”The recession taught us a new lesson of growth versus profitability”
November 19, 2009
ML: Are prices of real estate headed down?
GS: The new properties which we have acquired are 40%-50% lower than my earlier (rental) rates of existing properties. For example, my Ahmedabad property was acquired eight years back. The store was supposed to have been operational three years ago, but due to litigation, the inauguration got delayed. As it got delayed, we took the advantage of the downturn and renegotiated the rent and reduced it by 30%.
Over the past five months, we have signed up five-six properties and we have been able to renegotiate the rent of our existing five-six properties. Property prices have definitely gone down during the past year.
We were happy that the recession taught us a new lesson of growth versus cost versus profitability. We learnt that we should take steps cautiously and should not expand rapidly because everybody seems to realise that this model has to be a win-win model for everyone concerned. Whether it is the landlord, retailer or the brand-owner, everyone has to work together to make it a successful model.
ML: During the downturn, were there any redundancies in Shopper’s Stop, as you have spoken about reduction in employee cost?
GS: No, we did not tell any employee to go home. We only right-sized our manpower as per our requirements. For example, in a store of 50,000 sq ft, I saw that there were 142 employees—but after analysing the output of each employee, we found that the same store could be managed by just 122 people. So instead of recruiting 142 employees, we are now recruiting only 122 people. Naturally, if sales and entries grow, we can always recruit more. In our existing stores, there is attrition at the front end which ranges between 2%-3% every month. For example, if in September, I know that I would need only 122 employees instead of the current 142, I would get the right staff size by January by not recruiting any more. Last year, we were replacing attrition. But this year, we are using the same staff strength unless the store reaches the right size. However, as the store grows, we will continue to employ more people.
ML: How are you planning to address the problems at the front end?
GS: At the front end, we have refocused on three big areas currently. One of the biggest focus areas related to customers is availability of new merchandise which we are addressing through new brand launches like ZooZoos(the characters from a recent Vodafone advertising campaign), German jeans wear and lifestyle brands like Mustang or Tommy Hilfiger within the store. New brand launches keep customers excited and we are focusing on the availability of merchandise whether it is size, colour, style or fit.
The second element is making my associates knowledgeable about the brands, making then capable to handle customers, able to understand his/her needs and then accordingly sell to them the correct merchandise. If last year, we were spending 500 man-hours on training on a monthly basis, this year from January onwards we have doubled the training hours. This is the key thing to do in any tough situation because if you have fewer customers walking into the store, the only thing left in your hands is how to increase the number of buyers and how to increase sales per buyer. Over the past six months, our average cash memo size has gone up by 10%. This means either the customer is buying more or he is buying a higher priced product which only happens in a knowledgeable atmosphere and with better guidance of right brand, merchandise and style. Finally, we have also worked on understanding the customer basket from the marketing side, identifying who is the right customer and in which catchments, and how to focus on identifying the right merchandise mix for those particular catchments.
ML: Why do you plan to focus on the non-apparel side of your business?
GS: For the past seven years, we have been concentrating on non-apparel revenues. The share of non-apparel earnings has gone up to 42% from 25% and now our key focus is to differentiate our brands and format from others. We realised that not many players are focusing on non-apparel categories like beauty, personal accessories, perfumes, leather (including footwear, hand bags), jewellery and home solutions. Our store in Malad, Mumbai, has a whole ground floor dedicated to non-apparels comprising 10 cosmetic brands, eight jewellery brands and many perfume and other personal accessory brands. Domination of this category helps us to differentiate ourselves from others. You even conquer the consumer’s mind because if he wants to buy any non–apparel brand, he will first remember Shopper’s Stop which has a wide range of brands. We should be able to earn 45% of our revenue from this category by next financial year (FY11). We also observed that the customer’s lifestyle is also moving more towards non-apparel products. For example, if a customer was using only one kind of watch everywhere (in the past), now he wants a different watch for parties, one for wearing to the office and another one to wear as a fashion accessory.
ML: How many new brands do you plan to launch this financial year?
GS: We want to launch at least one or two brands every month across various categories. Ideally 20-25 brand launches every financial year is a good number. When I mention launch, it does not mean only an exclusive launch with us, it will be there in the market but at very few places. This month we are exclusively launching a range from Playboy. We recently launched ZooZoo T-shirts and are reporting good sales over the past two weeks. Earlier, we launched eight designs each in men’s and women’s categories but now we are thinking of launching eight designs every two months.
ML: Are you planning to take your private labels to other retail formats?
GS: We have no plans to take our private labels to other formats. By definition, private labels or exclusive labels have to be within your format. If you are taking them outside, you are trying to convert them into labels or brands meant for distribution.
ML: What is your strategy for marketing fashion merchandise?
GS: Fashion is driven by a cycle as well as by some ‘facts’. For example, I think, ZooZoo is a ‘fact’ which might become permanent. Merchandise based on films is also a great option. When we partnered with the film Om Shanti Om, we marketed film merchandise and earned Rs5 crore. That was the most successful film merchandise sale achieved by any retailer. Around two months back, we partnered with Love Aaj Kal which was also successful. We will continue to partner with two or three films in a year. We are also launching a new segment called IIFA Blink, through which we plan to bring in fashion merchandise based on films at regular intervals.
Earlier, we had tried to sell designer merchandise but it did not work very well. We had a number of designers like Rohit Bal and Ritu Kumar retailing at our store. Neither the designers were connecting to customers nor were customers wanting to shop at a large departmental store for designer merchandise. They (the customers) wanted a personalised store experience for such merchandise.
Film merchandise and other fashion merchandise like Mustang which launches almost 8-10 ranges every year have a great potential. Tommy Hilfiger will launch four-six ranges of new designs every year. We are now working with a number of brands which are much more ‘fashion forward’ and that is changing the fashion quotient within the store across all categories.