Mom-and-Pop stores stay alive

The year 2008 saw some dramatic twists in the discourse on big retail. From a spate of controversies surrounding the entry of corporate houses and fears that big players will swallow small kirana stores, the debate has clearly shifted to whether big retail can survive in its current form.

“Kiranas have clearly won the first round. The story of ‘modern retail vs Kirana’ is over. The past year was about the survival of modern retail,” said Kishore Biyani, CEO of India’s biggest retailer Future Group that operates hundreds of stores in multiple formats.

Modern retail players such as Future group, Reliance, Aditya Birla group, Subhiksha and Vishal Retail went on an expansion spree creating footprints across the country in different formats. Many other smaller players such as 6Ten, Wadhwan Retail, LM365 too joined them. And in the expansion frenzy, many of them lost their way.

By the end of the year, retailers were struggling with sales, shutting down stores and laying off staff in hundreds. “We have grown too fast. With this kind of pace, we make mistakes,” says Thomas Verghese, CEO of Aditya Birla Retail. He admits that retailers chose wrong locations or paid too high rentals in the race to open more stores.

Meanwhile, Kiranas rarely shut shop. Not that big retailers failed to attract shoppers. But they failed to manage cost. “Before modern retail could attain scale, the economy went into a tailspin,” said Mr Biyani, adding that Kirana has been more efficient at managing cost.

Both Kirana and big retail had their sales going up, possibly because a booming economy, rising income levels and a higher propensity among middle class to consume more. Both Kirana stores and local vegetable vendors survived because they offered a value proposition, which modern retailer couldn’t match- local vegetable vendors almost always offered fresher vegetables than the modern retailer, while Kirana offered the luxury of home delivery and interest-free credit. Naturally, customers chose different shopping destination for different needs.

“One could see a slight bias towards processed food and personal care products in terms of sales through modern retail stores,” said Mr Verghese.

A downturn in the economy and terror strikes also played spoilsport for the big retail, still in its infancy in India. “Consumers don’t want to spend as they fear for their jobs. Terror strikes have further eroded consumer sentiment and reduced footfalls at shopping destinations,” said R C Agarwal, chairman and managing director of Vishal Retail.

Retailers see 2009 as the year of consolidation and are cautious about expansion. Most retailers are already in cost-cutting mode and some are even looking at exiting the business lock, stock and barrel. Some of the smaller retailers have been seeking buyers and lobbying for FDI in retail. “I will sell my entire stake as soon as FDI is allowed in the sector,” said a Delhi-based retailer who had earlier held talks with at least two potential buyers, but failed to seal a deal. He says no retailer with less than 150-200 stores will survive. While Mr Biyani is in favour of calibrated approach towards FDI in retail, Mr Agarwal favours 51% FDI in multi-brand retail.

As sales slipped and cost mounted, several retailers were also engaged in a tug of war with suppliers. Major suppliers refused to supply goods to many retailers after they failed to pay or delayed payments. Pilferage was another challenge retailers struggled to find solution to, which made a significant dent in their margins.

The silver lining, however, was a fall in real estate rentals, which is likely to bring down the cost for retailers.

Sources :- Economic Times

Retail stocks look promising

It’s that time of the year when all retail companies start working for their end-of-season sale. Taking this spirit a little ahead, ET brings forth the discount biggies of the Indian retail industry, Vishal Retail and Koutons Retail. These stocks will suit all those investors who are looking for ‘value for money’ buys. Incidentally, both of them have a significant presence in the North

One-Year Beta 0.41

Institutional Holding 12.43%*

Current P/E 5.14

Current Mkt Cap Rs 226.45 cr

CMP Rs 106.15

*As on Sept ‘08

Vishal Retail

Vishal Retail Ltd started in the year 1986 as discount retailer in Kolkata and is focused on tier II and III cities in the country. About 80% of the company’s stores are located in these cities. The company raised Rs 110 crore through its public issue in June’ 07.

BUSINESS:

Vishal Retail (VRL) is a value retailer with focus on apparels. Besides apparels it has a presence in a wide range of household merchandise and other consumer goods like footwear, toys, home furnishings to mobile phones, watches, toiletries, and grocery items.VRL’s outlets sell over 70,000 products, which meet all household requirements.

The company has focused on the lower middleincome group as its customers and the strategy has served its well so far. To increase its penetration the company has also experimented with small formats and it also plans to re-size around 25 of its stores. They have also opened restaurants within their stores to gain a higher share of customer’s wallet. As of now the company has 181 retail stores across 107 cities covering a total area of 2.98 million sq feet. VRL has an edge over peers with its focused business model operating largely through hypermart format. Thus it helps to being in economies of scale for sourcing raw materials and pass on the benefits to consumers. The company’s focus continues to remain on Tier II and Tier III.

It also has an apparel-manufacturing unit in Gurgaon and Dehradun. The company has 29 warehouses located in 8 key cities in India covering over 1.05 lakh sq ft area. The company manufactures about 9% of its requirement for apparels in its existing facility. Currently the company is consolidating its existing store count and has kept its expansion plans on hold.

FINANCIALS:

The sales have grown at a CAGR of 62% from Rs 147 crore in FY05 to Rs 1013 crore in FY08. Net profit also has grown at a CAGR of 91.7% from Rs 3.1 crore to Rs 40.6 crore during the period. Though the company did witness a slowdown in sales in the Sept’ 08 quarter, the revenue mix saw a shift towards non-apparels . The company has made a conscious effort of shifting towards non-apparels and staples.

Apparel share declined to 57% in second quarter compared to 62% in first quarter. In comparison, revenues from FMCG and other non- apparel goods rose to 24.1% (19.7%) and 18.2% (16.7%) respectively . This has a positive impact on the margins. The company is gradually increasing share of its private label in every category. This will further boost margins. However, the company has not been insulated from the slowdown in the overall consumption spend. Moreover delay in delivery of stores has resulted in very high inventory. This has resulted in the need for working capital funding , which has resulted in higher interest outflows . This has become a major concern for them.

GROWTH DRIVERS:

The company expects to continue its 40-50 % sales growth in the coming future. The company earns around 5-7 % of its operating profit from its private label products. Going forward, the company is looking at further increasing share of this high margin segment to drive growth and maintain EBITDA margins at around 12%. The overall share of private label is expected to increase from the current 18% in FY08 to 25% by end of March 2011.

The company has adopted the franchisee model for future store expansion. This would help to curb its operating costs as well.

OUR TAKE:

Besides the delay in store completion and increasing financing costs, the company will have to cope with declining sales growth in the coming times. The stock has been beaten down badly in this market crash and its rising debt levels are a concern, yet its business model makes it a good portfolio stock.
One-Year Beta 0.16
Institutional Holding 30.13*

Current P/E 20.24

Current Mkt Cap Rs 1,583.17cr

CMP Rs 516.25

*As on Sept ‘08

Koutons

Delhi based Koutons Retail has shown tremendous growth post it’s listing in 2007. The company operates in the fashion wear apparel segment category. However it has now expanded its product merchandise to become a complete ‘family shop’ .

BUSINESS:

Incorporated in 1994, Koutons is an integrated apparel manufacturing & retail company. It is in the business of designing, manufacturing & retailing apparel under the “Koutons” & “Charlie Outlaw” brands.

They have a network of 1420 exclusive brand outlets across India. The company has positioned the “Koutons” brand in the middle to high fashion segment ranging from formal to party wear. The company had reinvented & re-launched their old premier brand “Charlie” as “Charlie Outlaw” . It forayed into women wear with Les Femme and kids segment with its Koutons Junior brand. As of September 2008, Les Femme contributed 6% of the revenue, & Koutons Junior contributed 5% of the revenue and the Men’s segment contributed 89% of the revenue.

The company increased number of stores from 1,175 in FY08 to a little over 1300 stores as of now. It is looking to expand the store count to 1,800 in FY09. This will entail expansion of space from 1.20 million square feet as on September ‘08 to 1.5 million square feet in FY09. It targets to open 100 exclusive stores of each in FY09.

The company has already forayed into footwear. It would also introduce men’s accessories like innerwear, women’s accessories like handbags and kids’ accessories. This will help in maximizing the overall sales per square foot for its stores. Its acquisition of Upper Class range of womens’ wear marks its entry into the premium segment. Its presence in the West Asia will also help Koutons make an entry into this region . The average sale per sq ft for Koutons is about Rs 12,000 and for Charlie it is Rs 8,000.

FINANCIALS:

The sales have grown at a CAGR of 69.4% from Rs 96.3 crore in FY05 to Rs. 793.5 crore in FY08. Net profit during the period grew at a CAGR of 142 % from Rs 1.9 crore to Rs 67 crore. It’s operating margins have been hovering between 15-20 %. But with the slowdown in the economy in the recent quarters, operating profits have shrunk by about 200-300 basis points. Despite this, the company has some of the best net profit margins ranging between 5-7 %. New product launches as well as new line of business have helped to maintain the overall growth of the company. KRIL has been rolling out stores aggressively since the last two years and is looking at a pan India presence.

GROWTH DRIVERS:

The company has been doubling in size compared to about 40-50 % YoY growth reported by other retailers. However it cannot be directly compared to other players because its format and business model does not permit so. The company will be able to maintain its high profit margins as it’s offering is attractively priced.

Their franchisee model relieves them of the burgeoning rental costs, which are eating into retail margins. But the aggressive expansion has resulted in blockage of funds in inventory. This has forced the company to go for working capital funding. Larger volumes would bring in economies of scale thus further reducing cost.

The company has been making a conscious effort of not rapidly opening new stores but rather expanding the existing stores.

Foray into women wear and kids wear will drive company’s growth in future. Kids segment requires quick replenishment as the child outgrows its outfits within six months-thus providing huge sales potential. The company also plans to foray into West Asia and China.

OUR TAKE:

For the company that believes in providing fashion and quality at affordable prices, going ahead with rapid store roll out could be a big challenge. Nonetheless, we believe economies of large scale could help the company in stabilizing its operating costs and sustaining the current slowdown.

Sources Economic Times

Vishal Retail to introduce shop-in-shop concept at their stores

Moving away from their earlier model of expansion through company owned stores, Vishal Retail is now showing interest in using the franchisee route for its expansion. Out of the 178 stores at present, 165 are company owned. But the way forward for the company would be the FOFO (Franchisee Owned Franchisee Operated) option. Immediate future plans of the company also include bettering the consolidation of the restaurant and their organised food retailing business and also concentration on the expansion of private labels.

Sharing details on the consolidation of the restaurant and their food retail business, Ambeek Khemka, Group president, Vishal Retail, says, “With a view to providing holistic shopping experience within the Vishal Megamart premises; Vishal Megamart has launched its in-store restaurant chain called 3H (which stands for health, hunger and hygiene). For the moment, no new cities would be added; the 50 existing outlets which have these in-house restaurants would see further consolidation in terms of enhanced back end support and branding initiatives. In terms of investment for this consolidation, no additional investments would be needed except for few fixtures and a separate enclosure which is required for the restaurant.”

Meanwhile, the company is also planning to introduce the shop-in-shop concept at their existing retail outlets. Explains Khemka: “We are coming up with a new concept of shop-in-shop where we would provide brands with space in our outlets thus enabling them to enjoy the extensive network which we have across India and even share brand equity on mutually agreeable terms.”

Commenting on the expansion in the number of stores to be opened, Khemka shares, “Vishal Retail, presently with 178 outlets (with nearly 165 company owned outlets) is planning to go forward with more of FOFO outlets and by the end of this fiscal year is aiming to achieve a tally of 200 plus stores mainly in tier II and III cities. The additional new stores will all be on the FOFO model and will be focusing more on the North India belt followed by the Eastern India region and then subsequently the West.”

In sync with the trend being followed by majority of the retailers with regards to expansion of private labels, Vishal Retail too would be seen showing more concentration on expansion of their private labels and there could be a possibility of making these available at other local kirana stores as well. Sharing details about the expansion of private labels, Khemka says, “We generate 45 per cent of our total revenue from the apparel segment out of which 80 per cent is contributed by our private labels while FMCG segment contributes 13 per cent. We sell products 20 to 25 per cent cheaper than the market price. Currently we have around 20 labels under the Vishal in-house brand portfolio.”

Currently the group occupies a total retail space of 29,069 square feet wherein the average size of the company owned store is anything between 10,000 – 15,000 square feet and the FOFO store would be anything between 3000-5000 square feet.

Sources:- Indianretailing

Vishal Retail to redefine distribution model

With an aim to redefine distribution model, Vishal Retail, which operates 100 retail stores across 62 cities in India, plans to take its private labels to other stores to bring down costs and increase efficiencies, according to a senior official.

“It is still in the drawing board stage. Brand consciousness is evaporating with people looking for more value in their buys. The company is witnessing strong growth in fast moving consumer goods, both food and non-food categories. Also, to bring down the costs we will be outsourcing our distribution to third party players,” said Ambeek Khemka, group president, Vishal Retail.

Further, the company has also introduced ration card for consumers to buy monthly grocery and avail more offers on the in-house products.

Sources :- Indiaretailing Bureau

Vishal Retail declares Q2 results

Vishal Retail has declared its unaudited financial results for the quarter ended September 30, 2008. The Ram Chandra Agarwal-led company has posted a net profit of Rs 40.76 million. While the total income of the quarter stayed at Rs 3607.55 million, the total expenditure stood at Rs 3276.51 million.

Further, the Delhi-based retailer giant also mentioned that as on September 30, 2008, it had 154 stores in 97 cities, covering a retail space of approximately 27.10 lakh square feet.

Source: Images Multimedia

Vishal to open 100 more stores by fiscal-end

Vishal Retail Ltd, one of India’s leading discount retail chains, has announced its plan to open 100 new stores by March 2009 to have a total of 260 stores across the country.

Announcing the plan, Ram Chandra Agarwal, CMD, Vishal Retail Ltd, said, “It is just the beginning of a retail revolution that we wish to bring in the country. I proudly say that we have been able to provide the experience and products that have not only changed the shopping preferences of Indians, but have also positively affected the lifestyle of the Indian middle-class.”

“Our aim is to be available for every Indian residing in the remotest areas of the country,” added Agarwal. Further, Vishal will continue to give discounts and start new schemes and offers that will help customers to counter the heat of the inflation, said a company press release.

Meanwhile, Vishal is also planning to set up a special team for its corporate social initiative and is also in talks with several NGOs to partner for its project, added the release.

Sources:- Indiaretailing

Sensex sheds over 500; Retail stocks remain red

Yet another bad day for markets. The 30-share benchmark index Sensex opened with a negative gap of 228 points at 10,455 following negative cues from the global markets. Unabated selling in every segment of the stocks saw the index slip deeper into red as the day progressed. Sensex shut shop at 10169, down 513 points and Nifty at 3065, down 169 points from the previous close.

Meanwhile, some of the stocks at BSE saw new 52-week lows. CNX Midcap index was down 3.51 per cent and BSE Smallcap index was down 2.02 per cent. The market breadth was negative with advances at 287 against declines of 965 on the NSE. Top Nifty gainers included ITC and Hindustan Unilever while losers included Idea, Tata Steel and Unitech.

Retail stocks: Movers and shakers

Pantaloon Retail
Day’s close: Rs 223.25
Change: Rs 0.15 or 0.07 per cent

Koutons Retail
Day’s close: Rs 661.00
Change: – Rs 2.00 or 0.30 per cent

Vishal Retail
Day’s close: Rs 123.00
Change: – Rs 1.70 or 1.36 per cent

Indiabulls Retail
Day’s close: Rs 23.90
Change: – Rs 1.25 or 4.97 per cent

Shoppers Stop
Day’s close: Rs 182.00
Change: – Rs 6.50 or 3.45 per cent

Trent
Day’s close: Rs 384.00
Change: – Rs 1.00 or 0.26 per cent

Aditya Birla Nuvo
Day’s close: Rs 640.30
Change: – Rs 17.70 or 2.69 per cent

Provogue
Day’s close: Rs 63.00
Change: Rs 0.35 or 0.56 per cent

Raymonds
Day’s close: Rs 94.25
Change: – Rs 0.75 or 0.79 per cent

Bombay Dyeing
Day’s close: Rs 206.45
Change: Rs -12.50 (-5.71%)

Gitanjali
Day’s close: Rs 109.30
Change: – Rs 2.15 or 1.93 per cent

Adlabs Films
Day’s close: Rs 201.30
Change: – Rs 4.75 or 2.31 per cent

PVR
Day’s close: Rs 104.00
Change: – Rs 6.00 or 5.45 per cent

Cinemax India
Day’s close: Rs 50.35
Change: Rs 1.25 or 2.55 per cent

Inox Leisure
Day’s close: Rs 40.70
Change: Rs 0.85 or 2.13 per cent

Liberty Shoes
Day’s close: Rs 41.80
Change: – Rs 1.20 or 2.79 per cent

Bata India
Day’s close: Rs 108.75
Change: – Rs 3.80 or 3.38 per cent

Relaxo Footwears
Day’s close: Rs 34.25
Change: Rs 2.25 or 7.03 per cent

Sources :- Indiaretailing

Vishal Retail to add 100 stores by 2009

Vishal Retail plans to add 100 large and mid-sized stores by 2009. The company also aims to add another five lakh square retail space to its existing 21 lakh square feet. “We have currently 160 stores in large hypermarkets and midmarket formats in almost 100 cities across the country. We are now planning to open additional 100 odd stores in the two formats and take the total number to 260 by 2009,” Vishal Retail Group president Ambeek Khemka said. Of the additional 100 stores planned, around 50 would be franchisee operated while the rest would be company-owned, he added.

Source: Economic Times

Retailers bullish on festive sales, to open more stores

Retailers across the country are upbeat about sales prospects with the advent of the month long traditional festive season which sees millions of shoppers go on a spending spree.

Companies like Kishore Biyani’s Future group, Vishal Retail and Reliance Retail among others expect more Indians to spend money on a variety of consumer goods of middle-class shopping habits, including clothing, mobile phones, televisions and refrigerators among others.

A cross section of retailers that Business Standard spoke with were gung-ho on sales prospects, even as concern over slowing credit availability, higher interest rates and high prices is expected to hurt consumer demand. A key reason for the upbeat assessment is the fact that the recent pay hike and arrears for an estimated 4.6 million central government employees leaves more disposable income in their hands.

Several states are also likely to give pay hikes to their employees, even as the private sector executives are hoping to pick up their annual bonuses. Central government employees including those in the Indian Railways will receive arrears of nearly Rs 11,750 crore, in addition to their enhanced pay this month.

Unlike overseas, retail consumer spending in India is not quantified as extensively, but the nine-day Hindu festival of Navratra, along with Eid which Muslims are celebrating this Thursday, sees people buying household necessities and goods with gusto. Buying continues right through up to Diwali, which falls at the end of October. A key reason for the upbeat assessment is also the fact that this year all the key festivals fall in October, unlike last year when Navratri was in October and Diwali the month after.

Kishore Biyani’s Future group has already started opening the first few of at least 12 new stores planned this month, including some dedicated to retailing electronic goods, at various locations across the country. Other retailers also have similar plans.

“We expect sales growth at 10 to 15 per cent or even higher in some categories like clothing,” says Rakesh Biyani, chief executive, Future Retail. The group expects sales of Rs 175 crore in consumer durables this October, over double of what it did in the same period last year.

Essar Group’s mobile handset retail chain is opening 100 stores during October. “I think the festive season should be fine and we have already seen 25 per cent improvement in sales after the Shraadh period got over,” says Rajiv Agarwal, chief executive, The Mobile Store. “We expect 45 per cent growth in sales during this month,” he adds. The Mobile Store has 1200 stores and planning to take its total tally of stores to 2,000 by 2009.

Delhi-based Vishal Retail is also increasing its presence, mainly in north India, to cash in on the festival boom. It plans a mix of company-owned and franchisee-run stores this month. The company is opening three stores at Lucknow, four at Delhi, one each in Varanasi and Rae Bareli and giving out franchisees in Ludhiana, Bakshi Nagar, Mirzapur, Fatehabad, Bharatpur and Jaipur.

“We are all set to launch our new stores and increase our presence in India. Diwali is the right time,” says Ambeek Khemka, president, Vishal Retail.

A Reliance Retail executive said the company was geared up for Diwali in a big way across its stores with special products and offers. “This is the best time of the year for sales. We are opening new stores in lifestyle and other formats during the festive season”, he added.

However, there are some who have a more conservative outlook. “With overall economic sentiment negative, it would be challenging to achieve higher sales. I expect festive season sales will be down 20 to 25 per cent this time and if retailers do not offer discounts and promotions, sales can fall 40 per cent,” says Susil Dungarwal, a Mumbai-based retail analyst.

Adds Purnendu Kumar of business consultancy Technopak Advisors: “Given the current conditions, even if retailers do the same business as they have done last year, it would be good enough. We expect lesser corporate gifting this time and a sharp drop in sales of lifestyle goods such as laptops, jewellery etc”.

Retailers are already launching promotional schemes to woo customers. For instance, Trent, the retail arm of Tata group, is offering higher discounts on particular categories at its Star Bazar stores. Starting this Thursday, the store will offer discounts on food, extending it later to the kids category, to gifts and finally to apparel towards the end of the month.

The country’s retail sector is projected to grow to $700 billion, while organised business is expected to be 20 per cent of the total market by 2010, according to consultancy Northbridge Capital. The retail market, which is currently worth $400 billion, is growing at annual rate of 30 per cent.

Source: Business Standard