Reliance Retail shifts focus to profitability
Company plans to build own brands in fashion, value format segment, bring global brands to the Indian market
Mumbai: Reliance Industries Ltd’s retail unit, which posted its first annual profit in the last fiscal year, will focus on improving profitability now that revenue growth has stabilized.
As part of its efforts to boost margins, Reliance Retail Ltd shut “low-performing” stores across its different formats, the company told analysts post its quarterly earnings release on Saturday. Reliance Retail’s revenue grew 15% in the quarter ended 30 June.
During the quarter ended 30 June, Reliance Retail closed 137 stores under its so-called value format. It, however, opened 169 stores in high-margin or scalable categories. The net addition to stores during the quarter stood at 32.
Reliance Retail currently operates five categories of value format stores—Reliance Fresh, Reliance Super, Reliance Mart and the wholesale cash-and-carry business. Three of the other categories that Reliance Retail operates are the digital, fashion and lifestyle segments. These are considered high-margin businesses. Reliance Retail also operates jewellery stores, growth in which has been constrained because of regulatory issues, according to the company.
“The revenue (from the retail business) in this quarter could have been even better but we did a little bit of store rationalization to improve margins,” Alok Agarwal, chief financial officer of Reliance Industries, told reporters at a press conference on Saturday.
In the June quarter, the company merged some Reliance Fresh stores with Reliance Super or Reliance Mart outlets in places where they were competing directly or generating wafer-thin margins, said a Reliance executive, who did not want to be named. Also, at some places, these value format stores were converted into Reliance Digital Express or Reliance Digital Express Mini which generate more visitors. The value segment, with a total of 602 stores, currently contributes 57% of the total revenue.
For the quarter ended 30 June, Reliance Retail reported a record 144% jump in operational profit to Rs.171 crore from Rs.70 crore in the year ago period.
“In the retail business, small box formats have not been successful for any retailer as they face a stiff competition from the general merchandise or the kirana stores. These stores are regularly reorganized,” said Abneesh Roy, associate director, institutional equities-research, Edelweiss Securities Ltd.
Roy said it makes sense to shut stores in segments where the margins are thin, but added that the value format of Reliance Retail still generates the maximum footfalls.
With an eye on profitability, Reliance Retail is also focusing on building its own brands in the fashion and value format segment, apart from bringing global brands to the Indian market.
In the June quarter, contribution from its own brands across its value format stores increased to 15% from 11% a year ago. In the fashion segment, its own brands contributed 65% from 64% a year ago, according to the company.
“Developing private labels is a logical strategy as it is a high-margin business which increased profitability, but it is not as easy as it sounds. The retailer has to go through a churn studying various aspects and has to constantly re-look at the categories on offer to decide which ones can give an opportunity for private labels,” said Ankur Bisen, senior vice-president, retail, Technopak Advisors Pvt. Ltd, a New Delhi-based retail consulting firm.
Apart from its own brands, Reliance Retail has been aggressive introducing global fashion and lifestyle brands.
Reliance Brands had a portfolio of 24 global brands ranging from apparel to books and accessories. The brands segment reported an increase of 50% in revenue in the June quarter from a year ago.