HyperCity sees slowdown in electronics, furniture sales

Nachiket Kelkar
moneycontrol.com                                                                    

Shoppers Stop owned hypermarket operator HyperCity says there is some slowdown in sales in segments like electronic goods and furniture this year as consumers cut back on discretionary spends amid the overall economic slowdown. "In an ideal world, we would have loved the consumers to be as buoyant as perhaps they were twelve months ago. Any slowdown will hit food last. But we have seen some slowdown in electronics and furniture business...Electronics business will likely be flat to negative this year," Mark Ashman, CEO told moneycontrol.com on Wednesday. It is now focusing on introducing more private label products in the food and FMCG space. Private label products typically have a higher margin, compared with branded goods. "Last quarter we launched food products like jams, honey and tomato ketchup. I am hopeful we can launch noodles in the next quarter. By the end of this year I would like to see 12-15 new products that we would have launched...We have toilet cleaners, we would like to get into washing powders," Ashman said. HyperCity is also seeing strong growth in premium international products it sells at its outlets through exclusive supply deal with UK's supermarket chain Waitrose and he said the product range would continue to increase. Private labels including Waitrose products accounted for 21% of total sales and the target is to increase it to 25% in future. It is also increasing the share of apparels in its overall product portfolio again due to higher margins. Last quarter, apparel sales grew 22% and accounted for 9% of total sales. The company has a target to get to 15% of sales. The company will also adopt a cluster approach of focusing on metros and opening stores where it already has presence like Mumbai, Bangalore and Hyderabad among others. This will help it save on operating and logistics costs. In the first quarter, HyperCity's retail sales including VAT rose 15% year-on-year to Rs 205 crore, while same-store sales grew 7%. Same-store sales measure sales at stores that are open for at least one year. Its gross margins increased to 20.5% from 20.1% in April-June. Its first quarter store EBITDA (earnings before interest, taxes, depreciation and amortization) was at Rs 39 lakh and net loss declined to Rs 21 crore from Rs 24 crore a year ago. Ashman remains confident that the company will make profits in financial year 2015. "We have just shown four consecutive quarters of profits at the store level. Now our target is to see how quickly we can become profitable at the company level. We have seen sales growth, four quarters of year-on-year margin growth, we have a good control on operating costs...My view is that in that time frame (by FY15) we will be at company level profit or very close to it," he said. HyperCity also plans to open smaller size stores going ahead. It has already reduced the size of its outlets. It now opens stores around 50,000-70,000 square feet, compared with 100,000 square feet outlets it opened earlier and is now experimenting a store with 28,000 square feet. However, it has no plans to open smaller local neighborhood stores for now. "The ratio of sales per square foot and operational costs...we couldn't get it to work when we looked at it last year," Ashman said. Meanwhile, the company plans to open one hypermarket this year and three in FY14. HyperCity currently has 12 outlets and has signed deals for seven more outlets. But slower mall development is hampering its growth. For instance, it has already taken floor space to open its second outlet in Mumbai's neighborhood of Thane. However, construction of the mall has been delayed due to the overall slowdown in real estate sector and so the store will now mostly open only next year once the mall is complete. nachiket.kelkar@network18online.com