The signals from the surge in Shoppers Stop’s shares on Monday
Is the 5% stake acquisition by Amazon.com NV Investment Holdings Inc. in Shoppers Stop Ltd reason enough for the 20% jump in the latter’s share price? And this on a day when the benchmark Sensex fell?
Here’s possibly what’s driving the excitement.
While the stake is small, there is scope for Amazon to increase it to 25% (that’s when an open offer is triggered) in future, said Himanshu Nayyar, research analyst at Systematix Shares and Stocks (India) Ltd. This could be one way for both companies to test the waters given that Shoppers Stop has also separately entered into an exclusive partnership with Amazon for its department store format, he added.
“Current foreign direct investment (FDI) in multi-brand retail procedures are somewhat tedious at the moment and the deal opens doors for other companies as well if they want to consider this route,” pointed out Nayyar.
According to Harish H.V., partner (India leadership team) at Grant Thornton India Llp, “This is a 5% investment only and we have to wait and see whether this is based on an understanding between the two managements.” Maybe there is a link between the investment and exclusive partnership with Amazon, but we need to wait and watch the shape of that understanding and whether it will result in a larger partnership in future, he added.
Amazon.com NV Investment Holdings is a 100% subsidiary of Amazon.com Inc. and is registered as a foreign portfolio investor with the Securities and Exchange Board of India. This also marks Amazon’s first investment in a listed retail company in India.
The Shoppers Stop-Amazon partnership will lead to the creation of Amazon experience centres across 80 Shoppers Stop stores. Customers will now get to test Amazon’s products at Shoppers Stop outlets. Clearly, what this means is that as far as India is concerned, it is difficult to ignore business from the physical or bricks-and-mortar retail stores.
“Amazon India & Shoppers Stop tie up and the exit of Aditya Birla Group from its online platform (abof closed) shows huge relevance of physical retailing in India,” wrote analysts from Edelweiss Securities Ltd in a report on 25 September.
“Omnichannel is the way forward,” said Govind Shrikhande, customer care associate and managing director of Shoppers Stop.
The tie-up will help Shoppers Stop garner more revenue from the online platform. The company’s online revenue accounted for just 1% of total revenue in fiscal year 2017 (FY17) and the management was hoping to take the measure to 10% in three years. It is likely that Shoppers Stop will reach its target much sooner now, as the deal could bring in more and newer consumers.
Edelweiss Securities expects Shoppers Stop to leverage Amazon India to increase its private label contribution (16.4% in the June quarter). Typically, private labels fetch higher margins. Both the firms will also jointly conduct mutually beneficial marketing and promotion activities.
After the 20% jump on Monday, shares of Shoppers Stop have appreciated 38% so far this fiscal year. Investors would do well to follow developments on the divestment of stake in its hypermarket chain HyperCity Retail India Ltd, which has been a drag on the consolidated numbers for a while now.
For FY17 and the June quarter of FY18, HyperCity’s reported net loss stood at about Rs85 crore and Rs27 crore, respectively. Shoppers Stop expects to offer clarity on the matter in four weeks. That will be the next trigger for the stock.