February 14, 2011
Shoppers Stop (SSL) has topped the list of the Most Respected
Companies in the retail category for the third year in a row.
The company, which started as a small retail outfit in 1991, now
has 34 stores across 13 cities in the country. It has been rated
No. 1 by its peers in all categories except one. While the rating
on quality of its management, innovativeness, products and services,
ethics, people management and global competitiveness are higher
than all its competitors, it is second to Pantaloon Retail in
Shoppers Stop has been built brick by brick by passionate
and committed people who have always gone one step forward in
serving our customers, says B.S. Nagesh, who spearheaded
the company for 17 years and now continues to mentor the top management
as the vice-chairman. The customer focus is reflected in its financial
results. Though it suffered a loss of Rs 81 crore in 2008-09 due
to low buyer sentiment thanks to the global recession, it turned
around in 2010, ending the year with a profit of Rs 50 crore.
Our focus on systems, processes and best practices has helped
us achieve the best results, says Govind Shrikhande, managing
director of Shoppers Stop. He says that differential positioning,
good merchandise range, service and ambience have helped the company
remain connected with customers. Adds Nagesh: For me the
test of what I have built over the years is customer satisfaction
and the continuing performance in the current year.
In the third quarter of 2010-11, SSL generated a turnover of
Rs 515.9 crore and a net profit of Rs 27.9 crore, a 24 per cent
and 45 per cent jump, respectively, over the third quarter figures
of 2009-10. And in the nine months of the fiscal, revenues have
risen 24 per cent to Rs 1,401.5 crore and net profits, 63 per
cent to Rs 55.2 crore.
Shoppers Stops success can be partly credited to some
key strategic decisions taken by the company, including its focus
on sharing sales data with merchants and suppliers. Once this
data was made available, merchants realised that since buying
patterns were different across locations, they had to stock particular
items at particular stores and locations, thereby increasing customer
satisfaction and sales. Earlier, in the absence of robust data,
buyer behaviour was unpredictable. But now, the number of members
in its loyalty programme, First Citizen, has increased to over
1.8 million (and contributes 73 per cent to sales). With such
data, SSL is able to understand what will sell where and what
wont. This has led to lower inventory and higher margins.
SSL works on two models. Under the buyout model, which contributes
60 per cent of revenues, apparel is bought from brand owners at
factory price and the inventory is solely managed by SSL. Second
model is the consignment model where the vendors themselves manage
the inventory. This model is fast picking up.
Retail as an industry has been recovering and this is
partly related to reduced rentals and better inventory management,
says Devangshu Dutta, CEO of Third Eyesight, a retail consulting
SSL has renegotiated rentals on all its properties and now the
company follows a revenue sharing model with the builders.
Its EBITDA (earnings before interest, taxes, depreciation and
amortisation) increased by 28 per cent to Rs 42.71 crore in the
third quarter of 2010-11. A fall in property prices was
the key, and retail sentiment has also picked up, says Shrikhande.
The company has several other points to its credit. In mid-2010,
it acquired a 51 per cent stake in HyperCity, a food retail format.
Currently, it has seven stores of this format and each is around
75,000 sq. ft. SSL plans to increase the number of HyperCity stores
to 26 in the next four years. The current investment in this format
is Rs 61 crore.
SSL also has different retail subsidiaries catering to various
needs. Theres HomeStop, a home décor format with
four stores in three cities, and Arcelia, another retail format
with one store in Pune. The company has also moved into specialty
retailing. Mothercare, a maternity, infant care store was started
as an exclusive franchise agreement for departmental stores with
Mothercare UK. Currently there are 28 stores of Mothercare (including
eight standalone stores) across 11 cities. Then theres Crossword,
SSLs bookstore, which has 33 outlets across the country.
The company also set up MAC, a high-end cosmetics store, a couple
of years ago in a retail agreement with Estee Lauder. At present
there are 15 MAC stores in Mumbai, Bangalore, Delhi, Amritsar,
Chennai and Hyderabad. Under cosmetics, SSL has also another brand
called Clinique, which has seven stores at present.
SSL is also betting big on airport retailing. It has one store
at Hyderabads domestic airport and two at Bangalores
domestic airport. Besides, two duty free stores are run by the
JV company Nuance Group at the Bangalore international airport.
However, airport retailing is yet to break even.
Not all decisions made my SSL in the past have paid off. The
company has made its share of mistakes. It introduced catalogue
retailing through Argos and entered into a joint venture with
the UK-based retailer. However, this did not succeed and SSL wrote
off losses of Rs 35 crore. Then four of its small-format food
retail stores, ExpressCity, shut down within months in 2007-08.
Currently, the challenge for SSL is to keep its rivals
Lifestyle and Pantaloon at bay. These companies have a
higher share of private labels, especially Pantaloon, which boasts
a 75 per cent private label collection. Then there is Lifestyle,
which follows a similar model as SSL but has been rapidly expanding
and increasing its private label collection to more than 25 per
cent. SSL, too, expects private label sales of more than 25 per
cent this year. Shoppers Stop has positioned itself as a premium
retailer and so is in direct competition with Lifestyle, which
is a close second in the BW list.
SSL will need to draw on its 20 years of experience and continue
to innovate to stay ahead.
No 2: Lifestyle International MD Kabir Lumbas Lifestyle
has a strong merchandising team and a great product range.
No 3: Pantaloon Retail Kishore Biyani, MD, will focus on
the aspiring Indian rather than the Indian who has higher income
(This story was published in Businessworld
Issue Dated 14-02-2011.)