shoppers Stop, as a company, has been highly conservative, as compared to its peers. They’re successful in what they do, but they need to do more of that. Hypercity is at loss because it has failed to reach a scale, where it can optimise its supply chain. It’s only now that they are looking at rapid expansion, that should help the company better its bottomline.”

Shrikhande also clarified that Shoppers Stop and Hypercity numbers should not be looked at on a consolidated basis. “Both formats are at very different stages of their business. One is mature and highly profitable, while the other is young and on its path to profitability in the next five quarters.” Hypercity CEO, Mark Ashman, earlier told FE that the hypermarket’s “like-to-like growth stood at 22 per cent and most stores are young witnessing high double digit growth.”

SSL also looks to expand its HomeStop stores to 10 in metros and Tier-I cities where there’s a spurt in demand for home furnishings. Shrikhande added, “Home retailing is a niche segment and is pegged at Rs.1000 crore. HomeStop forms a negligible portion of our business, but it is a high-margin proposition, compared to food, grocery, or electronics. We expect good volume growth from HomeStop.”

Source : Financial Express

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