Spencer’s plans to treble trading area by 2014: Vineet Kapilla

Spencer’s Retail, the retail division of RPG Group, has become a leaner and smarter organisation, according to its president Vineet Kapila. After two years of consolidation that required Spencer’s to shut a hundred non-profitable small stores and cut down on operating costs, the company has halved its losses. Now the goal is to more than double the trading area and build scale. Spencer’s has consciously decided to focus on large-format hypermarket stores, he tells DNA. Excerpts from the interview:

When look at the last two years of struggle and consolidation, what learnings can you talk of?
The key learning over the last 2 years has been that the investors and promoters have faith in the long-term viability of the business. And it was only that faith and commitment that helped us see through very very difficult times. When we expanded, we said let’s expand quickly across the country. That was not really necessary. Where we misjudged was rushing out into opening stores across the country. The other thing that we misjudged was opening a lot of small stores. Small stores can never give the consumer a range and the depth of merchandise. Also, to balance that shortage of space with low cost is difficult because the next door guy will always beat you to it. So the learning has been to expand with large- sized formats. A lot of non-profitable small stores were closed. There are some non-profitable large stores that we have, but we have not shut them because we believe that large stores is the future and those stores can be turned around.

How many such stores do you think need to be worked harder on?
Today we have a trading area of about 1 million sq ft and we have to work hard on all of that. The challenge now is getting scale and expanding. We are now profitable at the store level. We were hoping to hit this number by the end of this year but we are 6 months ahead. Now that this model has got established what is required is quickly ramping up our footprint in terms of more area for trading. Growth has two components - one is adding more area and other component is same-store sales growth and we are doing really well on same-store sales with double-digit growth of 14%.

Spencer’s has brought down its losses significantly, how has this been possible?
See, loss reduction happens through 3-4 ways, one is growing your topline, second is getting your mix right, third is improving margins and fourth is cutting costs. I am happy with same stores sales growth of 14-15%. We have improved margins by 2% points, which has happened as a result of the mix. On the cost end, we have consolidated our administrative set-ups into ones which are more efficient. We have reduced the number of warehouses, we have shut non-profitable stores; we have improved control to a large extent on ‘shrink’, which is theft. All this has helped us reduce Rs 150-200 crore of losses.
 Going forward, how do you hope to keep losses down?
We are already positive at the store level and we are hoping that between 2012 and 2013 we should be positive at the corporate level. The way the trends are, we could be hitting that earlier.

What investments is the group looking towards the retail business? What kind of trading area are you looking at adding in 2-3 years?
Today we are running on a zero working capital so the investment is required for capexes, which is not much. If you were to do 1 million sq ft of expansion, anywhere between Rs 1,200-1, 400 per sq ft is the cost, which is Rs 120-140 crore. And 1 million sq ft of trading area should roughly translate into Rs 1,200 -1,500 crore of topline. So the input output ratio is Re 1 of capital can give you Rs 10 of topline and this we can manage from our parent company. We hope to hit anywhere between 2.5 million sq ft and 3 million sq ft of trading area by 2014.

Any specific strategies that you are looking at to drive growth?
Retail is a lot about technology, efficiency, back-end management and supply chain management. That is what we are now trying to perfect because if that is well-managed it impacts our working capital and margins. The other piece is around the customer satisfaction part. The customer is telling us 2-3 key things — he wants to shop around clean hygienic stores, he wants products available all the time, he doesn’t want to wait too long at the billing counters. So we are working on these aspects. What is more important is the execution. We now have business process audit team that measures our execution behind stores, merchandise.
You have tied up with quite a few international brands in apparels.

How are those faring?
Those are doing very well. In fact, we just piloted Beverly Hills Polo Club in Delhi. We launched it in Punjab and just rolled 2 stores in Mumbai. Now we are going South. That’s going to be Rs 300 crore business in 2-3 years.

How is apparel as a category doing and what is the progress on private labels?
Private label today is about 15-16% of our business, we want to take that up to 30% in the next 18 months. We have got a huge amount of focus behind private labels and we have a private label team doing the FMCG piece. We have launched a whole lot of products in the last few months. On the apparel side, private label is lower than branded business and we hope to reverse that mix.

Being majorly into foods, what is the kind of contribution you are seeing from other categories?
We would like to grow in all categories that a housewife shops for on a frequent basis. It is foods, grocery, vegetables, fresh beverages, apparel, where the frequency of buying is high. We want to do that with a focus around foods. We want to be the best food destination in the country since 60% of customer spending goes in foods. About 75% of our business comes from foods, fresh, staples, grocery; the balance comes from apparel, home linen, plastics, steel and glass-ware, electronics.

Are you happy with this kind of mix?
No, that is not a happy situation because while food brings you the footfalls, food is not a very high margin business. So we have to bring this mix down from 75% to a lower level and get the others up, but we will continue to be a food-dominant player.
And how much of margins increase do you think is possible?
I think there is scope to increase margins by another 400-600 basis points, which will come out of mix improvement, private label play and cost reduction.

What about adding newer formats?
We are currently testing standalone Fish-n-Meat stores in Kolkata since 4 months. That could be the one new rollout from us.