As you walk into the Hypercity store in Malad on the western suburbs of Mumbai, you are bound to see a lot of changes in the shop floor. While the café on the left hand side has moved to the first floor, the apparel section has come to the ground floor. The section on consumer durables and electronics on the first floor has been reduced, while the home wear segment has expanded.
The changes have a sound commercial reason. Since shoppers normally avoid the higher floors and apparels carry margins of 40-50 per cent, it makes sense for retailers to stock them prominently on the ground floor. By reducing the space for durable and electronics — the low margin and high sales segment — Hypercity wants to focus more on other high margin items such as toys and sports goods.
Even within stores, the chain is stocking more apparel, sports goods, imported items, toys which carry higher margins. “Like international retailers such as Tesco, we are making our shoppers go through all high margin products first before they reach the fruit and vegetables segment (which carry lower margins),” says Mark Ashman, chief executive officer, Hypercity owned by Raheja group.
Its second store in Bangalore, and those in Ahmedabad and Bhopal follow the same model. “We are doing whatever is right for business as well as customers,” Ashman says.
Doing business the right way does not mean Hypercity is focusing only on the premium segment. “I think we are in the last lap of the race. If we keep food below 60 per cent and take the share of apparel from 7 to 12 per cent and home and others by 1 to 2 per cent, I think our job is done,” Ashman says.
While retaining a certain amount of premiumness is vital to the group’s plans to bring the chain to profitability in the next two years (Hypercity had a net loss of Rs 24.5 crore in the third quarter of the current financial year and has been a drag on the profitability of its parent, Shoppers Stop, so far), Hypercity’s strategy is this: First sell more goods with high margins, reduce costs and then shore up the topline by having food and grocery products with competitive pricing.
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That’s because of the value game played by other hypermarkets. When the chain replaced its earlier tagline “Hypermarkets are far more competitive than any other retail business. I do not think we can pitch Hypercity as an affluent and international brand. We of course cannot become a Big Bazaar or a D Mart, but we also want our customers to say that they have got a great value, a treat or a bargain after visiting our stores, “says Ashman.
Such a strategy is vital, say retail experts especially when it faces tough competition from retail chains such as Tata-run Star Bazaar, Reliance Retail , Aditya Birla Retail, Spar and others which are coming out with hypermarkets with competitive pricing, improved product assortments and look and feel at a time when the discretionary incomes of shoppers are dwindling. So while Hypercity has started selling entry price products in many categories such as apparel, cutlery, and utensils, in fruits and vegetables, it is benchmarking its fresh produce prices to the markets.
For instance, it now sells denim starting Rs 199 and T-shirts with a price point of Rs 99 to Rs 149 and frying pans starting Rs 99 among others.
“We want to be the best in fruits and vegetable prices and best or second best in the basket of 50 SKUs (stock keeping units) which are in the essential shopping list,” says Ashman who as the chief executive of Marks & Spencer Reliance India, reduced prices of merchandise there to increase the chain’s topline.
The chain has started importing apples directly from the US to have better quality and lower prices. .
“If we sell a bucket of Rs 140 in Malad in Mumbai, we have replaced it with a product that is priced at Rs 69 in Bhopal. If we sell a national brand here, we also sell other regional brands in tier II cities” says he.
Besides having cautious expansion plan — it plans to open only two stores next year — Hypercity is also focusing on bigger cities as stores here break even in 12 to 15 months as opposed to those in tier II towns which require 18 to 24 months.
So does the company plans to open stores mostly in Mumbai, Bangalore and Hyderabad where it already runs stores ? “It also makes sense from economies of scale point view as you make savings in advertising, logistics, branding,” says Ashman. Currently it runs 12 stores.
Some of its peers think that the chain is creating confusion in the minds of its customer about its positioning. “All these years, Hypercity portrayed itself as a premium chain, now they are talking about value, I think its customers will be confused,” said a chief executive of Mumbai-based retail chain. But others think there is no problem in this strategy. “Depending on the market, they can tweak product mix and pricing strategies. As long as they do not try to do both (premium and value play) within categories, I do not think there is a problem,” says Harminder Sahni, managing director of management consultancy Wazir Advisors.
Ashman prefers to call it is a “killer combination” – a set of customers saying Hypercity is their favourite hypermarket and another saying it also offers “great value”.