After Pantaloons, Future group starts Big Bazaar revamp4 min read . Updated: 26 Aug 2010, 10:54 PM IST
After Pantaloons, Future group starts Big Bazaar revamp
After Pantaloons, Future group starts Big Bazaar revamp
Mumbai: India’s largest retailer, Pantaloon Retail India Ltd, is gearing up to more than double the number of its Food Bazaar and Big Bazaar stores, the expansion contrasting with its simplification drive.
Three years ago, the Future group, the parent company, set out on a journey to redefine itself. That coincided with the economic slowdown, which allowed the group to look inward and simplify the complexities of running a high-growth retail business.
The process began with the group’s fashion and apparel concept Pantaloons—a Rs1,000 crore business. It cut its production offerings and assortments by 60-70% and consolidated its supply chain from 18 delivery centres to four for its fashion business. As it did this, sales at its low-performing stores doubled, and at its large stores, increased by around 50%.
“The entire impact is on the bottomline (profit) when you do something like this," Rakesh Biyani, director and chief executive, Future group, said in an interview.
The journey continues at the group’s food and electronics businesses, or its value chains Food Bazaar and Big Bazaar, where the retailer is implementing a similar cleansing and consolidation, and expects a similar rise in sales. The 135 Big Bazaar and 70 Food Bazaar stores account for 70% of the group’s retail business.
“The company is geared to run 500 stores of the two formats together. Whatever we require in 2011-2012 is ready. The investments are happening," said Biyani, adding that he has a year-and-a-half to complete the journey.
In this time, the retailer will reduce merchandise assortment by 60-70% at its value chains and consolidate 70% of its slow-moving inventory at a centralized 1.5 million sq. ft warehouse at Nagpur. This slow-moving inventory accounts for 30% of the group’s revenue.
“If sales go up by 20%, profitability can go up 75%. It’s a multiplier effect," said Biyani. In retail, typically, 85% of the costs are fixed.
As such, the timing of the September 2008 slowdown proved fortuitous. Pantaloon Retail, along with a fleet of new firms such as Reliance Retail Ltd, Aditya Birla Retail Ltd, Tata group’s Trent Ltd, Spencer’s Retail Ltd and Shopper’s Stop Ltd began returning to basics to streamline costs and processes.
During the slump, close to 2,000 retail stores were shuttered, including 1,650 by discounter Subhiksha Trading Services Ltd and 150 each by Spencer’s and Aditya Birla Retail. The crisis saw retailers grapple with a liquidity crunch, an inventory pile up as customers stayed away and high rentals and operational costs.
“The last 18 months have seen retailers focus on getting a lot of waste out of the system as they focused on rentals, sourcing, supply chain," said Anand Raghuraman, partner and director, Boston Consulting Group. The journey, though, is far from over as most retailers are yet to turn profitable, he added.
“We have made a beginning. The direction is being set, inventory level is better, assortment is refined. Now, what we should look at is opening more and more stores," said Biyani. “When we open new stores, we are looking at profitability in one year as versus the past, where it would take two years."
The optimism comes from a marked improvement in efficiency in the past 18 months. Pantaloon now takes around two days to fulfil an order, against five days earlier. Biyani wants to bring this down to 12 hours.
As for Pantaloon Retail’s forthcoming warehouse in Nagpur, the first phase of 600,000 sq. ft will be operational by July and will be a national delivery centre for its slow-moving merchandise. The firm has split its Big Bazaar and Food Bazaar businesses, under Future Value Retail Ltd, into two zones, with Sanjeev Agrawal as the chief executive for its north and west operations and Sadashiv Nayak heading the south and east business.
“What all these changes in the back-end mean is that the billing time is reduced by 10%... Shoppers’ experience has improved as they are able to locate merchandise faster and exit," said Nayak.
In September, the fashion brand Pantaloons will open its 50th store in New Delhi. “Our internal target is to open another 15-16 over the next 12 months. (Our) desire is to have 100 stores by the end of 2012. This year, with all the stores opening, we can see a 40% growth," said Biyani.
This year, Pantaloon Retail will also open a large format 18,000 sq. ft sport lifestyle store, Planet Sports, in Delhi. It will also add six Central and four Brand Factory stores.
A May report by Abhishek Ranganathan, equity analyst at MF Global Sify Securities India Pvt. Ltd, said the changes have had a positive impact. “It has increased the order filling rate from 72% to 90%, thus, clearly increasing the throughput and reducing the revenue loss."
Inventory at the supply-chain level has also come down. “We view this positively and believe that we could see further rationalization," it added.
At its new Big Bazaar store in Chennai, which opened in June, the firm has changed the front-end layout. “The target is to refurbish 28 stores in this new format," said Biyani, who likes refurbishing a concept every two years, versus the industry norm of five-seven years.
Pantaloon Retail ended the March quarter with operating profit margin—a key measure of a company’s efficiency—of 17.82%, much better than 4.82% of Shoppers Stop.
On Thursday, Pantaloon Retail shares closed at Rs463.80, 0.89% down, on the Bombay Stock Exchange, while the bellwether Sensex gained 0.26% to end at 18,226.35 points. So far this year, the stock has gained nearly 22%.