Mumbai: Retailer Shoppers Stop, part of the K. Raheja Group, will look to explore partnerships with overseas firms once foreign direct investment is permitted in multi-brand retail, a top official told Reuters.
“Once the rules on FDI are clear there is a possibility of a joint venture or a strategic alliance, especially on the food side. On the apparel side we are not interested,” Govind Shrikhande told Reuters in an interview late Wednesday.
Shoppers Stop, which is an apparel and accessories retailer, runs its food business under hypermarket Hypercity and runs speciality stores such as Crossword, Mothercare and MAC amongst many others.
Asia’s third-largest economy does not allow any foreign ownership in multi-brand retail, and foreign ownership of single-brand retail is capped at 51%. Overseas investment in multi-brand operations is confined to wholesale businesses.
However, India took an important step towards opening up the sector after a majority of members of a committee of top bureaucrats, set up to evaluate opening up the multi-brand retail sector agreed to recommend to the cabinet allowing foreign firms to take a 51% stake in such enterprises.
The world’s four largest retailers—Wal-Mart Stores, Carrefour, Tesco and Metro AG—alongwith many others are seeking to expand in India to tap the increasing spending power of a rapidly burgeoning middle class.
Wal-Mart and Metro AG are already present in India and run cash-and-carry operations.
“The Indian organised market is still very small and with the increasing market size, there is scope for everyone to battle it out. Also it will help retailers who are in need for funds, to raise them and expand,” Shrikhande said.
Earlier this week, the company posted a consolidated loss of Rs 15.2 million in the June quarter from a profit of Rs 92.9 million in the same period a year ago. Its retail turnover rose to Rs 644 crore in the June quarter from Rs 390 crore a year ago.
“The loss was on account of the consolidation of Hypercity which happened in the second quarter last year. This is the last quarter in which the impact will be visible,” Shrikhande said.
Hypercity which is currently loss-making at the operational level may see a turnaround in the next 18-24 months, he added.
In the June quarter, the margins in the hypermarket business posted a negative EBITDA of Rs 130 million and a loss of Rs 350 million.
“For this format to break even we need a base build up of 15-17 stores,” Shrikhande said.
Currently Shoppers Stop runs 10 Hypercity stores and has plans to open 2 more this fiscal year and 3 more in FY13. For Shoppers Stop, the company plans to open 8-10 stores in the current fiscal year.
It has earmarked a capital expenditure of Rs 125 crore in FY12.
Same Store Sales to Remain Muted
The Indian retailer expects its same-store sales growth, a key gauge for profitability for retailers, to remain in single digits in the current fiscal year from 17% in FY11.
In the June quarter its same store sales clocked a 7% rise from 24% in the first quarter of last year.
“The (cricket) World Cup and the IPL (Indian Premier League) matches impacted sales. Also overall I think the economy is slower than last year because of inflation and concerns of higher interest rates in the minds of consumers,” Shrikhande said.
The company, which is also reeling under high prices of key raw material cotton and a excise duty hike for apparel expects which affected its earnings plans to maintain margins of its department store business.
It also said it does not plan to hike prices of apparel immediately, costs of which have shot up by 15% during the quarter, as it expects atleast a partial rollback of the excise duty from the finance ministry soon.
At 10.51 a.m., shares of the company traded 4.38% lower at Rs 414.95 in a weak Mumbai market.