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Spencer's goes ruthless on store viability

Saturday, 8 December 2012 - 2:25am IST | Place: Kolkata

Despite lower sales per square foot, Mumbai is the highest cost destination in terms of rents, power and manpower.

Sanjiv Goenka-led CESC appears hell bent on turning Spencer's Retail profitable even as it readies to demerge the business and get it listed through an initial public offering.
And this means some cold decisions, like not expanding in Mumbai, where its sales per square foot are way below those in other major cities, Goenka, chairman of the RP-Sanjiv Goenka group, said on Friday.
“What has happened in Spencer's is... a sense of ruthlessness or aggression. We do Rs 1,500 of sales per sq ft in the National Capital Region, in West Bengal and in southern states. But in Mumbai, we are doing Rs 1,100. Despite lower sales per square foot, Mumbai is the highest cost destination in terms of rents, power and manpower. So, we will have what we have in Mumbai, but we will not expand. At the end of the day, we want to make money, and having a loss-making store in a posh location in Mumbai isn't a vanity trip for me,” said Goenka.
Spencer’s has just one store in Mumbai, at InOrbit Mall in Malad West. “I would rather invest in Gurgaon where my store does Rs 1,800/sq ft sales against Rs 1,100 done by the InOrbit store,” he added.
The experience in Mumbai has been similar to what Spencer's faced in Pune, which the retail chain has just exited.
The new management team at Spencer’s – Mohit Kampani replaced Vineet Kapila from December 1 as CEO – has been given a target to increase revenue to Rs 1,400 per sq ft from its first-half average of Rs 1,210 per sq ft and specific store-based targets have been set even as Spencer’s has initiated talks with merchant bankers for a possible IPO.
“At Rs 1,210 of sales per sq ft during the first six months, it's the highest in the industry. But we plan to go to Rs 1,400 a sq ft. So, it has to be very aggressive and specific, and targets have been broken down to minutest of details, like how much would the contribution of a store be in segments like, say, apparel or food.”
Spencer’s is also setting higher benchmark for deciding which store to keep: it's not just the standalone profit of a store but also profitability, measured in terms of investments made in the back end in the particular city where the store is located.
“There are some stores which are perennially loss-making. Most of those have been closed down. But now we have to take a call (on viability of each store relative to the back end). If we invest, say, a crore for a back end in a city, the stores there have to contribute a crore of profit. If that is not going to happen, there must be something wrong in the economies of the stores. Then, a cold look has to be taken as to whether we want to carry on doing that and funding it or closing it down. That transformation is actually happening.”
Meanwhile, Goenka is also working on a turnaround plan for the group's recent acquisition, Firstsource Solutions, where he has just been designated chairman, with his son Shashwat joining the board.
“The outstanding $237 million FCCB has been repaid in full. This frees the management to focus on operations and not on finances. There is significant scope for enhancement of bottomline. We are trying to see how we can add values to our customers and more revenue per employee.
The first impression is that there is scope to actually improve margins by 2% over the next 12 months,” he said.

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