Mumbai: It isn’t a good time to be in the organized or modern retail business in India. Companies in the business, struggling to establish the concept of modern retail in India, have been hit hard by the downturn. Their own finances, weighed with debt and inventory, have only served to make things even more difficult for them. One company in the news is Vishal Retail Ltd, which has deferred its expansion plans. Ambeek Khemka, group president of Vishal Retail, spoke about the impact of the downturn on the company and its strategies for these tough times. Edited excerpts:
New moves: Group president Khemka says taking short-term debt was a mistake and now Vishal Retail is converting that debt into a long-term loan in a bid to ease the pressure of repayment. Madhu Kapparath / Mint
There were media reports of Vishal divesting stake that you denied. Any developments on this front?
In the present market situation, who would like to divest stake? If the company is worth Rs250 crore, it is being offered less than Rs50 crore. Even if someone is interested he won’t get the right value.
Have you deferred your expansion plans?
Yes, the company has shelved all its expansion plans; there is no money to support further expansion.
However, we will be expanding through the franchisee route. Our targets are bullish and we plan to have around 100 franchisee stores by 2010. We have already signed 40 franchisees and plan to add another 25 in the next three months.
Unlike other retailers, we are not charging any brand fee from the franchisees. We are also consolidating our back-end and plan to merge the supply chain of franchisee stores with that of our own stores.
Vishal’s net profit fell 87% year-on-year (y-o-y) to Rs2.1 crore, due to 137% y-o-y increase in the interest expense as a result of high debt and 80% y-o-y depreciation expenses related to new stores. How are you planning to reduce your interest costs?
We have already reduced our (overall) debt to Rs750 crore and plan to reduce it further. We are converting our short-term debt to long-term so that the pressure of repaying it comes down. Going for short-term debt was a mistake.
Vishal’s stock has always traded at a 25% discount to that of Pantaloon Retail (India) Ltd.
Pantaloon is into fashion business, targeting the high-end customers whereas we are into value retailing, targeting the regular customers. You can consider that as our marketing strategy. However, that does not impact our (profit) margins.
Your profit margins are down by 480 basis points (or 4.8 percentage points). Your same-store sales (ignoring new stores opened through the year) fell by 10-12% while sales per sq. ft declined by 12% on a quarter-on-quarter basis. How do you plan to address this?
With less chilly winters this year our winter sales have gone down. Same-store sales have reduced for all retailers. We are focusing more on price points. With sales declining stock piling has become an issue for all retailers.
How much stock do you have and how do you plan to clear it? Are you looking at any other innovative marketing strategy to clear the old inventory? Do you plan to place fewer orders for the coming summer season?
We will be offering products such as towels and others for Rs199 per kg instead of pricing it per piece. We will follow the Rs9 series—slippers for Rs19, T-shirts for Rs49 and Rs99, shirts for Rs199 and so on.
Do you need money? How do you plan to raise it?
We have stopped our expansions and wherever we are expanding it is through franchisee route where the partner will invest for the store while we will just have our products. So, the company does not need any significant investment and we are not considering to raise money at the moment.
Do you plan to shut down stores and retrench employees?
Currently we have 172 outlets operational in 105 cities and two of our outlets have already been shut down.
We plan to shut a few more unviable stores—may be around another seven and may retrench around 10-15% of our employees.