Pantaloon to curb expansion, focus on 16 cities3 min read . Updated: 15 Oct 2012, 12:25 AM IST
Retailer to exit from smaller towns in bid to improve profitability, draw investors to pare debt
Mumbai: Pantaloon Retail India Ltd, the country’s largest retailer, is consolidating its business in the top 16 cities and a surrounding network of secondary cities, exiting from smaller towns that don’t fit into this network, a top company official said.
The consolidation would help Pantaloon Retail improve profitability as it looks to get investors on board to reduce its debts, said analysts.
“We will look at consolidating within the top 16 cities in terms of what fits into our structure and our own network and see where it is possible to consolidate and from we should get out," said Rakesh Biyani, joint managing director, Pantaloon Retail, adding that the exercise is “evolving".
The company has already started exiting from towns such as Alwar in Rajasthan. “We have closed a few locations and you will hear from us more on this," said Biyani. Even new store launches will be limited to the top 16 markets.
Kishore Biyani-promoted Pantaloon Retail has retail chains in food and groceries such as Big Bazaar, Food Bazaar and KB Fair Price. It has a rural retail chain called Aadhar Retail, besides electronics, apparel and home furnishing chains.
Its retail footprint of 1,200 stores is spread across 17 million sq. ft in 90 cities and 60 villages.
The top eight cities account for 60% of its presence as well as revenue. “Currently, the primary focus is on 11 cities and this will extend to 16 cities," said Biyani, adding that the focus is to maximize sales in these cities. The plan is to ramp up sales in the existing stores and also on opening more stores in these cities.
“Shutting down stores that don’t make money is part of the growth strategy of all retailers today. This was bound to happen as retailers were in a mad rush to expand in 2008-09. Since then the economy has been on a downturn, forcing retailers to relook at their businesses and target profitability," said Rachna Nath, executive director, PricewaterhouseCoopers.
“The journey so far has been about becoming profitable and proving that the model works," says Mark Ashman, chief executive officer, HyperCity, a subsidiary of Shoppers Stop Ltd, India’s oldest listed departmental retail chain, who is now confident that the chain could achieve this in the next 18 months.
Over the past year, HyperCity slowed on opening new hypermarket stores and also tweaked its business model. The company initially got into big box retail with large 100,000 to 140,000 sq. ft stores. It now prefers 50-70,000 sq. ft stores The retailer is also in the process of launching a still smaller format of 28,000 sq. ft for the first time in the next couple of months.
HyperCity plans to dominate a few clusters such as Mumbai, Bangalore and Hyderabad. “This is about regional dominance. There is a lot of opportunities in India and these markets in their own rights are big individual markets," said Ashman.
Earlier in April, Aditya Birla Retail Ltd, the retail arm of the Aditya Birla Group, had changed its strategy. However, unlike Pantaloon Retail and Shoppers Stop, who are focusing on the top cities, Aditya Birla Retail is exiting from markets where real estate is expensive. For instance, it has exited Mumbai in its More supermarkets business and has chosen to limit its presence to the south, north (Punjab, Haryana, Uttar Pradesh) and Kolkata in eastern India.
For Pantaloon Retail, the consolidation comes at a time when the retailer is looking at reducing its debt and raising equity from new investors. The government recently announced allowing 51% foreign direct investment (FDI) in multi-brand retail. Pantaloon Retail’s stand-alone debt for the year ended June 2012 was equivalent to 80% of its revenue at ₹ 3,636.07 crore, according to data compiled by Capital Market Publishers India Pvt. Ltd. It follows a July-June fiscal.
“The consolidation will help it in creating a better asset," said Anand Mour, analyst, ICICI Securities Ltd. This will clean up the supply chain, improve profitability and make the company attractive to foreign retailers.
Big Bazaar accounts for 60% of Pantaloon Retail’s core revenue with a footprint of 162 stores. Of these, about 110 are in cities that are compliant with the government’s requirements for FDI and, of the 110 stores, 50 are in states that plan to allow FDI in retail, said Mour.
Over the past year, Pantaloon has taken steps to sell assets and raise equity. In April, it announced the sale of a majority stake in its department retail chain Pantaloons to the Aditya Birla group company, Aditya Birla Nuvo Ltd, for ₹ 1,600 crore.
For the September quarter, shares of Pantaloon Retail gained 17.4% while the BSE’s benchmark Sensex, gained 7.65%. Among other retailers, Shoppers Stop gained 18.1% and Trent Ltd gained 19.6%.