Lesser number of customers leading to a weaker-than-expected top line growth.
The operating loss of Rs 60 lakh posted by Shopper’s Stop in the September 2008 quarter is a sign of the tough times that the organised retail industry is going through. That customers are not exactly flocking to stores is evident from the disappointing top line growth of just 26 per cent to Rs 350 crore. Indeed, the drop in footfalls and also the smaller ticket sizes are worrying especially because the festive season had set in earlier this year.
Same store sales, for the flagship department stores, were up just 7 per cent during the quarter because fewer customers visited the shops. Clearly there’s very little pricing power –gross margins came off by 160 basis points to just under 36 per cent during the quarter. At the same time neither employee costs nor lease rentals are coming down and as a result, the revenues earned were not enough to cover operational costs.
While the company’s strategy of having a presence in lifestyle retail, is a good one, consumer sentiment today is not at its best and things are likely to get worse. Shopper’s doesn’t seem to be in a hurry to roll out stores—the retailer added just 57,000 sq feet of space in the first half of the year taking the total space to 1.66 million sq feet. During the September quarter, just two stores were added and over the past three years, it has added about one million sq feet.
The company needs funds to grow — it had plans to expand operations to cover 4 million sq feet — and was planning a rights issue but has put it off for the time being. Shopper’s also has an option to buy an additional 32 per cent stake in Hypercity by the end of the year and will need to find money for that too. In the current year the retailer is expected to post a top line growth of around 35 per cent over Rs 1,159 crore reported in FY08. However, there is a chance of it slipping into the red.
