Amid subdued domestic demand due to weak automotive and construction sectors, organised retail operations of steel companies are clocking good numbers.
There are two reasons cited:a tendency among customers to spot-buy to fulfill immediate needs than order in bulk; and second, the organised presence of some big steel companies in Tier II towns and rural areas where demand for long products is more.
Essar Steel, which pioneered steel retailing by setting up the first shop — called Essar Hypermart — in January 2007 in Gandhidham, Gujarat, said sales growth is a faster 8-9% compared with an overall steel industry growth of 5-6%.
“Times are not good and demand has fallen substantially. But in Tier II towns and some rural areas, we are still seeing good growth,” said Girish Rao, CEO, Essar Hypermart, which has 400 stores today.
Rao said the hinterland does not fully reflect the situation in big cities. “It takes more time for real economic impact to percolate. Besides, in a slowdown, people tend to postpone long-term requirements and opt for spot buying, which is where these retail stores are helpful,” he said.
Essar owns a fourth of its stores while the remaining are franchises.
“Demand for long products is still very good, especially from smaller towns, and driven by this demand, the total growth rate of our business is still over 6%,” said Vinod Nowal, CEO of JSW Steel.
JSW Steel currently has a network of 264 steel retailing stores, of which close to 90% are located in Tier II towns and some in rural areas.
The company’s focus from the beginning has been smaller towns. It ventured into organised retail in December 2007 and opened its first store in Hubli, Karnataka, called JSW Shoppe.
Chandresh Mehta, a prominent steel trader in Mumbai and director of Jenil Steel, said because of good monsoons, rural purchasing power remains good. “They are driving demand in the steel sector. When the situation improves across the country, demand will again be driven by the rural areas.” Mehta is also a JSW Shoppe franchisee in Mumbai.
Essar’s Rao said organised retail contributes about Rs4,000 crore to the revenues of the company through sales of close to a million tonne — or a quarter of overall revenues and volumes.
“We plan to treble sales to 3 million tonne through Hypermart in the next four years,” he said.
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