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Retailers prune store sizes to cut costs, ensure profitability [DNA : Daily News & Analysis (India)]
[January 27, 2014]

Retailers prune store sizes to cut costs, ensure profitability [DNA : Daily News & Analysis (India)]

(DNA : Daily News & Analysis (India) Via Acquire Media NewsEdge) Retailers are quickly realising that small is smart. In an attempt to become profitable, they have been pruning their store size. And at times, when the pressure on margins has increased as a result of slowdown, retailers are looking at reducing store size with renewed efforts.

An India Ratings report reveals that the average store additions in the next financial year is expected to come down further from the estimated 13% space addition this year.

In fact, in the last financial year, the store space additions had taken a huge knock down. For instance, during the last financial year, several big retailers like Shoppers Stop and Trent further rationalised the underperforming retail space. Shoppers Stop's space addition for the last financial year grew only by 18.4% compared to the year before when it was at 48.5%. Similarly, Trent added only 2.5% retail space in the last financial year compared to 7.5% the year before.

Mark Ashman, CEO of HyperCity, on the sidelines of the Food & Grocery Forum, explained that the rationale for going for smaller stores is because the time taken for a store to break even is reduced to half when the size is slashed. "The gestation period for a big store is about 22 months whereas for smaller stores, it's only 11 months." HyperCity initially started as a big box format store that was spread across 1 lakh sqft before the company reduced the store size to around 50,000 sqft. Now, it is experimenting with 25,000-30,000 sqft and is likely to stick with this new size for further expansion.

Similarly, the Kishore Biyani-led Future Group that runs and operates the neighbourhood grocery chain - KB's Fair Price - has also been reducing the size of it stores.

K Radhakrishnan, CEO, KB's FairPrice, said: "The company is looking at cutting down on its store sizes to ensure profitability. Instead of the 800-900 sqft of store size that the company has at present, the retail chain is looking at a store size of 500-600 sqft." Janhavi Prabhu of India Ratings & Research Retailers explained that the reduction in store size has helped reduce process inefficiencies and cut down the overall cost base.

Moreover, rentals are a huge drain on the retailers' balance sheets. Smaller stores allow rent pressure to be eased. For instance, rentals in a premium mall that has a high footfalls can go up to Rs1,000-1,500 per sqft. In other malls, it can range anywhere between Rs250-500/sqft. And therefore, size optimisation results in huge savings for the retailers. So big box hyper mart format is unlikely to come to India anytime soon.


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