They may be battling slowdown in sales and rising costs, but that is not deterring retail biggies from expanding their chains, unlike during the 2008-09 downturn when most of them scaled back their plans.
Come 2012, Future Group, Shopper’s Stop, RPG’s Spencer’s Retail and Reliance Retail are either opening the same number of stores or more than what they opened in the current year, they claim. Reason: these chains view the current downturn as temporary; their plans are in tune with the long-term growth story.
Kishore Biyani-led Future group, which added an average of one store every third day or 33 stores in the current quarter so far, plans to open 75 stores in the coming quarter or an average of one store every second day. The group plans to continue with the same pace of openings in the coming quarters also.
The new store additions are one of the highest in the last many quarters, says Kishore Biyani, group chief executive, Future group.
In August, Biyani said Future group planned to invest Rs 900 crore to open around three million square feet area in the next three years, out of which Big Bazaar stores would acquire 70 per cent.
Raheja-owned Shoppers Stop, which runs the largest number of department stores, plans to open eight department stores each in FY 2012 and FY 2013 to take the total store tally to 66 stores. In FY 2011, it has opened 11 stores so far, exceeding its own target.
“There is a slowdown, but we do not see it impacting our expansion plans,” says Govind Shrikhande, managing director, Shoppers Stop Ltd. “Our cashflows are funding our plans. Our LTL (like-to-like) sales may come down, growth target may come down but it will not hault our plans.”
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Although Shoppers Stop had seen 23 per cent growth in LTL sales in the first half of this year, Shrikhande believes it could -- for the whole year -- be between six and seven per cent due to overall slowdown. “Next year also, it would be definitely that much,” he added.
But what is giving them confidence to open new stores when there is a slowdown in the sales?
“The market is not going anywhere,” adds Shrikhande. You cannot base your strategy based on the short-term challenges. You take measures to overcome them.” The company has steadily increased the non-bought goods from 40 per cent in FY 2007 to 58 per cent in FY 2011, which is helping it to reduce working capital and increase its margins.
Vineet Kapila, president, Spencer’s Retail, echoes Shrikhande’s views. “At the end of the day, what is important is how efficiently you run the business,” he notes. “Business cycles come and go.”
Spencer’s, which has opened 200,000 sq ft of trading area this year, plans to open between 200,000 sq ft to 300,000 sq ft in the next year.
The chain was continuing to add bakery stores to its hypermarkets and upgrading facilities so that customer check outs could be made faster, Kapila says. Earlier, the company had said it was expecting a break-even in the next 15-18 months.
According to a senior executive at Mukesh Ambani’s Reliance Retail, the chain is going ahead with its plans and has not seen any slowdown in sales so far. “So far we have not seen any dip in sales,” he says. “We are going ahead with our plans of opening two hypermarkets a month.”
Among others, it is planning to open hypermarkets in Mumbai, Pune and Aurangabad in the next four months, he adds.
The shortage of retail spaces beyond 2013 and a delay in the availability of properties has also hit plans of retailers, say these chains.
For instance, Aditya Birla Retail, which planned to open 12-13 hypermarkets and 150 supermarkets, could not do so due to a delay in mall openings, says its chief executive Thomas Varghese.
While chains are bullish about expansion, retail consultants and analysts say it could be a challenging task for them given the sluggishness in sales, high cost of borrowing and difficulty in raising funds.
“I think retailers will be careful,” notes Arvind Singhal, chairman, Technopak Advisors, a management consultancy. “For, they are dependent on consumption. If consumers hold back purchases, retailers have to rethink their plans. If they were planning 100 stores, they may go only for 50 stores, They may not stop, but they will be careful.”
Says a senior analyst from a multi-national brokerage: “For retailers such as Pantaloon, expansion will be a challenge given their high debt and interest outgo. I think there will be a rethink on their expansion plans,” he adds.
With a total debt of Rs 4,200 crore and debt equity of 1.3:1, the company is finding it difficult to manage its interest charges of Rs 100 crore a quarter, says another analyst from a Mumbai-based brokerage who did not want to be named.
Biyani refutes this, saying the company has not defaulted on its payments.