New Delhi: A clutch of Indian retailers plan to ramp up the number of bigger stores in their portfolios this year.
The retail firms, which include Aditya Birla Retail Ltd, Spencer’s Retail Ltd, Pantaloon Retail (India) Ltd and Bharti Retail Pvt. Ltd, plan to open stores which are between 30,000 sq. ft and 100,000 sq ft.
“Currently, our large-format to small-format stores ratio is 40:60. By March 2011 it will reverse to become to 60:40,” said Sanjiv Goenka, vice-chairman of Kolkata-based RPG Enterprises that owns Spencer’s Retail. According to a Spencer spokesperson, the company will open between 15-20 large stores with average size of about 35,000 sq. ft in the next one year.
“It’s the flavour of the season,” said Thomas Varghese, chief executive of Aditya Birla Retail, which plans to open a dozen so-called hypermarkets with sizes ranging between 50,000 sq. ft and 70,000 sq ft.
More for less: Aditya Birla Retail’s More store in Thane. Renting larger spaces in malls gives companies better negotiating power, say experts. Ashesh Shah/Mint
In the past, modern retailers opened small grocery stores to achieve economies of scale. However, last year’s slowdown forced many of them to shut down hundreds of such stores.
The focus for retailers this year has moved to larger stores for several reasons. For one, retail industry experts said renting larger spaces in malls gives companies better negotiating power.
Shubhranshu Pani, managing director for retail at property consultancy Jones Lang LaSalle Meghraj, said rents eat up anywhere between 15% and 20% of a retailer’s revenue, compared with the global average of 10-15%. “The costs are lower as you go as an anchor tenant and your per sq. ft costs are also lower,” RPG’s Goenka said. “You get a better deal on rents.”
Pinakiranjan Mishra, partner for retail practices at consultancy firm Ernst and Young, (E&Y) said large stores can also generate additional incomes through sub-letting spaces for shop-in-shops and in-store advertising.
Little surprise then that Bharti Retail plans to open 10 large stores ranging between 35,000 sq. ft and 50,000 sq. ft in the next one year, although it will also open 60 smaller stores during the same period.
But for Mumbai-based real estate-to-retail company K Raheja Corp., the focus will be on hypermarkets. The firm, which operated the HyperCity brand of hypermarkets, had to abandon its convenience store format in 2008 after opening a handful of smaller outlets in Jaipur. But HyperCity has been expanding and opened three outlets in Thane, Bangalore and Amritsar in the past four months. “Many of the retailers are definitely understanding (now) that opening of large stores is easier way to achieve scale,” says Kumar Rajagopalan, CEO of industry group Retailers Association of India. “If you achieve volumes through five-six big box retail locations, then it is easy to expand with smaller formats.”
According to Rajagopalan, consumers want the convenience of shopping at branded stores that have a wide range of products and broader aisles. “They are looking for all the modern conveniences and they appreciate all-under-one roof concept,” he said.
Rajagopalan said Indian retailers will open at least 150 stores that are more than 5,000 sq. ft, which includes hypermarkets, specialty and department stores, which is a 50% jump from last year. “Most of the big boxes have been doing well for the modern retailers, whereas if you do not have scale, there is no profitability in small stores,” he said.
Mishra of E&Y said while the country’s retail sector is in the nascent stage, there is an opportunity to develop the hypermarkets as “destination stores”. Varghese of Aditya Birla Retail said the firm opened a hypermarket in Thane last month on a stretch that already boast six such big-box stores. “Still we have queues that were a kilometre long,” he maintained.