Shoppers Stop, one of India's leading retailers, is looking to turn around operations of its hyper-market format HyperCity, making it profitable on the operating level this year and at net-profit level a year after.
According to a senior company official, this will be achieved by incorporating various measures including cost rationalisation and downsizing / rightsizing some of the larger stores and growing margins.
Speaking to dna, Govind Shrikhande, MD, Shoppers Stop, said, "This year, our target is to break even HyperCity operations at company level (Ebitda), and next year at net-profit level. I think a lot of mistakes were made with this format and we have been tweaking the operations in the last two years. All of this is about to complete very soon."
The company has undertaken four corrective measures to streamline the HyperCity business.
Moving away from experience format, to start with, HyperCity has now been repositioned as a value offering to the market. Secondly, the format that was launched with 100,000 square feet format has now been reduced to 30,000 and 50,000 sq ft.
In the Hyderabad store, for instance, the company has given back to the developer 75,000 sq ft of space and another 80,000 sq ft was earlier given back from its Amritsar store. Another two stores will be downsized freeing the operations of 50,000 sq ft of retail space.
While new launches are easy, Shrikhande said bringing the large stores to the new size is what the company has been doing in the last 18-24 months. This entire lot of rectification is expected to complete by the second quarter of this fiscal.
"Also, our original proposition for HyperCity was that it is a food and general merchandise store as a result it was 70% food, 25% general merchandise and 5% fashion. We realised eventually that to make the format profitable fashion will have to be much larger. Thus, fashion is now running at 15% -- last quarter it was 13%, food is at 67% and general merchandise is about 20%," he said.
The completion of this matrix will lead to increase in gross margins from 19% to 21% making the profitability initiative better.
The fourth factor will be cost control in the form of distribution centre, manpower, losses on account of power consumption, etc.
The company has been working on this for sometime now as a result the management is now confident of an Ebitda break-even this fiscal.
On a capital expenditure of Rs 175 crore last fiscal, Shoppers Stop generated cash of Rs 140 crore, as a result debt (including investments in HyperCity) moved up by close to Rs 100 crore. Its total debt currently stands at Rs 631 crore with a debt-to-equity ratio of 0.6.
"Next year, we will generate Rs 160 crore in cash on capital expenditure of Rs 190 crore, thus debt will increase by Rs 30-50 crore. However, when we turn around HyperCity operations next to next year, coupled with a drop in expansion of departmental stores from eight to four, the cash generation will be Rs 200 crore, while capital expenditure will be Rs 100 crore; as a result debt will start falling," he said.
The retailer added 39 stores across various formats last year, of which 13 were Shoppers Stop departmental stores. Renovations were also carried out on 15 departmental stores. The company's current retail footprint is 67 stores in the departmental stores format and over 295 stores across other formats. It will add eight new departmental stores this fiscal and eight more stores in the following two years.
"Sixteen departmental stores (Shoppers Stop) is what we have planned to add over the next 36 months. Two new HyperCity stores will be added every year as the objective is to turn around the format. In speciality – beauty, Crossword, Home Stop, etc – we plan to add around five stores every year," he said.