Grabal Alok Impex Ltd has drawn up a turnaround plan for UK retail chain Hamsard 2353 Ltd, in which it holds a majority stake. The retailer operates 207 ‘qs’-branded discount clothing stores across Scotland, England and Wales.
If things go according to plan, the retail chain that ended the financial year ended 31 March with a net loss of around £8 million (Rs68.8 crore) expects to post a profit this year.
“We expect to up their turnover this year to £110 million from around £90 million as we have infused cash in the company, which was facing a liquidity crunch,” says K.H. Gopal, president, corporate affairs, Alok Industries, a co-promoter of Grabal Alok. Some $10 million (Rs44 crore) was invested via convertible bonds.
To turn around the chain which competes with rivals such as Peacocks and Primark, Hamsard has hired a new brand and merchandise director, David Pidgeon, who was formerly managing director of British retailer Bonmarche. “We have also put in place an incentive scheme linked to cheaper sourcing for Pidgeon’s team,” says Gopal. The target is to raise the merchandise that is sold at list prices from about 60% now to 90% in the next one year.
When goods are left unsold, the company incurs a holding cost which is the interest paid on loans to purchase the item. Further, a change in season or fashion often means that the goods have to be offered at heavy discounts, sometimes exceeding 50% of the original sale price. This deals a double blow to the retailer and hence the focus on sourcing the right goods and selling them at appropriate prices.
Hamsard, which had closed 147 of its 354 stores before the Alok group bought a majority stake, expects to turn around 130 stores that are making marginal profits or losses through a combination of re-engineering its operations and supply chain.
The balance 77 stores are currently profitable.
The stores were rebranded as ‘qs’ in 1987 and take their name from a since-discontinued practice of selling merchandise that did not meet quality standards laid down by Marks and Spencer—quality seconds.
“We have dropped our prices to those at Primark from 1 March and this has resulted in same-store sales already rising by 20%,” says Dilip Jiwrajka, executive director, Grabal Alok. “Thanks to cheaper sourcing, we expect not only to be able to maintain the lower prices but increase our buying in margins from 50% to 65% by July of this year.” A 65% margin in buying means that if the retail price of the product is Rs100, it is purchased at Rs35.
For instance, bathroom slippers, which were earlier sourced at £1.1 from the UK, are now sourced at 40 pence per pair from China. This has helped the chain cut its sale price from £4 to match Primark’s price of £3.
Now the chain plans a further reduction in the price of this item to take on Primark.
Jiwrajka says that when he first arrived at the company’s head offices to review its finances and asked for a rough note pad, he was given a fancy, branded spiral-bound one. “That’s when I decided that a liberal dose of cost cutting and a steady focus on cutting wasteful expenditure was needed,” he says.
“We are moving from two software systems to one uniform system saving us £800,000 in annual costs. Other areas of cost cutting include reducing the £1 million bill involved in collecting cash bi-weekly from our stores nationwide. We are also closing down the trucking department and instead outsourcing this to an express company, which will be cheaper and allow us to concentrate on the core business of retailing,” he says.
Jiwrajka also plan to invest in building appeal for the ‘qs’ stores. A massive rebranding and store refurbishment exercise is expected post Easter this year. “We may also relocate around 30-35 of our existing stores as these cannot be turned around due to poor locations,” says Jiwrajka.