The Hindu Business Line : Retail sector overvalued, says Hypercity chief

Mumbai, Feb. 12 Retail hype has led to overvaluation of the sector, which will ultimately drive consolidation, Mr Andrew Levermore, Chief Executive Officer of Hypercity, promoted by the K. Raheja Group, told Business Line.

With the entry of large investors, the profit-to-earning (PE) ratio of retail stocks is skyrocketing.

Listed Indian retail firms are trading at PE multiples of 60 to 70, while their Western counterparts are trading at multiples of 10 to 12, Mr Levermore said.

“Carried away by the hype created by the media and retail players through announcements of huge investments, the sector is attracting many players with a lot of money, but little expertise,” he said. This will compel many to withdraw from the market, while major players will demand profitability.

More stores

Hypercity expects an annual turnover of $3 billion in the next five years and has finalised plans for an addition of 60 Hypercity stores in the same period. The retailer has identified 68 locations across India that can absorb the big box format of stores.

“We believe that the big box is a proven format in cities, but whether it works in small towns, we don’t know,” he said. Express City, the small format store at Jaipur, is a market tester and if it works out, 30 to 35 will be rolled out along with the big box in another five years. Currently, the delay in property developments is close to two years, he said.

MARKET STRATEGIES

Hypercity is only second to Subhiksha in terms of pricing, according to Mr Levermore. To ensure regular repeat visits, Hypercity aims to keep the pricing at a particular range throughout the year to familiarise the consumer with its pricing policy, rather than hold sales, he said.

“We are at a unique position in the market, as our target customer is the upper middle class. It does not cost anything to a retailer to keep a store clean, and it’s a myth that consumers think a store offers better prices if it is dirty or unkempt,” he said.

At the same time, the in-store imagery of the store should be kept optimal, he feels, as after the first visit by the consumer it becomes redundant.

Satisfied with the success of its catalogue-retailing concept, Argos, Hypercity will launch its second version of the catalogue on a larger scale by end of April.

There are also plans to make the company Web site fully transactional by end of the year.

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