Shopper's Stop: Not enough custom

With same-store sales falling around 7.5 per cent, revenues for Shopper’s Stop grew just 2 per cent to Rs 305 crore in the June 2009 quarter. The fairly steep fall in same-store sales — in the March 2009 quarter. they had dropped about 3 per cent — was somewhat surprising because the period coincided with school holidays in most parts of the country.

However, the fact that cinema theatres were shut due to the spat between film distributors and exhibitors appears to have affected footfalls into malls and consequently into shops. Also, with the economy still in a bit of a downturn, consumers weren’t spending too much. The weak top line growth resulted in a fall in gross margins, which were down 70 basis points; the retailer ended up selling a slightly lower share of private labels as also a smaller proportion of high-margin apparel.

This should reverse in the future with the company making an effort to launch more private labels in the coming months. If the retailer posted a reasonably good operating profit of Rs 15.4 crore, it had more to do with closure of loss-making formats that resulted in substantial cost savings. Rents came off, expenses on staff were lower as many took pay cuts and corporate overheads were slashed.

That, together with the removal of service tax on lease rentals, helped push up the operating profit margin to just above 5 per cent. While the festive season and some improvement in the economy should help the retailer in the coming months, the growth in the top line needs to be far more robust for the company to be able to sustain operating margins even at these levels.

The company isn’t adding too much space and opened one store during the June quarter with plans to roll out a few more by the end of the year. In 2009-10, Shopper's is expected to turn in revenues of around Rs 1500 crore; while the retailer posted a loss last year, it’s possible that it will be back in the black this year.