Retailers are resizing stores to add more of high margin earners such as fashion and food. — K. Ananthan
Retail biggies are cutting down the size of new hypermarket stores to keep margins intact. Existing stores, too, are going through hectic ‘space optimisation’ with low margin earners such as electronics and furniture being shunted out to make way for apparels, food and grocery.
Analysts and industry watchers said the compact hypermarket will be a mainstay for a majority of retailers.
Sources said players such as Future Group, the Aditya Birla-owned More, Tata-owned Trent, Reliance Retail, Shoppers Stop, which started with large stores exceeding over 80,000 sq feet, are cutting down the space in key metros as well as tier 1 and 2 cities.
Structural slowdown
Deep Mukherjee, Director, India Rating and Research, said, “There is a structural slowdown. It takes about 12-18 months to break even in a new location. In times such as these, the break-even can happen only in 18-24 months. So, companies are cutting on store sizes and focusing on improving margins. We have however maintained a negative outlook on retail for near-term.”
The Raheja-owned Hypercity’s new store in Bangalore is the first compact store in the hypermarket category with about 33,000 sq ft instead of the usual 55,000-60,000 sq ft. While Reliance Retail is experimenting with the Express format, players such as Trent and Big Bazaar are resizing stores to add more of high margin earners such as fashion and food, among others.
Mark Ashman, CEO, Hypercity, said, “30,000 sq feet is still a very big store, and we have taken out two categories that are more destination type. So, by default, this becomes more of a neighbourhood mall offer.”
He said the size of a store will also be of strong interest to developers, as they will have more space to offer.
Internationally, hypermarkets are big box retail stores with space of over one lakh sq ft. The ‘compact hypermarket’ sizes that companies seem to be testing are usually called supermarkets.
Ruchi Sally, Director, Elargir Solutions, a boutique retail consultancy firm, said, “Companies such as Aditya Birla Retail, Shoppers Stop who had over a lakh sq ft of area are cutting these to more manageable levels. Most retailers are paying nearly Rs 50-100 per sq ft as rent. While footfalls are dropping, the margins get hit with such huge rentals.” She said retailers such as D-Mart were profitable because they optimised on the space and inventory.
Industry watchers Business Line spoke to said trading densities on compact hypermarkets will be higher by as much as 15-20 per cent on average.
Abneesh Roy, Associate Director, Research, Edelweiss Capital, said, “Retail is tough with scale being a problem. Every company is focusing on profit. In many areas, the hyper market formats don’t start to deliver soon. Companies are opting for smaller stores as it is a mix of saving on rent and making margins.”
Published on May 29, 2013
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