It’s a low-margin, high-volume game in discount stores business

It’s a low-margin, high-volume game in discount stores business
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First Published: Mon, Sep 15 2008. 10 48 PM IST

Staying profitable: Jay Gupta, founder of The Loot.
Staying profitable: Jay Gupta, founder of The Loot.
Updated: Mon, Sep 15 2008. 10 48 PM IST
Mumbai: Jay Gupta has perhaps the easiest of elevator pitches ready to describe his business: he sells branded clothing at discounts of at least 25%. What he sells is not defective or fake goods or an end-of-season clearing of inventory. The sales at his stores, branded The Loot, run round the year, offering brands such as Nike, Reebok and Allen Solly.
Staying profitable: Jay Gupta, founder of The Loot.
And The Loot (India) Pvt. Ltd, as the firm is called, is a profitable enterprise, says Gupta. How he manages to do this is perhaps the secret sauce that has helped it grow from one store to 45 in four years.
The Loot, which sells some 100 national and international brands, differentiates its business model from that of the average retailer by heavily focusing on sourcing inventory at far lower costs than original price stores. It does so by creating a sort of secondary market the brands can sell their extra stock to. It buys slow-moving stock, say, a small-size T-shirt that is selling less than medium or large sizes, and in odd quantities. It also gets brands to convert leftover fabric into finished pieces that it can buy for less.
The Loot, which competes with local discount stores such as Brand Factory and with multi-branded stores during seasonal sales, has parallels elsewhere in the world.
“It is the overstock model that has done very well in the US,” says Alok Mittal, managing director, Canaan Partners India. Nasdaq-listed online retailer Overstock.com had gross merchandise sales of more than $850 million (Rs3,884 crore) last year.
Gupta, 33, who set up his first retail store in college and never finished his commerce degree, spent eight years as a franchisee running original price and factory seconds outlets for brands such as Provogue, Weekender and Adidas, before setting up The Loot on Mumbai’s Marine Drive in 2004.
With annual sales of more than Rs30 crore today, The Loot aims to double its stores to 100 by the end of this fiscal year by expanding to smaller Indian cities as well. The company plans to raise private equity funding for expansion.
The Loot is in a low-margin, high-volume game and, as with other small retail chains, venture capitalists (VCs) say the biggest concerns for businesses trying to scale up will be realty costs. “Given their business model is to give discounts, how profitable they are (will depend on) better negotiations for real estate prices,” said one VC, who did not want to be named.
The Loot is one of the nominated companies at the Tata NEN hottest start-ups competition, which Mint is the official print media partner of. Details of the competition can also be accessed at www.livemint.com/hotteststartups
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First Published: Mon, Sep 15 2008. 10 48 PM IST