Mr. Govind Shrikhande is the Customer Care Associate, President & CEO at Shopper’s Stop Ltd. He has been with SSL since April 2001. Prior to being appointed to the post of President and CEO, he served at SSL as Executive Director & CEO. Prior to that he was the Director - Buying and Merchandising and has been part of the turnaround team at SSL. As the President and CEO, Mr. Shrikhande is responsible for the Day to Day Operations at SSL that includes all formats of the Company. Mr. Shrikhande has a rich experience of Textiles, Apparel and Retail industry. Before joining SSL, he was associated with Mafatlal and Johnson & Johnson. He was part of the team that launched Arvind Denim and Arrows brands. Mr. Shrikhande has also worked with Bombay Dyeing & Co.
Shopper’s Stop Ltd.(SSL), a pioneer in modern retailing in India, has been promoted by KRaheja Corp. Group (Chandru L. Raheja Group). SSL, along with itsassociate companies Hypercity Retail (India) Ltd. and TimezoneEntertainment Pvt. Ltd. operates more than 2.3 mn sq ft in the country.SSL is a leader in the Indian retail sector and one of the pioneers insetting up large format department stores chain in India. SSL is theonly Indian member of IGDS (Intercontinental Group of Departmentalstores) along with 29 other experienced retailers from all over theworld. The company has also introduced new formats in the market vizHomeStop – the exclusive home furnishings, décor as well as furniturestore and Arcelia – a premium shopping destination for accessories,cosmetics fragrances and jewellery. It also operates Crossword chain ofbook stores and has an alliance with UK-based Mothercare.
In a freewheeling one-on-one interaction with Hemant P. Maradia of India Infoline, Mr. Shrikhande says: "We are adding 18 new Shoppers Stop stores in the next 30 months, which translates into about 1 million SFT of retail space."
How do you see consumer sentiment at the moment?
Overall we have seen a gradual upswing in consumer sentiment. They are loosening their purse strings for sure, after being on a shopping diet for a long time.November was a good marriage season. Even December was pretty good in terms of consumers coming out for shopping. In the same period of the previous year, a lot of weddings got postponed or became silent marriages post 26-11. The celebrations are yet not in full swing, but there is definitely a positive upturn in the overall sentiment. Consumers are willing to spend, but cautiously and steadily.
When do you see consumer spending back at pre-crisis level?
I don’t think the situation will reach the pre-crisis level so soon. We had predicted that the first quarter would be negative in terms of sales; second quarter will be flat; third will see a small growth and fourth quarter will witness healthy growth. We see steady growth coming back in the next fiscal year onwards. If 15% like-to-like growth in boom time was great, I don’t think those days will return anytime soon. We expect growth to be in high single digits on a like-to-like basis. One reason for this is a lot of cannibalization, self as well as competition driven, is happening more and more. The total mall space in India is increasing at a very rapid pace vis-à-vis the customer uptick. That, according to me will create some amount of challenge for attaining strong growth in sales on a like-to-like basis going forward. Q1 FY10, same-store-sales were in the red. Q2 was positive and Q3 we will see growth again. Q4 should be even better.
What cost-cutting/restructuring measures did you take to combat the slump in business? Could you briefly mention the same and their impact on the company's operations since launching them?
Retail industry has three primary cost pressures. The biggest one out of those is rentals. At the end of first half, rentals constituted 11% of our sales. We have seen a slew of new malls coming up and lot of tenants not being able to run profitably. Because of this, a lot of properties are going vacant. We are getting lot of new properties on a revenue sharing basis; pure revenue share right up to 7-8%. This means our rental cost will fall by anywhere between 100-150 bps in the new stores coming up in the next 12-18 months.
The No.2 in terms of cost pressures is the people cost. We did not lay off anybody during the downturn. We asked everyone as to what is the call that we should take. We decided that the top management will take a 15% cut. We also decided not to replace majority of the attrition. Overall, we have been able to save 20% on the employee cost through these two measures. At the same time, we ensured that the right service level is maintained at the stores without affecting customer experience.
Third area which we looked at from the cost cutting perspective was our power consumption. We are now seeing the fruits of that. In terms of units, we have reduced power consumption by almost 3.5 Lakh units across India. From December onwards, we switched from Reliance to the Tatas. That gave us the reduction in rates of 30-35% in Mumbai alone. On an all-India basis, we are able to save 50-60 bps in power costs alone. We also rationalised costs in other areas of operations such as advertising, travelling, maintenance, etc. Thanks to these measures we have been able to reduce the operating costs by 600 bps. That is how the whole model has turned around & is becoming Scalable & Recession Proof.
Why did you exit the F&B format?
We basically exited two formats last year. One was Argos, which was the catalogue business. The second one was the Food & Beverages business. In the case of Argos we thought it would need a lot of time and money to scale it up. We also felt that may be India is not yet ready for a catalogue business. Our Consumers seemed to have skipped the catalogue stage and have straight away moved to the dot com stage. So, there was no point in pursuing a business that was not scaling up. In F&B, we faced a different issue. If you see the history of retail F&B business in India, almost everyone barring one player is losing money. The scale is not there. So, we felt that with 20-30 stores, we were not getting any scale. Why run a business when you can’t get scale and therefore profitability. It is better to align with a partner who knows that business better. That is why we got out of the F&B format.
What about your airport stores?
We are running stores – both duty free as well as duty paid - in Bangalore and Hyderabad airports. In fact, these stores are turning around pretty well. Airports witnessed a rebound post October 2009, when the airline industry in India started picking up & passenger traffic is growing once again.
What was the rationale behind the top-level changes in Shoppers' Stop management last August? What will be your role?
I won’t say it is a top level change. Basically, Mr. B Nagesh, who earlier was the MD, became the Vice-Chairman of the Company. I was the CEO and continue to remain in that position. I was earlier looking at Shoppers Stop stores, Home Stop and Mothercare. Now, with the change in August 2009, I am now also looking after Crossword Format.Overall, it is continuity in the management. We have always worked on a Two Deep Organisation & the focus still continues to develop & nurture talent.
As the new President and CEO, what roadmap do you see for Shoppers' Stop in the years to come? Especially given that the economy is just beginning to come out of a really tough business environment?
Today we have about 28 stores and about 1.8 Million Sq. Ft. of retail space across India. We are adding 18 new Shoppers Stop stores in the next 30 months which translates into about 1 million SFT of retail space. This will take our total retail space in Shoppers Stop department store format to 2.8 million SFT.
We have 4 HyperCity stores at the moment. We will be opening 4 more HyperCity stores, taking our tally to 8 stores by the end of the next financial year. For HyperCity we are not looking at further jump and would like to stabilise in the current year as well as the next fiscal year. We will look at profitable growth for HyperCity from FY11-12 onwards. Till that time we will focus on the hyper market format and the Company turning profits.
As far the Shoppers Stop department store format is concerned we are back with strong profits and we would like to ramp up the space. We are also entering a lot of new cities with the Shoppers Stop brand. This year alone, we are looking at entering three new cities – Aurangabad, Ahmedabad and Amritsar.
In the next two years we will also enter Coimbatore, Vijaywada, Mysore and many more. So, from a base of 12 cities, we are now targeting to hit about 22 cities over the next 3-4 years. The addition of 18 new stores will take Shoppers Stop to 46 stores. This, to my mind, is a good number, giving strength to the brand, in terms of Geographical Spread, Width, Depth and Scale of Size. We are also entering into more and more new cities and regions.
What about funding for the expansion?
As far as the Shoppers Stop expansion is concerned, we will be able to scale up through internal accruals. Last year too, when we slipped into red, we managed to generate Rs1bn in cash. This run-rate of Rs1bn plus in cash generation should continue. So, the capex requirement of Rs2bn (including working capital) for 18 new Shoppers Stop stores will be taken care of.
Where we will need funds, is for buying out HyperCity Retail. That stake purchase will come up around June this year. We have to buy out 32% stake in HyperCity Retail. We currently hold 19% in HyperCity Retail. That will cost us about Rs1.25bn. That is why we are going for a Warrants issue and a QIP.
We have already collected about Rs300mn by issuing Warrants to the promoters. The timing of the QIP will most likely be anywhere between the Q4 FY10 results and the Q1 FY11 results. That (QIP) would generate about Rs2-3bn.
Where are the new HyperCity stores coming up?
One is coming up in Amritsar, along with the Shoppers Stop department store. Second will be in Thane (it opened on January 14th). Third one will come in Bangalore.
Have you started making profits at current HyperCity stores?
Hypercity Malad is three years old. At store level, we are making profits now. The existing four HyperCity stores (Malad, Vashi, Jaipur and Cyberabad) should be breaking even at the store level this year (FY10). We are targeting company level breakeven for HyperCity Retail next fiscal year (FY11). From FY12 onwards, HyperCity Retail as a company should start making profits.
What will be the big challenges going ahead?
Property prices (rentals) will be among the big challenges for us going forward. Rentals had slowed down in the wake of the economic downturn. But, suddenly with the economic turnaround, once again there is some amount of mad rush among developers in building new properties as also in rentals. This, to our mind is without any logic. We are concerned, as rentals are one of the biggest cost heads for the retail industry. People have to be a little cautious in closing new deals on property. The second big challenge would be the availability and retention of the right talent.
What is the strength of your First Citizen scheme?
The First Citizen flagship scheme has crossed 15 lakh members. It contributes almost 72% of sales for the Shoppers Stop chain. We have never seen First citizen members slowing down their shopping. They have always been very loyal to us through thick and thin. This (First Citizen scheme) is one of our biggest strengths. We will continue to nurture and grow the First Citizen scheme.
How is the response to your web initiative?
In E-commerce, we have just completed a year. It is very, very small in terms of its contribution to sales. We will have to keep on ramping this (online presence) up. My belief is E-commerce in India is a long road. It has the potential to become very big in the long term. If you look at Macy’s or BloomingDale’s or Marks & Spencer, between 4-10% of their sales come from E-commerce. In our case, today it is very miniscule. I am hoping this will go up to 1-2% over the next 2-3 years. Even as our geographical reach increases, we will still not be able to cover certain towns. These areas can be tapped through web.
Any category where you think you can do more?
I would say electronics could be a big opportunity going ahead. We do sell mobile phones, but we would like to ramp this up further. This category seems to be growing pretty fast. We see a big opportunity in mobile handsets. This will be done within Shoppers Stop and HyperCity. We have no plans to start standalone electronics format.
Are you increasing private label brands?
We continue to be focused on international brands in a big way. So, our exclusive private brands (in Shoppers Stop chain) have taken a backseat slightly this year. But, we will again push a little bit harder in the coming fiscal year. We are still not overly ambitious about taking private labels’ contribution in sales to 50%. We would like to restrict exclusive brands under 20%.
We want to play the branded game more than the private labels. In HyperCity, the situation is a little different as far as private labels go, but there also it is not pretty large. It is under 20% in HyperCity as we do not have that much scale as of now. One requires at least 20-25 stores for private labels to play a sound role. Also, we have to take a call on whether we are a player of brands or private labels.
What will be the impact from the Mothercare-DLF joint venture?
The Mothercare-DLF joint venture is actually an advantage for us. The JV will open lot of standalone stores. We will continue to operate & expand in a shop-in-shop format exclusively for Mothercare. So, it is a win-win situation for both. Mothercare will reach to more customers. At the same time, we will continue to enjoy exclusivity in shop-in-shops.
Give us a sense of your region-wise expansion plan?
We are increasing our presence in Tier II cities. We are entering 7 new cities for our 18 new Shoppers Shop stores. North is going to be one of the big focus areas. With Amritsar store opening soon, Punjab is one of the main targets in the North. We are seriously evaluating Ludhiana, Jalandhar and Chandigarh as well.
In the east, we are looking at Durgapur, Siliguri and Patna. In south, we are evaluating Vijaywada, Mysore, Mangalore, Cochin and Coimbatore. In west and central, we are looking at Indore, Ahmedabad, Baroda and Surat.
Have you already tied up with the developers?
In the six new cities that we are entering we have already signed the property deals. Ahmedabad and Amritsar (Shoppers Stop) should open anytime before March. Bhopal is another new city that we are targeting. That should open before May. Aurangabad will open between May and September.
Does that mean metros have reached saturation?
Not yet. We are adding two more stores in Bangalore in the next 12 months. In Mumbai, we don’t have a single store in the main city. I believe we can easily have two stores in the main Mumbai city. Thane is another city where we can have one store. In Pune, we currently have two and we are planning to add a third one there. In Hyderabad, we have three stores right now. We can add one more there. In Delhi, we can have two more stores. So, we still have plenty of scope in metros to grow our footprint.
Tell us about the expansion plans for other formats?
The focus will continue to be on the Shoppers Stop department stores followed closely by the HyperCity hypermarket format. This will be followed by Crossword. We have turned into profits as far as Crossword is concerned and will continue to expand this chain. We had aimed for a turnaround in Home Stop by the end of the current fiscal year (FY10). Once that happens we will look at further expansion there as well.
How do plan to tackle the challenge on the manpower front?
We have had the advantage in that we have a management team that has been in place for a pretty long period of time. We have enjoyed loyalty of a large number of associates. We have always planned a Two Deep Organisation Structure. For every key role, we have identified two people who can take over the role. The next step after identifying the right talent, we give them the right exposure. We give them training. We give them assignments to ensure that they can perform under different circumstances.
We have development centers and assessment centers for any new role that anybody takes up. That will continue. It is a question of identifying the right talent, investing in them, developing their abilities and then giving them the right job. This process will be accelerated in the coming year. The economy is turning around and competition is heating up. So, there is bound to be demand for good quality talent in the retail industry.
What about manpower management at the front-end?
At store level, the attrition is increasing. There it is a tough call in terms of hiking the salaries. We are still evaluating whether to give them more incentives for their performance or give them more salary.
We had tried a new approach recently. During this Year the top management team went for a cut in salary, we hiked the pay for the front-end staff in the second half. In this quarter, we are running a scheme to give them more by way of incentives as well. This seems to be working in the right direction. Apart from investing in talent, we will have to modify the mechanism of incentive payment to associates. If you perform better, you take home more. That is the kind of model we would like to pursue going forward.
How do you view the entry of MNCs like Wal-Mart and Tesco?
I don’t think we will see any major policy move on the FDI front in the next 2-3 years. The MNCs coming in – whether it is a Wal-Mart or a Tesco- they are starting with only the Cash-n-Carry. The front-end will continue to be managed by the Indian companies. Still, we have seen more and more involvement of the MNCs in their partners’ stores – whether it is a Wal-Mart or Tesco.
They are brining the international best practices. So, that will certainly help the industry. It will also help the consumers who may enjoy better choices and better pricing. In the Department Store area, generally speaking, there are very few Cross Border Successes. The Local Players generally hold a Great Advantage. Hence Shoppers Stop will continue to hold a Big Advantage.
What is your view on FDI?
I have always been of the opinion that the Government should allow FDI in retail but with certain strings attached. Wal-Mart is a US$400bn company. At 20% margin, their Buying cost works out to US$320bn. Out of that, they source only US$1bn worth of merchandise from India. That is peanuts. So, the Indian Government should tell Wal-Mart, there is FDI for you if you can take this US$1bn sourcing to US$10-15bn over the next few years. It wouldn’t be too difficult for Wal-Mart to do that.
If Wal-Mart has to export US$15bn worth of Indian merchandise, there has to be a commensurate improvement in the infrastructure. India’s total exports of apparel are only US$15bn right now. But, if Wal-Mart comes in that would lead to lots of job opportunities in the manufacturing side. Trading will also take off. Quality upgradation will happen. Farming, storage and logistics all aspects will undergo a huge change.
It would be to India’s advantage to have FDI in retail, to push exports up substantially. It will bring in so much of economic wealth to a whole host of people involved in the whole manufacturing. But, the Government seems to be missing this point completely in the whole debate on FDI in retail. It has become more of a political debate rather than an economic one. I think the Government should understand the economic side of the debate and take it the whole hog.
China did not allow FDI at one go. It was opened up gradually, from 10% to 50%. It pushed each one of the MNC to re-export. If you take a few learning out of the China experience, India too will prosper a great deal more.
What are your expectations from the budget?
They (the Government) should accord industry status to Retail. No. 2 is they should abolish service tax on rentals. The matter has gone into the Supreme Court now. And, they should rollout the GST as soon as possible. Trade will be much smoother under GST. It will boost consumption due to lower duties - Domestic and Imported. So, the expectations are not great. If these three demands are met the retail industry will be happy.
What is your message to the shareholders?
We have seen a very smart recovery in the company. We have a good model now which I would say is almost recession proof. My sales growth in the first half of FY10 was negative but we still managed to reduce 600 basis points in operating costs. That is how we turned around the business not only at the PAT level but at the EBIDTA level. For the full financial year (FY10), we should see a 200% turnaround as compared to the previous year. I think we are on a safe, sound and steady wicket. We expect the leadership of our company in the category of department store to continue.