Mumbai: Large, organized retailers in India are beginning to rightsize by finding the right location, stocking the right merchandise, reducing store size and, in some cases, even shutting shops where returns are not keeping pace with costs.
“We are looking at store fiddling, which ensures a store-wise profitability with customized assortments and effective merchandise,” said Thomas Varghese, chief executive officer of Aditya Birla Retail Ltd, or ABRL. “We will mainly work on the correction of revenue and rent, and if the rents are unreasonable and do not match with the store revenue, we will walk out of those properties.”
Other retailers, too, are tinkering with their business models to ensure that they get it right. This is an established pattern in mature retail markets, where retailers often change their approach until they get it just right. In India, where organized retail is still at a nascent stage, the signs of that flexibility are becoming increasingly apparent.
“Only after running a few stores can retailers decide the appropriate size, and that is the reason that retailers are fine-tuning the models,” said New Delhi-based Arvind Singhal, chairman of retail consultancy Technopak Advisors Pvt. Ltd.
This is a continuous process globally and, as Indian retailers are learning, the process has started to happen here as well, Singhal added.
Samar S. Sheikhawat, vice-president of markets at Spencer’s Retail Ltd, said “if a product is doing well, we are dedicating more space to it”, since the company can’t do anything about the size of a store.
Spencer’s, like other retailers, rents or leases its stores.
Already, Spencer’s is making space for fashion and home entertainment, keeping the festive season in mind. However, the company would consider both small and large stores depending on the locations of new properties, he said.
ABRL has been going slow on expanding its hypermarkets as rentals were high, but it plans to roll out three or four of these as realty prices drop.
The retail arm of the Aditya Birla Group currently operates around 640 supermarkets and two hypermarkets.
As retailers try to reduce risks on the real estate front, they will renegotiate rents with property owners, resize stores and, if revenue fails to keep up with rentals, even walk out of the properties, said Gibson Vedamani, chief executive officer of industry lobby Retailers Association of India.
“With razor-thin margins, they will be cautious about other operating and occupation costs like employment cost. Companies are slowing down recruitment and adopting various steps of cost cutting in both back and front end,” Vedamani said.
An executive of Reliance Retail Ltd said most retailers will need to review their business models as they focus on cost rationalization. “In our case, the company has rightsized one hypermarket in Ahmedabad, which was the first hypermarket of the company, with an area of around 165,000 sq. ft, and we have brought it down to 100,000 sq. ft,” he said on condition of anonymity. “Over the last one year, we have experimented and now, depending on our past experience, we are deciding the size of the formats.”
Big Bazaar’s president of strategy and convergence Rajan Malhotra said it has been experimenting with different formats of its stores for the past year, based on past experience. Big Bazaar is a brand of Pantaloon Retail (India) Ltd.
“We have done mistakes but not blunders, and have come up with three formats of Big Bazaar over the last one year,” Malhotra said. “Depending on the location and size of store, we decide the formats.”
Size and location matter largely because they are among the quickest ways to rationalize costs.
Reliance’s hypermarkets in a large city are of 80,000-100,000 sq. ft, but 40,000-50,000 sq. ft in smaller cities.
Big Bazaar has three sizes for its stores— Big Bazaar Express Store, of 15,000-20,000 sq. ft; Big Bazaar of 30,000-60,000 sq. ft; and Big Bazaar Super Centres, which exceed 75,000 sq. ft.