JSW sees 50% steel sales from retail

In December 2007, JSW Steel started to roll out JSW Shoppe, its branded steel retail outlets. Having opened 52 stores so far, the steelmaker wants to open 600 by 2012. Jayant Acharya, director (sales and marketing), spoke to DNA about the initiative.

What’s the story behind JSW Shoppe?
It started off with an idea to give a different feel and ambience to steel retail. We wanted to give a feel of a mini-departmental store or a mall, which would have the same format, same look and feel wherever the buyer goes in the country. So, it will give a branding to the distribution channel. We are able to display all the products in one place so that the customer gets a touch and feel of what the steel looks like.

Where do you see growth for the Shoppe coming from?
Semi-urban and rural areas and tier 2 and tier 3 cities. Ideally, the Shoppe format is 600 sq ft minimum, but some are larger. The smaller towns will be focus areas. The bigger towns and metros will also have Shoppes, but our focus will be tier 2 and 3 cities.

What has been the feedback so far?
The feedback has been very good. We saw 30% increase in sales through these outlets if you compare the last three months of 08-09 against 07-08. We are taking the number of showrooms up to 200 this year. If this takes off properly, then we propose to target 600 Shoppes in 2012.

What investment is JSW making in this format?
It’s a franchise model. We contribute certain elements and we maintain those elements ourselves. For a typical Shoppe, the investment is about Rs 8-10 lakh (excluding property costs) and our investment is less than Rs 2 lakh.

What sales figures are you targeting from the Shoppes?
A thousand tonnes per Shoppe is not a problem at all. So, it’s 600,000 tonnes a month, which comes to 7.2 million tonne a year (when the company opens 600 stores by 2012). That is not unachievable. But I would say, if you take our capacity at 10-11 million tonnes in 2012, we will target at least 50% of sales through the Shoppes.

...what been their performance in the past quarter?
They are contributing around 35,000 to 40,000 tonnes per month. So, if we have to reach an average of 1,000 tonnes sale per Shoppe, we are reaching that figure soon.

What challenges does this format bring?
The main challenge is to feed the Shoppes. What product they want should be available at the location or the stock point near the showroom. That is our biggest challenge. Second, is to provide the Shoppe the support to promote and encourage the use of steel in general.

This will see you selling huge amounts of steel through retail... what about tying up some long-term contracts?
It is more risky in an OEM (original equipment manufacturer). What happened to our tie-up in the auto sector? We had a tie-up; I was assured sales in terms of volumes per quarter. In the October-December quarter, they just vanished and said, “Sorry, I can’t buy.” So, what is the value of a tie-up? Nothing.

In the Shoppes, the impact has been far lesser. Here, we are selling in kilos and not in thousands of tonnes. When you are selling couple of sheets, the multiplier effect is huge and risks are lower. Sales are more consistent in Shoppe route.

What about exports?
What we are planning in our current business plan is 13% of exports. For a short while there could be an opportunity to increase exports, but otherwise in general I think, our domestic to export ratio will be 80-85% for the domestic market.

How is auto demand at the moment?
Auto demand is picking up again. Our customers have started picking up cold-rolled and hot-rolled steel again... October to December was a bottom where people just shut shop. They started coming back in February, and in March and April, it improved further.