Mumbai: Dominating cities where it has an established modern retail presence and also entering new ones will mark the next stage of growth for HyperCity Retail (India) Ltd, according to Mark Ashman, the company’s new chief executive officer.
“Given the fragmented way in which Indian retail is growing, the opportunity is to do both. Achieve scale by saturating markets and expanding to new ones and do it profitably,” Ashman said in an interview. Ashman has been a part of modern Indian retail since 2007 and was instrumental in establishing the local joint venture between Marks and Spencer Group Plc. and Reliance Retail Ltd.
For the K. Raheja Corp.-promoted HyperCity, which became a subsidiary of Shoppers’ Stop Ltd on 30 June, plans to include growing retail space at a compounded annual growth rate of 35-40% over the next five years. The firm has seven stores in five cities. “We will add six more stores in the next nine months,” Ashman said.
The plans include opening smaller stores of 50,000 sq. ft in Mumbai, where it has three stores of 100,000 sq. ft each. The firm plans to set up two stores in Bangalore and one in Hyderabad; it has one in each city currently. “We are close to saturating Mumbai, Hyderabad and Bangalore,” Ashman said, adding that Delhi and Chennai are also on his radar.
Expansion goal: HyperCity Retail Ltd chief executive officer Mark Ashman says his company seeks to achieve scale by saturating markets, besides expanding to newer places.
In a presentation to investors in the first quarter of the financial year, the company reported a loss of Rs 18 crore and sales of Rs 150 crore.
Food and groceries contribute to 50-55% of overall revenue followed by general merchandise—home, furniture, consumer durables and information technology—at 35-40% and apparel at 7-10%.
“Food and groceries at 55% of total sales will continue to remain our largest component,” said Ashman, who expects improving the mix in private labels for better value and doubling revenue from apparel will increase gross margins as it plans to achieve company level break-even in financial year 2013.
Analysts are still to be convinced about the strategy. In China, food contributes to over 65% of a hypermarket’s revenue. HyperCity gives most space to general merchandise as it is creating a destination centre and the category offers higher margins than that on food and groceries.
“These categories (general merchandise, apparel and jewellery) have higher competition and are difficult to increase significantly. But as it gains volumes, it could increase margins here,” said Abhishek Ranganathan, analyst with MF Global Sify Securities India Pvt. Ltd.
Other big box retailers such as Trent Ltd, which has Star Bazaar, and Aditya Birla Retail Ltd (ABRL), which runs More, have similar plans.
“We are profitable at a network level and will be Ebitda (earnings before interest, taxes, depreciation and amortization) positive, that is cash-flow positive, by 2013,” said Thomas Varghese, chief executive officer, ABRL, which has eight hypermarket stores and plans to add six more by the end of the year.
The task at hand for Ashman includes reducing working capital from 17 days of turnover to nine days over four years. But it’s too soon to talk about that, said Ashman, having spent just two weeks in his new job.