Shopper’s Stop is planning to enter nine Tier-II cities over the next three years. Govind Shrikhande, president and CEO, explains to Pallabika Ganguly on how he plans to do so. This is the second part of a two-part interview
Pallabika Ganguly (ML): Which are the places where we will see Shopper's Stop stores opening in the current fiscal?
Govind Shrikhande (GS): In this fiscal, we will open stores in Bhopal (in July), Ahmedabad (in the next four-eight weeks), Aurangabad (in August) along with Delhi, Bengaluru, Durgapur and Mysore. We are expanding in Tier II cities because we have received a good response from our stores in Lucknow and Jaipur. We are opening a second store in Jaipur. In the next three years, you will see us operational in 26 cities, out of which eight to nine (outlets) will be in Tier-II cities.
ML: As you are penetrating Tier-II cities, do you plan to retain the departmental store model?
GS: We will be launching the normal premier departmental store model, but we won't be launching the full line of cosmetic brands there. We are not launching luxury brands in those stores. In Amritsar we will stock a few international cosmetic brands, because there are a lot of international flights going in and out of the city, and there is a customer base there. But in Durgapur and Mysore we are not taking that chance.
We will be keeping more ranges of perfumes in these stores rather than skin-care products and will be adding these products as the store evolves. We will use the same model in watches-we will be launching Titan, D&G and Fossil; we will not take Boss and Armani there. It's the same case in apparel; we will launch Tommy Hilfiger, Esprit and Mustang as these stores evolve.
ML: Are prices of real estate headed down?
GS: I don't foresee realty prices going down any further. The volume and quality of property coming up is not enough to meet demand.
ML: How many new brands do you plan to launch in this financial year?
GS: We usually launch two-three brands every year. This year also we plan to do the same.
ML: You had plans to acquire the balance 32% share of Hypercity-presently you are holding 19%, what is the progress on this front?
GS: Currently we have 19% stake in Hypercity and we will go up to 32%, we would (then) have 51% stake. For this 32% stake, we are investing Rs125 crore. To raise the Rs125 crore we have already announced the warrants-priced at Rs308 each and convertible to 4 million shares, which will generate Rs138crore and we are planning to raise around Rs200 crore through QIP. Out of this Rs200crore, Rs100 crore will be utilised for two-three activities. We are planning to expand Hypercity from seven stores currently to 26 stores in four years, (around Rs25 crore-Rs30 crore will be utilised for this expansion) and the remaining Rs70 crore will be used for debt reduction. Currently our debt is Rs190 crore and we are planning to bring it down to Rs120 crore.
Hypercity is currently present in Amritsar, Vashi (Navi Mumbai), Thane (on the outskirts of Mumbai), Bengaluru and Hyderabad. The new hypermarkets will be coming up in Ahmedabad, Pune, Mumbai and Bengaluru. We are targeting the top 13 cities where we are already present-including Kolkata, Delhi, and Chennai. Our capital expenditure for each hypermarket ranges between Rs16 crore-Rs18 crore.
ML: According to you, which store formats work in India?
GS: The department store as a model in India is well-set now. As far as we are concerned, we have got the model almost right. There is nothing called perfection, although everyone will like to claim that they are perfect. You have to keep on improving and look at how to make the model more recession proof.
The Hypercity kind of a model is still evolving in India and we should be able to see break even in Hypercity over the next 12-14 months. Both speciality brand apparel store and electronics outlets are also doing well in India.
ML: What are the trends you observe in this sector?
GS: Two key trends that we are seeing since the last quarter is men are back shopping. Lot of sports-inspired casual wear is getting retailed. We have seen Tommy Hilfiger and Esprit successful earlier in sports-inspired casual wear and now we see Arrow Sport succeeding. Louis Philippe, which has launched a sub-brand called Louis Philippe LP, is also doing well. There was a trend 10 years back when casual wear and Friday wear had become popular, then came formal wear and after that slightly fashionable formal wear and now we are seeing formal wear with a sporty touch (becoming popular). Women's shopping is as usual doing very well-mainly in beauty products.
ML: Do you see Shopper's Stop spending more on advertisements this year?
GS: We are still trying to keep the advertising and marketing cost below 4% of sales throughout this financial year. We are going to explore fashion and style statements through advisements. We are also re-initiating a lot of events that we used to do earlier-like last weekend we hosted an event 'Denim Rocks' where we showcased a number of denim products and gave away music CDs.
ML: Shopper's Stop has closed down the duty-free shop at the Hyderabad airport. What is the reason behind this move?
GS: We operate in two airport locations-Bengaluru and Hyderabad. We operate both in the duty-free and duty-paid segments. For our duty-free segment, we have a joint venture with the Nuance Group of Switzerland. We are seeing our Hyderabad and Bengaluru (airport) stores evolving positively on the duty-paid side. They should start making money this year.
But as far as duty-free is concerned, we are facing lot of challenges-rent versus passenger traffic. If the rent is very high and the throughput is not there, we will always make a loss. Our call has always been-if you don't see profits after 18-24 months, you should take a hard look at the business itself and decide what is to be done. We decided that the Hyderabad duty-free store might not make money at all, so we shut it.
The average retail sale per sq ft in India is Rs9,000 per sq ft. At airports, you can probably generate three to five times that money. Even if you do that, your rent is at 25% to 40% of sales-while your margin is 33%.