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Most retailers struggling because they expanded beyond capabilities

Most retailers struggling because they expanded beyond capabilities
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First Published: Sun, Mar 01 2009. 10 42 PM IST

Limiting expansion: Shoppers Stop’s B.S. Nagesh says the company plans to open four-six stores this year. Ramesh Pathania / Mint
Limiting expansion: Shoppers Stop’s B.S. Nagesh says the company plans to open four-six stores this year. Ramesh Pathania / Mint
Updated: Sun, Mar 01 2009. 10 42 PM IST
Mumbai: Department store operator Shoppers Stop Ltd, which announced a Rs500 crore rights issue in April, has now put that idea on hold for at least one quarter. The group, which operates 26 Shoppers Stop outlets, 51 Crossword bookstores and three HyperCITYmarkets nationwide, has also put off expansion plans for stores in Delhi as rentals continue to be high and delivery of properties being delayed by developers facing a liquidity crunch.
Limiting expansion: Shoppers Stop’s B.S. Nagesh says the company plans to open four-six stores this year. Ramesh Pathania / Mint
In an interview, Shoppers Stop managing director B.S. Nageshspeaks about the group’s expansion plans and the outlook for the retail sector. Edited excerpts:
Is the economic downturn the main cause of the present condition of retail or do you think that retailers have gone wrong in their strategies?
Retailers should work on getting their business models correct rather than blaming the economic downturn. Retailers have wafer-thin margins and they cannot afford high operating costs, expansion through huge debt and private equity funding... Most of the retailers are struggling because we expanded more than our capabilities. However, rationalization will happen in the next three-four quarters.
What about your plans of raising Rs1,500 crore that you announced last year—Rs500 crore rights issue, Rs500 crore debt and Rs500 crore through internal accruals—for your expansion plans?
We still very much continue to have the plan but will not do anything immediately. We will not go for rights issue at least in the next one quarter. Don’t know beyond that.
You said rentals were high, but have softened over the past few months. To what extent do you think the rentals have come down?
There has been some correction in rentals depending on location. We are not opening any store in Delhi since the rents are still very high. We had signed some stores at around Rs50 per sq. ft. We are signing new properties for around Rs30-40 per sq. ft depending upon the location... We have decided wherever the rents are beyond Rs50, we will restrict opening stores.
What are your expansion plans? Do you plan to go slow?
The company had planned around four stores last year but had come up with two. This year the company plans to have another four-six stores but don’t know exactly how many we can add as the properties are not on time.
Do you plan to divest stake if FDI (foreign direct investment) in retail is allowed?
This is the right time to allow FDI in retail as the sector is starving for cash. If the government does not open FDI now, there is no need to open FDI ever in the country. As far as divestment is concerned, it may happen in HyperCITY; the stake owned by the Rahejas, they may sell off, but not for Shoppers Stop or Crossword.
How does this year look for retail?
November-December sales did not pick up this year, as a result most of the retailers have huge stock piling which they are clearing through discounts. It would continue...till August. After that I hope business will improve.
There will be less sales but more profits as retailers will strategize stocks accordingly.
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First Published: Sun, Mar 01 2009. 10 42 PM IST