Shoppers' Stop MD discusses high rentals and welcomes foreign entry in retail in a freewheeling chat over traditional fare. He loves to cook and claims he can turn out a whole range of rice preparations, though he's not very keen on his native bisi bele huli anna. What B S Nagesh is very partial to is sweets "" there was a time not so long ago when he ate gulab jamuns three times a day. The managing director of Shoppers' Stop has given them up because he says he needs to lose some weight, but agrees to make an exception for Lunch with BS. The 47-year-old retailer is not much of an eater, despite his love for cooking. So the furthest he was willing to travel from his office in the suburbs was to the Lotus Cafe at the Marriott, where we found ourselves talking, what else, but shop, writes Shobhana Subramanian.
Is the domestic industry a little miffed because foreign players are coming in so easily, I ask. "No," he says sipping some watermelon juice. "The opportunity is so big it doesn't make too much of a difference whether big foreign players or even big domestic groups like Reliance come in. And, in any case, all the big brands are already here." But, isn't Wal-Mart making a back door entry, I persist. It's hard to tell whether the mild-mannered Nagesh is not being diplomatic when he points out that Wal-Mart is not really violating the rules because cash and carry, franchising and licensing are all allowed. "Perhaps, the rules have not been framed properly for either facilitating or not facilitating the entry of these big players," he says after some thought.
But Nagesh believes that a foreign partner can be useful. "Partnerships are better because knowing is not enough, doing is more important. And no matter what you do, you are going to go through blips, so you should be able to come out of it. Either you have the resources, or you have somebody who has global scale, as a partner."
Nagesh should know because it took around seven years for Shoppers' Stop to make money. That's also probably why he feels that not allowing foreign multi-brand players into the country means that Indian retailers will be burning money, something that's inevitable in the initial years.
But it might not turn out that way because, as he himself says, most foreign players will be in India by the end of the year or latest by 2008. "They will enter through one route or another, they may do some sourcing or get into a licensing agreement or even make a proper entry, but they won't be sitting outside. There's a reason for this and it is that all the malls will be up by 2009. So if you are not in by 2007, you will lose visibility." We decide to try out some salad "" roasted baby corn, mushroom, carrots, olives and cheese.
But will the business be at all viable at these kinds of rentals? And will the luxury brands see any volumes? Having seen the Indian consumer from close quarters for nearly a decade now, the veteran retailer's convinced that not too many top-end brands can pull in volumes at these prices, so many of the players may have to wait for the cycle to turn. He feels they will set up a couple of flagship stores and wait for rents to stabilise and, with FDI coming into real estate, he believes that developers will begin to see sense. "But many will have to wait it out till the fall happens and it will definitely happen by 2009-10 because by then, there will be a glut. Only brands like a Zara or a Top shop will survive at Rs 250 per sq foot rental," asserts the managing director.
What about the Shoppers' Stop model then, which also caters for the upper middle and upper segments; is it workable? Nagesh asserts that the double digit growth for same store sales indicates there is demand today. But, according to him, what is important in the non-food space is that in a recessionary cycle, it may take a bigger hit in terms of volumes but the more affluent sections would still spend. In the food segment, while volumes might not fall significantly, the undercutting of prices would result in a huge erosion of margins. "Our model may address a smaller opportunity, but it's sustainable and, anyway, I don't see a consumption downturn for another ten years," he says confidently. But, he cautions, "You could see a lot of model failures and company failures too."
For the main course, Nagesh decides on some khatta meetha aloo, palak dal and tave ki tandoori subzi, all of which are to his liking. The CEO, who has no time to play either badminton or billiards "" he was a champion at both in his college days "" makes sure he hits the gym five days a week. And he manages to find the time to cook once in a while. "Recently we had a rice festival when my wife was away and I cooked for my two daughters," he tells me. The love for cooking started during his hostel days "" instead of joining the army which is what he had wanted to do, he ended up at Benares Hindu University "" and he's almost a pro at making stuffed capsicum. Incidentally, Nagesh says his daughters are not big shoppers or spendthrifts; they don't even get fixed sums of pocket money. How do you expect others to spend, I ask jokingly.
How will Shoppers' Stop boost its margins if only 20 per cent of sales come in through store labels, I ask, referring to its model of stocking more national or well-known brands. The CEO is clear about his strategy saying that the ratio of in-house to national brands cannot exceed 25 per cent. The percentage of "marked-downs" in private labels is simply too high, he says, cautioning that in an aspirational market, one cannot discount the importance of big brands. Moreover, he feels the pull required for private brands is very high, as is the cost of management. "With a gross margin of 32 per cent, we make an operating margin of 8 per cent. But even with a gross margin of 55 per cent, others can't make a 20 per cent operating margin," he observes, trying out the kheersevian. That is topped up with a dollop of butterscotch ice-cream and some prune and apricot pastry. My white chocolate mousse is a bit too sweet, but I'm not complaining. The company's been great, the conversation stimulating.
