Hypercity to boost Shoppers Stop's growthFriday, 09 July 2010
Shoppers Stop will soon join other up-market brand of organized retailers like Kishore Biyani’s Future Group, Tata’s Trent and Mukesh Ambani’s Reliance Retail, all of whom operate both hypermarkets and department stores to increase business profits in general. Margins in food and groceries are less at 10-20 per cent compared to the 50 per cent in apparels and accessories.
Having entered food retailing through Hypercity with a 19 per cent stake, the company is now eyeing a larger stake with market analysts revealing that while only 15 per cent of the urban upwardly mobile consumer’s spend is on lifestyle products, almost 60-65 per cent spend is on food and groceries.
The company is planning to sell four million shares at Rs 500-550 through a qualified institutional placement (QIP) in the next two quarters to fund the higher stake acquisition in Hypercity. It also plans to have a total of 26 Hypercity stores up from seven at present. Hypercity vice-chairman B S Nagesh says, Hypercity’s current stores are set to see a break-even by financial year 2012 and at the company level, the chain will become profitable by the financial year 2013. Govind Shrikhande, customer associate, President and CEO of Shoppers Stop feels, they can get good deals while signing properties and ensuring two anchor tenants for malls. Also, they can develop common loyalty programs for both the chains.
Currently, 75 per cent of Shoppers Stop business comes from loyalty card program. Besides Hypercity, the company has plans to double its existing stores at an investment of around Rs 300 crores within the next four to five years. However, it plans to mainly focus on metros with less than 20 per cent of its stores operating in Tier-II cities which yield profits of only 7,500 per sq. ft. as compared to Rs 11,000 per sq. ft. in Tier-1 cities.
Meanwhile, Shoppers stop has also put its airport retailing plans on the back burner considering the slow business returns of this sector. It has closed down its outlet at the Hyderabad International Airport and currently has its presence restricted only to the Bangalore airport. Inadequate infrastructure such as logistics and security coupled with manpower issues has made airport retailing a complicated business for retailers.
The company had forged an equal joint venture with the Nuance Group for airport retailing almost two years ago. Earlier, Pantaloon Retail too exited its 50:50 JV with the Aplha Airports Group this puts the spotlight on the fate of Shoppers Stop venture as well.