Small is also profitable, say these retailers even as biggies flounder
3 min read 18 Aug 2009, 12:11 AM ISTSmall is also profitable, say these retailers even as biggies flounder
PremiumSize effect: A 6Ten store in Faridabad. The retailer posted a profit of Rs5 crore in the June quarter. Rajkumar / Mint
New Delhi: Brandhouse Retails Ltd and REI Six Ten Retail Ltd may not exactly be household names in the retail business here, but they do have one distinction—they have remained profitable even as some large retail chains have floundered in the wake of the economic downturn.
The two firms are representative of a group of small retail firms that have remained profitable by sharply focusing on one product or consumer segment or by exclusively selling products manufactured by a parent firm.
In contrast, the country’s largest department store chain operator Shopper’s Stop Ltd returned to profitability in the quarter ended June, reporting a Rs2.5 crore profit after incurring losses of about Rs63 crore for the year ended March.
Discount stores operator Vishal Retail Ltd reported net loss of Rs90 crore for the fist quarter ended June after incurring losses of Rs115 crore in the previous quarter.
And late in 2008, Subhiksha Trading Services Ltd shut down all its 1,600 discount stores after it was unable to raise money to fund operations and expansion. The retailer is currently in talks with lenders for a debt restructuring package that will allow it to restart operations.
Jayant Kochar, managing director of retail consultancy firm Go Fish Retail Solutions, says same-store sales—a method to map sales at stores that have been open for a year or so—has declined over the year for most of the branded stores.
However, Brandhouse Retails says its same-store sales have grown between 10% and 14% over the last one year. REI Six Ten also says its same-store sales have grown over the last one year.
Brandhouse Retails listed on the Bombay Stock Exchange in March and REI Six Ten Retail in April. And the boards of REI Six Ten and Provogue recently recommended the payment of dividends to shareholders.
Besides, some of the smaller firms have posted profits on significant revenue. Brandhouse Retails’ revenue for the June quarter, for instance, was Rs125 crore.
That’s because it caters to serious shoppers, said an executive.
“Internationally large format stores get browsers and they pick up something, but when a person is a mature shopper, he or she goes to an exclusive brand outlet because they (have already) bought into the brand. So, we get solid shoppers and not the drifters," said Tarun Joshi, chief executive, Brandhouse Retails.
S Kumars, which owns the Reid & Taylor brand, takes care of marketing the brand and that’s one way in which Brandhouse saves money, added Joshi.
Similarly, apparel firm Koutons Retail India Ltd remained profitable because it retails apparel manufactured in-house, thereby saving money on margins paid to wholesalers and distributors. Koutons Retail reported a net profit of Rs11 crore in the quarter ended June, compared with Rs10.8 crore for the same period last year.
In REI Six Ten’s case, the focus on food appears to have paid off. Ajay Swami, head of operations of REI Six Ten, said the economic slowdown had prompted consumers to eat out less often (and eat in more often), to the benefit of food retailers.
“We are not into lifestyle retailing, we are not into non-food and we are majorly into food, and we saw momentum in (food) sales," he said.
After years of significant growth of between 30% and 35%, the country’s nascent breed of modern retailers have encountered major challenges since the second half of 2008 as the economy slowed.
Large modern retailers such as Pantaloon Retail (India) Ltd, Reliance Retail Ltd, Aditya Birla Retail Ltd, and Spencer’s Retail Ltd have closed hundreds of stores and curtailed expansion plans.
Among these large retailers, only Pantaloon Retail is listed and the company’s profits were up 7% to Rs34 crore for the quarter ended March, compared with Rs32 crore in the same period last year.
