Mumbai: To counter the slowdown in the retail industry,Aditya Birla Retail Ltd is renegotiating rentals and shutting down unviable stores, chief executive officer Thomas Varghese said on Monday. The Mumbai-based chain, part of the Aditya Birla group, is also focusing on private labels and plans to open deep-discount stores, he added.
Taking advantage of falling rentals, the chain is also looking to expand from 660 to 2,100 supermarkets—small format store that range between 1,500 sq. ft and 3,500 sq. ft—by 2013. It is also planing to have 12 new hypermarkets—stores of more than 50,000 sq. ft—by March 2010, taking the total number of such stores to 14. It currently has two such stores, one in Vadodara in Gujarat and another in Mysore in Karnataka.
“Rents of around 50% of our stores need to be renegotiated,” Varghese said.
Renegotiating: Thomas Varghese, CEO Aditya Birla Retail
The company is in talks with property owners, and will shut down stores if an agreement to renegotiate rents downwards cannot be reached, he said.
However, the first option is renegotiation and if it does not work “we will have to shut down as we cannot continue operating a loss-making store”, Varghese said, adding that most of the high rentals are in cities such as Mumbai, Delhi and Bangalore. The company has recently shut down around 50 unviable stores across the country, he said.
“We have around 68 stores in Mumbai and they are not doing well due to high rentals,” he said. “We were to open two hypermarkets by March this year but have not done so far and are behind schedule by two months. We are negotiating hard on rentals.”
The hypermarkets were to open in Aurangabad and Visakhapatnam.
He said rents on supermarkets can be negotiated down by 10-15% while hypermakets could be reduced by as much as 50%.
The high cost of rentals has also hit other retailers such as Future group, which operatesBig Bazaar and Planet Sports, among other stores, Reliance Industries Ltd’s Reliance Retail Ltd, RPG group’s Spencer’s Retail Ltd and Essar group’s The Mobile Store all of whom are renegotiation rental costs and closing stores that have become unviable.
“Every retailer has been impacted with the economic slowdown but it is less in categories such as food and grocery and FMCG (fast-moving consumer goods), compared with apparel, electronic durables and others,” Varghese said.
Aditya Birla Retail recently launched 40 stock keeping units of private labels, and already has more than 300 stock keeping units of private labels across 17 categories. The company also plans to increase the presence of its own private label in its stores to as much as 60% of the total merchandise.
“Today the margins that the FMCG companies give no one can survive,” he said, adding that even global retailers such as Wal-Mart, Carrefour and others are successful because of their strong focus on private labels. No retailers can survice on high rentals and low margins, he said, adding that margins on private labels are higher, as much as 35-40%.
The company is also planning to relaunch some of its stores across cities such as Mumbai, Delhi and Kolkata. “Wherever we are not doing well, we will relaunch.” However, he declined to give details of how the stores would be repositioned.
Retail is a long-term business and people who entered with the intention of getting a high valuation to make an exit are in real trouble, he cautioned.