V-Mart Retail has been cashing on the growth in rural consumption and small towns, which remained largely unimpacted by the COVID-19 pandemic.
Value commerce player V-Mart Retail is probably one of the few retail chains to have emerged relatively unscathed from the first wave of the pandemic. For the fourth quarter ended March, the company reported its best quarterly performance in the financial year 2021. Its revenue was up 6 percent year-on-year (YoY) at Rs 352 crore from Rs 332.7 crore. Its net profit stood at Rs 1.5 crore against a loss of 8.4 crore in the year-ago period.
The company has been cashing on the growth in rural consumption and small towns which remained insulated from the first outbreak but the second wave, which has gone deeper into the countryside, poses a risk to its growth story.
In an interview to Moneycontrol, V-Mart Chief Financial Officer Anand Agarwal talks about the impact of the second COVID-19 wave on value commerce and small towns, reasons for the limited adoption of e-commerce in rural India and challenges in opening new stores as the inflationary pressure piles up. Edited excerpts:
Due to the second coronavirus wave stores have been shut in most parts of India for two months. Are you expecting a hit on your first-quarter results for FY22?
The first quarter of the year will definitely be a big washout as the first two months have already gone and even in June, we are not looking at 100 percent store openings across the country. There have been some minor announcements in some parts of the country like Chandigarh, Haryana are open and some parts of UP are open but still, the rest of the states are yet to follow. So, it all depends on the next one week or fifteen days as the reopening is announced. But I am not too strongly hopeful of a recovery this quarter.
The small-town consumption story remained strong last year. Has this changed with the second wave?
Small town consumption patterns have always been different, even during normal times. Smaller towns had lesser cases to start with than urban centres, so thereby the restrictions in small towns were imposed much later. We are seeing that the smaller towns are being opened first while the urban region remains under curbs. Hence, the recovery in small towns will be faster. These towns are agri-focussed and given that the agriculture sector remains strong despite the pandemic, consumers here have good income and like to spend on occasions such as marriages and harvesting season, etc.
It is slightly early to talk about the impact of the second wave on these towns but we sense that while it will still be lesser when compared to last year, it will be relatively faster than the urban centres.
Has your strategy for smaller towns undergone a shift with the pandemic?
Two-three things stood out during the year. Consumer needs have changed because of restrictions and celebrations were put off, so people were staying more indoors and the requirement for comfort wear or loungewear increased. Secondly, there was an increased demand for wellness products. Strategically we had capitalised on both these fronts and had put more inventory around easy price points and comfort wear. The economy range was more prominently displayed at the stores and we also took some measures to promote wellness products in our stores but having said that, these are very short-term and tactical changes. These things will keep on happening but we are very clear that opportunity exists in the form of organised retail which is missing from Tier II and III towns in India. Though the share of online shopping is increasing significantly, there is still a very meaningful case for retailers like us who are present physically as well as digitally.
You have not been able to capitalise much on e-commerce so far and it accounts for a very small portion of your revenue. How has the pandemic affected the online shopping behaviour of value-conscious consumers in small towns?
There is no doubt in anybody's mind that e-commerce is going to stay; it is a no-brainer. It has never been a threat for us but always as a big opportunity. We have been creating our backbone in the space for two years now and have close to 16 lakh downloads of our app. But one must remember that the shopping behaviour online of an urban consumer is different from a middle-class rural consumer. Both sets of consumers use the internet for very different reasons. There is a large consumption of entertainment through the internet in smaller towns, while in the urban centres the usage is more towards knowledge-sharing, learning, entertainment, and shopping.
We service close to 3.5 crore customers every year. We have their database and have been trying to promote an online presence through all these customers. But to get them to our online store is one thing and to get them to shop online another. It is a very reluctant decision when they buy a product. Urban consumers spend on whims and fancies but for somebody, whose monthly income is only Rs 5000-1000, making a purchase of Rs 500 is a very big decision and nobody wants to do that on a small 4-inch screen.
However, the situation is changing and these consumers will always not remain shy of e-commerce. The size of the opportunity is huge and even if we convert 1 percent of it that will translate to a huge number. We are hoping that in the next two-three years, we will have about 5 percent of our business coming from online.
You were planning to open 55 stores in FY22. Given the scenario right now, is the plan still on?
As of now, we are not putting any brakes. We have not stopped working on new store expansions. The stores we wanted to open in quarter one, in fact, were ready in April but because of the lockdown, we could not open them in time. Now, they will be opened in June once the lockdown is over. As of now, we maintain the same trajectory of 40-50 stores that we would want to open this year. If something happens towards the middle of the year, then we will have to reconsider this.
What are some challenges that you are facing in opening stores?
We are not facing problems in finding space, it just requires slightly more effort. The bigger challenge is in terms of logistics. If we identify 10 sites in Assam, we will need two-three different sets of people to go there and evaluate those sites from different perspectives. Now, for these people to go to Assam and do their research, it will take a lot of effort. Secondly, if we have zeroed in on those sites and want the local contractors to start working, there will be local restrictions. Those kinds of challenges are still there but if the situation normalises soon, we can begin work as we have already identified sites.
Are you spending more on opening stores due to these challenges?
Not at the moment. We spend Rs 2 crore in opening stores. Of this Rs 1 crore, goes into inventory and Rs 1 crore is towards the store fit-outs. But there is a lot of inflationary pressure on the raw material as cement and steel prices have gone up. We are estimating that my cost of opening a store would go up by at least 10-15 percent this financial year.