Shoppers’ Stop Ltd, which has department store, bookstore and speciality store chains, will add six new Shoppers’ Stop department stores in the first half of this fiscal. This year could see among the most store openings from the retailer across formats.
The firm will invest about Rs180 crore in its expansion. Apart from using funds generated through its initial public offer in 2005 and internal accruals, it also plans to raise Rs500 crore through a rights issue by October-November 2007. The Shoppers’ Stop stock closed at Rs680 on the Bombay Stock Exchange on Monday. At this price, the company has a market capitalization of Rs2,367.76 crore. Shoppers’ Stop’s turnover went up by more than 37% in the January-March quarter to Rs171.30 crore, according to results released last week.
Shoppers’ Stop, which announced a Rs2.27 crore net loss in the January-March quarter, plans three new Hypercity stores, which is its hypermarket chain, 11 Crossword stores, 11 Mothercare stores and two more Home Stop stores, which sell home furnishings and accessories. Crossword stores are part of its bookstore chain and Mothercare stores are for babies and expectant mothers, and is a joint venture (JV) with the British chain that owns the name.
While the retailer opened three Shoppers’ Stop stores in the last financial year, it will open six-eight outlets this year. The ramped-up expansion plans are indicative of the rapid growth in India’s organized retail sector, which is expected to grow at 30% a year, according to a recent report by Man Financial, a Mumbai-based brokerage.
“(The Shoppers’ Stop) management believes in balancing growth with consolidation, which leads to lower failure rate and better free cash generation,” the report said. “However, such measured steps could also mean some loss of opportunity,” it added.
While the company opened 20 Shoppers’ Stop stores in 16 years, it exceeded its mandate to open 40 Mothercare stores in five years by 50%, said C.B. Navalkar, Shoppers’ Stop’s chief financial officer.
On the books front, its first Crossword at Mumbai’s domestic airport gets more than four times the sales per sq. ft than other Crossword stores. Shoppers’ Stop and its JV partner have also bagged retail contracts for the new Bangalore and Hyderabad international airports.
But the chain’s store opening schedule could be hit by the delays in mall construction—an increasing concern for the retail industry. “Delays in mall openings have gone up to around nine to 12 months from five to six months,” said Navalkar.
Also, hardening real-estate prices across cities have hampered expansion plans. “Prices for a property at, say, Linking Road in Mumbai’s western suburb, have gone up to Rs700 per sq. ft now from Rs250-300 a year or two ago,” Navalkar said. “We try to look for well-priced properties, which would generate around 20% return on capital,” he added.
Being among the most experienced organized retailers, Shoppers’ Stop has also been a breeding ground for talent, which the industry’s many new entrants are looking to hire. A few rounds of promotions and the introduction of flexitime have helped combat high attrition rates. But the flip side is that the company’s salary costs went up by an average of 25% last year.