Listed retail chain Shoppers Stop Ltd's performance for the April-June quarter improved, with net loss narrowing to Rs 13.6 crore from Rs 21.6 crore in the same period a year ago even as revenue rose about 9 per cent to Rs 772.19 crore. The profit figure was pulled down by high depreciation.
Govind Shrikhande, managing director at the retail chain, spoke to THE WEEK about the company's strategy for the quarters ahead and the impact of policy measures, including the implementation of GST, 100 per cent foreign direct investment (FDI) in single-brand retail and the industry at large.
Your annual report mentions a three-year omni-channel strategy. Could you detail the phases of it?
When we look at long-term online strategy, basically there are three parts to it. One part, which we kick-started about 12 months ago is fundamentally having online and the departmental store as multi-channel strategy. From multi-channel, we moved towards omni-channel by merging these two together and basically it's a three-phase investment plan, which are: one view of customer, one view of stock and one view of order. So one view of customer really means that whether the customer comes through the store or comes online or comes in marketplace, can we track all his orders together? So, that's one view of customer, including his credit card, his Facebook, everything. So, if I can get all the information about the customer at one place, that's one view of customer and it helps us to really serve the customer better because if they shop, let's say, in the physical store for a pair of trousers sized 36 with an alteration to 41, when they order online, I can actually prod them to want it altered. These information helps me to sell to them better. That's one view of customer.
The second is one view of stock. Can I get a complete view of whether the stock is in a One store, or with Dcs or supplier or in transit? That is one view of stock. The last is one view of order. It is about tracking the orders the customers place.
With this in mind, we are investing Rs 60 crore. Our first phase of investment, Rs 20 crore, went into the change of platform to Hybris, which helps navigation of customers on-site. The second part is going into what we call the warehouse management system (WMS), which is RedPrairie from JDA. This is already on and the first part of execution is already through. The last part will be master data management, which will help us with one view of customer and order, and WMS will give us one view of stock. We believe that the 60-crore investment over the three-year period will give us a 10 per cent upward sale. Currently, it's at one per cent.
When do you expect HyperCity to turn profitable?
We are targeting last quarter of this year to make it company Ebitda (earnings before interest, tax, depreciation and amortisation)-positive. In the next full financial year, we believe we'll be able to make it PAT-positive.
Your entire corporate social responsibility (CSR) corpus could not be spent last year due to some inefficiencies on the part of the NGO
We decided that we want to utilise the CSR fund in two big areas. One of the areas is to train disabled people to start working in retail stores. We believe that rather than giving money to charity, if we can convert them into self-earning, self-respecting individuals, it'll help them and us. That's the programme for which we are working with Pankh right now. This year, we'll be able to completely utilise it. Last year, we were not able to get so many people trained in order to get them employed. There is a whole system of identifying those individuals into those catchments where my stores are and then ensuring that all the training support is given to them and post training, they are absorbed. We were ready to absorb, but the training could not be completed for so many people. This year we should be able to utilise it completely.
Apparel and non-apparel accounted for 57 per cent and 43 per cent, respectively. Are you aiming for any change in that mix?
Actually, in the last few years, apparel has been going up faster than non-apparel.
Is it because of the margins?
No, it is primarily because one big area for us used to be jewelery. That has dropped and we have not been able to replace it, whereas apparel categories like denim, women's ethnic wear and women's Western wear continue to grow well and that's why the apparel share has been growing.
Are you trying to bring non-apparel at par with it?
Beauty is something we are driving hard. It (non-apparel) will never be on par because the consumption in India—if you look at all the formats—are almost at 80 per cent apparel and 20 per cent non-apparel. We, because of the large assortment that we have in the non-apparel, do have a larger share. We believe it is a decent share to have—a 55:45 or a 60:40 kind of number. To keep on growing, we have to add on brands or we have to add on categories like beauty, where we are driving it higher.
You expect some risk in terms of access to vendors with the proliferation of e-commerce sites and more players set to enter the brick-and-mortar segment. How are you working on that?
There are two parts. What we are currently seeing across the market is that there seems to be some consolidation happening on the online side and with the new rules coming into play—although they are not getting executed to the level they are—definitely there will be a more sound approach to gaining sales rather than burning money. That, I think, is a good consolidation theme that is working in India. Number two, we are one of the oldest places in India, we complete 25 years this year. We are going back to each supplier, category by category, and understanding where we can help them to really help our business in the long term, whether it's some kind of investment, funding, quality control support or manpower support. Whatever is required, we are willing to extend because our relationship becomes stronger and we don't have worries about getting supplies from them, especially on the private brands side.
As you said, e-commerce has started focusing on profitability. You expect that to have a direct impact on your business?
The good part would be, if you look at the kind of advertising spend that most of the online guys did two years back versus last year versus today. I think it is down by at least 25 to 30 per cent now. That helps you have what we keep referring to as a level playing field for retailers and it should also help us in selling better. With lesser discounts coming online, the customer will have better options to shop between online versus brick-and-mortar.
The approval for 100 per cent FDI in single-brand retail has come through. Any impact you expect from that?
Actually, it should help (us) because more brands will come into India and typically, most brands operate at three levels. One is standalone stores, (the) second is shop-in-shops and the third is online. We continue to operate as a department store with large amount of shop-in-shops and our site can actually take in multiple brands. So, I believe that more brands coming into India will help.
Don't you see pressure arising in terms of rental costs?
No, in reality, that rental cost pressure continues because the number of new properties that are coming up are still less in India. Not many malls are coming up. That is going to continue. In fact, every brand that comes into India will find it more difficult to get into standalone stores. So, for them the preference would be to come into a department store and create a shop-in-shop. It could be easier for them to market to a shop-in-shop.
Last year, you had built a shop-in-shop on the Snapdeal platform. How successful was that and how much of your turnover would you attribute to that channel?
Still slow, I would say. It is still on a test model because we only kick-started around January, although we had signed around October. It's only one quarter old and though it's growing well, I would say it has still some way to go.
So, you're going to continue with that?
Yes, we'll continue with it.
Simultaneously, you are also working on your own website.
Absolutely right.
How are you differentiating the two?
In reality, if you look at it, our website is getting reflected on Snapdeal like a key anchor. So when you go to Snapdeal, what you'll find is, Shoppersstop.com completely reflected as a site there. So it is like being in a mall, where I have a separate entry or I have an entry through the mall. That's the way we are looking at it.
Do you see people who come in through Snapdeal using the omni-channel platform or do most of them opt to buy directly from the website?
We have not completed enough traffic study to understand what's the navigation between Snapdeal versus Shoppers, but typically, if I get about 1 lakh customers every day on my site, Snapdeal's entry is about 100. So only about some percentage of those customers are coming from Snapdeal to us because customers who are going to Snapdeal are going for multiple categories or multiple brands. My belief is that over a period of time, if I am able to get upto 5 per cent to 6 per cent of those customers on to my site directly, it'll directly help my conversion as well as sales. So I think it's still time to build that up.
What is the conversion rate on Snapdeal, a ballpark figure?
Overall 2 per cent.
Do you expect the roll-out of GST to affect you?
It should be positive for the entire industry and finally, it depends on what the rate is. So the rate which is currently being talked about, which is a revenue-neutral rate of 14 per cent or 15 per cent, will help the entire industry. If it is higher than that, I think in the short term there could be challenges of pricing, but in the long term, it will be beneficial for the entire industry because it'll take away a lot of bureaucracy and make India a very seamless market. All formats, whether it is online, offline, whether it is one state versus multiple states and issues like excise, VAT (value added tax), CST (central service tax), octroi, entry tax, road tax—all those will get merged into one.
By how much will you be expanding your store presence in 2016-17 and in which geographies?
In 2016-17, we are adding about a dozen stores across all formats, which really means that we are adding about 5 lakh square feet overall.
What would the nature of these markets be?
Mostly in existing cities (where the chain already has a presence). Mostly in tier-I (cities), we are not really going into tier-II right now.
With your increased online presence now, are you seeing increased traction in tier-II cities where you don't have a physical presence?
If I look at quarter one (April-June), right now, tier-II has done better than the big metros in terms of sales growth. In the last two to three years as well, tier-II cities have been doing pretty well. But (in) tier-II cities the problem is with location. There are not too many high streets in tier-II. They have typically one or two high streets and if you are not there, you are obviously not able to do very well. Those are disadvantages of tier-II, but if you have a good presence, we have seen that the traction is pretty good.
What is your outlook for the year ahead, especially for the coming two quarters, which are festival quarters, for each category?
We believe that the next three quarters should be pretty good, based on three fundamental things that are happening right now. One is that the monsoon has been pretty strong across India and while monsoon does help customer sentiment, especially in the metros, it also ensures that there is no drinking water shortfall. For the rural areas, it helps in the production of crops and reduces inflation. Reduction in inflation directly impacts consumption in both metros and the rural areas. That's part one.
Part two is, overall, the whole of the nine-month period is full of festivals and the wedding season, which again help consumption and last, but not the least, are the Seventh Pay Commission increments that are coming into the hands of customers, especially the central government employees. That should directly help consumption.
We believe that across categories, across formats, the next three quarters should be pretty good in terms of consumption and we should see a like-to-like growth number of between eight and nine percent.
(The interview took place before the passing of the constitution amendment bill on GST in the Rajya Sabha)
