Steel cos eye retail to beat slump

Steel manufacturers faced with a drooping demand graph are looking up to retail sales to bail them out of the current uncertain rimes. Big names, including JSW Steel and Essar Steel, are honing their strategies to the last detail to maintain volumes and support growth.

“We have very clearly seen that retail is one strategy which irrespective of good or bad times helps in maintaining volumes, tap growth segments and expand brand value,” Vinay Shroff, senior vice-president, JSW Steel, told dna.

Girish Rao, CEO, Essar Hypermart, an initiative of Essar Steel, acknowledged that retail is the second most important priority and strategy of steelmakers to tackle the current slowdown after exports. Essar Hypermart, which is looking to grow at 15% in the current financial year, has 68 hypermarts across the country and 250 franchise outlets, which may go up to 300 by the next year.

At a time when mainstream revenue is under stress, steel companies are looking at other avenues and pushing sales through their own retail chains, said Goutam Chakraborty, an analyst from Emkay Global.

Rao attributes the cushioning impact to the flexible model of retail.

“Since a lot of customers are unsure about their schedule that comes from manufacturing, there is a certain amount of uncertainty in planning. When you have uncertainty in planning and when you have to keep inventories under control, one of the most efficient ways is probably to buy from retail space,” he explained.

While steel demand continues to remain under stress in metro and urban areas due to its dependency on large projects, semi urban and rural areas are holding up, which are more dependent on end consumers, and have become the next big growth driver for organised retail.

“Organised retail is helping us maintain and sustain our volumes and supports growth in semi urban and rural areas, so that is where the thrust is, that is where slowdown impact is much less.

My estimate is retail growth in these areas is even higher than the steel industry growth,” Shroff pointed out.

JSW Steel, which has a network of over 400 retail outlets across the country, is planning to significantly ramp up its presence in rural and semi-urban pockets. “Most new outlets we are opening are in these areas, we are not even looking at opening outlets in urban centres or metros,” Shroff said. The company is looking to open 65-70 outlets this fiscal.

Essar Steel and JSW get 20-25% of their revenues from organised retail chains.

Analysts said while retail offers an opportunity to sustain volumes in tough times, as a concept it would still take some time to grow.

“Retail might ensure good volumes from rural areas, but they are not really creating new demand. These are the customers who used to approach a distributor are now returning to a retail shop,” said Giriraj Daga, an analyst.