Shoppers Stop focuses on turning HyperCity profitable

For Shoppers Stop, HyperCity has been a cause for worry for some time. Despite initiating

several corrective measures, the chain has failed to book profits. Now the company has decided to focus on this hyper-market format to turn it profitable on the operation level this year and at net-profit level a year later. The company would try to achieve its goal by adapting cost-cutting measures and rightsizing some of the large stores apart from increasing high margin product categories like fashion.

After repositioning the chain, the store size has been reduced from 100,000 square foot to 30,000 and 50,000 square foot. Downsizing has already been carried out at its stores in Hyderabad and Amritsar and the exercise would be followed at two more stores freeing the operations of 50,000 square foot. of retail space. The rightsizing of stores is expected to be complete by the second quarter of this fiscal year.

Also, earlier the stores stocked 70 percent food products, 25 percent general merchandise and five percent fashion. Sighting that the fashion is a high margin category and moves faster compared to other segments, the company has decided to increase share of fashion products to 15 percent, food will go down to 67 percent and general merchandise is about 20 percent. This combination is expected to increase gross margins from 19 percent to 21 percent.

On a capital expenditure of Rs 175 crores last fiscal, Shoppers Stop generated cash of Rs 140 crores. As a result, debt (including investments in HyperCity) moved up by close to Rs 100 crores. Its total debt currently stands at Rs 631 crores with a debt-to-equity ratio of 0.6. Now the company plans to generate Rs 160 crores in cash on capital expenditure of Rs 190 crores, which will lead to increase in debt by Rs 30-50 crores. However, the focus on HyperCity operations, along with a drop in expansion of departmental stores from eight to four, it expects to generate cash of Rs 200 crores to bring down the debt level.