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March 2, 2009
By Raghavendra Kamath
BUSINESS STANDARD
Mumbai March 2, 2009
Raheja-owned department store chain Shoppers Stop Limited (SSL) is pulling out of unviable new ventures and shutting loss-making stores to conserve cash for the company in the ongoing economic downturn.
The retail firm had announced on Friday that it has closed three of its book stores ‘Crossword’ – one at Mumbai Airport, and two others in Chennai and New Delhi. The company also closed its airport retail store ‘Stop & Go’ at Mumbai Airport.
“They were not profitable. We open new stores without much information but, when we close them, we have complete knowledge about operations,’’ said BS Nagesh, Managing Director of Shoppers Stop, while not specifying how many stores the company has closed in the last one year.
Shoppers Stop recently pulled out of a catalogue retailing venture with UK’s Home Retail group under the Hypercity-Argos brand. The decision to wind up operations was taken “…as the business did not meet planned performance levels, (and) to support investments required in the current economic climate,’’ Shoppers Stop had said recently.
The company has also moved out of food business after announcing that its Café Brio outlets would be replaced with Café Coffee Day outlets over the next couple of months. Another brand, Fresh Basket, has become a private label of group firm Hypercity Retail.
“We cannot say that new retail ventures do not work
in the country. Crossword is a profitable venture,’’
Nagesh stressed.
In late December last year, Fitch ratings downgraded a Rs
30-crore short term debt and Rs 50-crore commercial papers
of Shoppers Stop due to ongoing margin pressures resulting
from slower sales growth and losses from new businesses.
“The company’s business has been impacted by slowing
growth in same store sales, and the ongoing slowdown in domestic
consumer spending,’’ Fitch said.
The company had reported a net loss of Rs 47 crore in the first half of FY 2009. As of 30 September 2008, SSL had a debt of Rs 220 crore as compared to Rs 207 crore in March 2008, Fitch said.
“Indian shoppers still prefer traditional forms of retailing. New formats are yet to catch up in the country,’’ said Devangshu Dutta, Chief Executive of retail consultancy Third Eyesight.
Some of the biggest retailers – such as Reliance Retail,
Aditya Birla Retail, Spencer’s and Future Group –
have closed down their stores and are going slow with expansion
plans as consumers downtrade and defer their big ticket purchases.
While Reliance Retail has closed down 30 stores, Aditya Birla
has closed 45 of its unprofitable stores in the last one year.
Retail major Future Group’s CEO Kishore Biyani, who
was targeting a retail space of 30 million square feet by
financial year 2011, now expects to have the space by FY13.
“Retailers have closed stores which are not meeting their expectations. In the current scenario, they are being as conservative as they were being optimistic 2-3 years ago,’’ Dutta said.
Even a report from Edelweiss Securities pointed out how across the board expansion plans are being re looked at because of capital scarcity and reassessment of catchment.
“Given high debt levels and an almost dormant equity
market, the capital for growth has become scarce,’’
the report said.
If Pantaloon added 0.3 million sq ft of space in the December
quarter of the current financial year compared to 0.9 million
it added in the corresponding quarter last fiscal, New Delhi-based
Vishal Retail added only 0.2 million sq ft of space in the
just-concluded quarter compared to 0.5 million sq ft it added
in the year-ago period.
However, Shoppers Stop added the same amount of space in the December quarter of this year compared to last year’s corresponding quarter.
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February 20, 2009
By VISHAL KRISHNA
Businessworld
20 Feb. 2009
Lesser stock on display racks in your neighbourhood Subhiksha, and may have started going elsewhere instead. One fine day, you may have even noticed that the shop was shut. What happened was this: Chennai-based value retailer Subhiksha Trading Services, neck-deep in Rs 600 crore of debt (plus Rs 180 crore raised internally as shareholders’ funds) accumulated over the past three years, could not pay its vendors as all its earnings was going to service the debt. So, over the past six months, it temporarily shut all 1,600 of its outlets in 110 cities.
Yet, till recently, Subhiksha’s managing director and promoter, R. Subramanian, was thinking of expansion. “I will add another 2 million sq. ft by the end of the fourth quarter of 2009,” he had told BW in December 2008, a move that would have raised his store count to 2,200 for an additional Rs 1,000 crore. Today, the company is on the threshold of a closure — it has no money to run its operations, its senior staff are deserting, many of its stores have reportedly been looted, and the government may initiate an independent audit of accounts at the instance of ICICI Ventures, the second-largest shareholder with 23 per cent stake.
However, Subramanian has not given up. Firm in the belief that Subhiksha can still be a viable business, he is making a last-ditch effort to survive by pitching for a Rs 300-crore loan from a consortium of 13 banks, besides attempting a debt restructuring exercise. In a letter sent to BW, Subramanian says, “The infusion of Rs 300 crore would revive Subhiksha soon.” That would allow him to pay off the vendors and resume operations at a minimal level, though he might also have to shell out a significant chunk of his 59 per cent stake. Subramanian’s confidence stems from his belief that his business model is viable. “We did not raise enough equity, and we paid the price,” he says. “It was a capital structure problem rather than a business model problem.”
Analysts agree that Subhiksha’s low-cost model was sound. They blame the company’s troubles on its rapid expansion with debt capital to open 800 stores in a year. Although the same store sales were as high as Rs 12,500 per sq. ft during the first few months of 2008, the debt taken on a number of new stores and the financial crisis put paid to Subhiksha’s exuberance. The industry average for stores of 2,000 sq. ft (Subhiksha’s typical store size) to break even is Rs 5,000 per sq. ft, and analysts say that Subhiksha’s new stores never achieved break-even levels.
The desire to expand at breakneck speed is not typical of Subhiksha alone. “All retailers have read the Indian market wrong,” says Devangshu Dutta, who runs retail consultancy Third Eyesight in Delhi. “There was no prudence; (there was a mismatch) between what the real consumer demand was and the number of stores opened.” Pinakiranjan Mishra, partner of retail and consumer product practice at Ernst & Young, says, “Retailers have spread themselves too thin to benefit from scale.”
The Rs 300-crore and the restructuring may help Subhiksha revive, but only if it closes at least 40 per cent of its stores. That may keep it afloat, but would be disastrous for a company that fundamentally offers low prices and relies heavily on high volumes for better discounts from consumer companies.
(Businessworld Issue Dated 24 February-02 March 2009)
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February 11, 2009
Business Standard BS Reporters
Mumbai February 11, 2009, 0:31 IST
Kishore Biyani-owned Pantaloon Retail’s same-store sales in January grew at the second slowest pace in five years as consumers curbed spending and the retailer struggled to survive the downturn by offering discounts.
The slow growth comes after the retailer’s value and lifestyle same-store sales registered a negative growth in December.
Pantaloon’s same-store sales in the value retailing segment
climbed 4 per cent in the month of January after dropping
4 per cent in December.
Lifestyle sales grew 12 per cent in the month after declining
14 per cent in the previous month.
"Overall the market has improved and since we are the mass retailers we are gaining. Home segment has also picked up compared to December. Same-store sales growth in mobile, furniture and electronics which had dropped in December has also picked up,” said Kishore Biyani, managing director, Pantaloon Retail.
Same-store sales, a common metric in the retail industry, compares sales of stores that have been in the business for a year or more. The measure allows investors to determine what portion of new sales has come from sales growth and what portion from opening new stores. The figures are usually released by retail companies every month.
Analysts attribute the spurt in sales to the month long "The Great Indian Shopping Festival” which was launched on December 13. The sale was extended till January 7. The retailer also unveiled another 3-day shopping festival to coincide with the Republic day, which helped push the sales higher.
"December-January is full of discounts which push up customer’s traffic. The real picture will emerge when a chain stops the offer. Retailers are not out of the woods yet. Consumers are still feeling conservative about spending and cutting back expenses,” said Devangshu Dutta, chief executive, Third Eyesight, a Gurgaon-based business consultancy.
Analysts covering the company’s stock say the future growth for Pantaloon isn’t robust and average sales of the country’s biggest retailer may be contained at Rs 500 crore a month compared with Rs 690 crore in January.
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February 10, 2009
Reuters
Tue Feb 10, 2009
Indian textile manufacturers have sought a two-year moratorium on repayment of term loans, withdrawal of excise duties on man-made fibres and waiver of service taxes on exports as well as taxes on textile machinery.
The embattled textile industry, reeling under a slowdown in demand and high input costs, also seek to bring domestic cotton prices at par with international prices, an industry body told Reuters, ahead of the interim budget on Feb 16.
Textile firms such as Arvind Ltd, Bombay Dyeing & Manufacturing Co and Gokaldas Exports posted losses in the Oct-Dec quarter.
The Confederation of Indian Textile Industries (CITI) has sought a two year moratorium on repayment of principal amounts against term loans "to avoid defaults and loans turning into non performing assets," it said in a statement.
"It is a significant demand. The money could actually be used for working capital in the short term as availability (of working capital) is a huge issue," said Devangshu Dutta, chief executive of Third Eyesight, a textiles and retail consultancy.
The government can make nationalised banks provide a moratorium, but is tough to say if private banks would follow suit, he added.
CITI is also seeking exemptions in service tax, import duties on man-made fibres and restoration of 4 percent interest rate subsidy on bank loans of exporters.
In October, 2008, the government had withdrawn a 4 percent interest rate subvention granted to textile exporters.
Subsequently, in a stimulus package last December, the federal government extended a two percent interest rate subsidy and said it would provide 14 billion rupees for a technology upgrade funding scheme for textile firms.
"As of now they have restored 2 percent interest rate subsidy, they should restore that fully to further improve competitiveness for textile exporters," said Sunil Khandelwal Chief Financial Officer of Alok Industries.
"A partial reinstatement of interest subvention on export credit that had been withdrawn from October 2008 and some cosmetic changes in duty refunds…do not have the potential to rescue this industry from its current crisis," CITI said.
Alok Industries’ Khandelwal said there was also an urgent need to bring down cotton prices to international levels as that would improve margins of cotton-dependant textile firms.
"Today, India’s cotton prices are 15 percent higher than international prices. At least procured cotton should be disposed off at international prices," D.K. Nair, secretary general, CITI said.
India had hiked the minimum support price for cotton by up to 40 percent for medium staple cotton in September last year.
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February 5, 2009
Business Standard
Thursday, February 05, 2009
New Delhi: For the first time, Bangladesh has garnered more market share than India in garment exports to the US, the largest importer of garments.
Recession-hit retailers in the US and Europe are increasing their purchases from Bangladesh as it is able to supply garments at a relatively less price due to low labour cost and better economies of scale, experts said.
Data collected by the Apparel Export Promotion Council (AEPC), the body for the promotion and facilitation of garment-manufacturing and their exports, show Bangladesh overtook India after August 2008. While Bangladesh’s share increased by 10 per cent, India’s share went down by 3 per cent in the US market in the same time period.
For India, the US, which imports $70 billion worth of textile products every year, is the largest market, accounting for nearly a fourth of ready-made garments exported.
Bangladesh has now taken the fifth position, which was previously occupied by India, in the list of largest garment-exporting countries to the US, pushing India to the sixth position.
The AEPC estimates that exports of ready-made garments from India are likely to fall 24 per cent short of the $11.62 billion target for the current fiscal and may total up to $8.78 billion. Interestingly, Bangladesh is expected to touch $11 billion in the July-June period of 2008-09 period, compared with $10.7 billion in the same period of 2007-08.
Though China has always been a competition for Indian exporters and it continues to remain the largest supplier to both the US and Europe, it is the countries like Bangladesh that have started taking over India.
“On an average, Bangladesh has larger factories than India and they are more productive, and have low labour cost, which is helping them in attracting buyers from the US and Europe,” said Devangshu Dutta, chief executive officer of Third Eyesight, a consultancy firm.
Incidentally, Bangladesh has duty-free access to the EU market.
India’s labour rates are 129 per cent higher than that of Bangladesh. While the labour cost in India is 62 US cents per hour, it is merely 27 cents in Bangladesh, according to AEPC.
Since customers have started avoiding China due to labour problems and the high cost of production there, the business has shifted to alternative sources like Bangladesh as they are more competitive, productive and deal in large volumes, added Dutta.
Another point of view for Bangladesh and other countries like Vietnam, Indonesia, Cambodia and Sri Lanka, which are doing well in export of apparels despite the ongoing global financial turmoil, is that they get cheap fabric from China and also support their manufacturers. “All integrated textile countries are facing this problem what India’s going through today,” said DK Nair, secretary general, Confederation of Indian Textile Industry (CITI)
India has to establish large factories and strengthen its fabric production in order to create economies of scale to deal with the current problems, added Nair. About 97 per cent of fabric production in India lies in the decentralised sector.
Exporters have been demanding flexibility from the government in terms of increasing duty drawback rates to 14.65 per cent, interest-free loans for investment in machinery and availability of export credit at international rates among other demands.
H.K. Maggu, managing director of Jyoti Apparels, said: “In the face of economic slowdown, we have not become competitive though business is there. It is going to the discounted markets like Bangladesh.” It is the only country which can produce textile items at least 20-30 percent cheaper than China.
What is worrisome is the fact that the exporters are claiming that there would be no business beyond March 2009. Jyoti Apparel’s order book today stands at Rs 20 crore, but according to Maggu, the number of fresh orders has declined drastically and after March the units would be working half their capacity if things don’t improve.
Clothing Manufacturing Association of India president Rahul Mehta said orders for the next season were not coming and it would be very difficult for India to catch up with Bangladesh unless right kind of policies were put in place.
Calling the two stimulus packages announced by the government extremely disappointing, most exporters are of the view that there was virtually nothing in those packages and they only talked of release of previously committed funds as incentives.
India has to find the gaps in the existing infrastructure and fix the problems, said Dutta.
According to a senior textile ministry official, seeing the contraction in demand in the West, the ministry has written to the finance ministry seeking restoration of the duty drawback rates to help the garment exporters.
