It is the only Indian retailer that has managed to grow sales by 25%. Its operating margin crossed the 10%-mark, up 1.4% year-on-year, while manpower and operating costs fell 1.33% and 1.78%, respectively, despite Pantaloon adding 18 large format stores. EBIDTA or core earnings rose 62%. And, despite the worldwide gloomy consumer sentiment, Kishore Biyani, promoter and CEO of Pantaloon’s parent Future Group, is planning to add six times more retail space next year.Rivals Shoppers Stop and Vishal Retail, meanwhile, grew sales by only 3.3% and 17.8%, respectively, in the same period. Operating margin fell 1.4% at Vishal Retail and 4.4% at Shoppers Stop. Both reported a double-digit decline in their same-store sales, a key metric used in retail industry analysis that compares sales of stores that have been open for a year or more. This analysis is important because although new stores are good, a saturation point — where future sales growth is determined by same-store sales growth — eventually comes off.
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So, what makes Pantaloon Retail click? Company officials credit it to Biyani’s native caution and his ability to keep an ear to the ground. In January 2008, when much of India Inc was on a roll, KB’s Monday Musing, a weekly e-mail communication sent to all employees, Kishore Biyani called for an initiative, Garv Se Kaho Hum Kanjoos Hain (Say proudly we are stingy).
In Big Bazaar, the group’s largest value retail company, employees along with Biyani, took an oath to be stingy and take an axe to costs. The message was part of a flurry of initiatives by Pantaloon Retail to make sure it was completely prepared to face a challenging business environment.
As the numbers show, the initiatives seem to have paid off. “Thank god for what we call Kishore Biyani’s sixth sense. Early on, he had an inkling of things to come and we kicked in the restructuring and reorganisational process quickly. We have revised production norms and are redeploying existing people in new stores,” said Sanjay Jog, head of human resources at Pantaloon Retail.
“Being closer to the ground realities, we were able to spot the trend early on and started cost-cutting measures much earlier than others. We had outsourced our IT and other varied functions and optimised costs everywhere in the system.” The fast moves ensured that operations and teams got streamlined within six months of Biyani’s mail. But cutting your own costs is one thing. Making the cost-conscious consumer spend his money in your store is another. Discretionary spends are currently low and both middle-income shoppers and affluent consumers are seeking more value for their buck.
To overcome this problem, retailers tend to step up pre-festive discounts and price cuts. Through massive marketing promotions and in-store festivals, Pantaloon, too, lured customers who had turned fence-sitters and postponed purchase decisions. The Future Group Shopping Festival, End of Season Sale at Pantaloons, Happiness Sale at Central, Blindfold Sale at EZone, Sabse Sasta 3 Din at Big Bazaar and the Exchange Mela were all attempts by Biyani to keep in-store excitement alive during a lean period.
“The organisation has been designed in a manner to adapt to changes faster. So, a Pantaloon customer moved to Big Bazaar, or an EZone customer buying Samsung could now buy Koryo at Electronics Bazaar. By being present across the consumption basket — fashion, food, electronics, mobiles, furniture, and home products — Pantaloon kept overall sales growth far more stable. Even if customer decided to spend less on furniture or mobiles, spends on apparel or food continued to grow,” says Biyani.
The bottomline got an extra boost because the company’s cost of renting stores is far lower than those of new players because it locked in property earlier, he adds. Fashion, too, contributes a higher share to Pantaloon’s overall sales, compared to other retailers. Fashion and apparel contribute 32% of sales. That has come in handy for the company because this category has the highest gross margins of around 40%, compared to categories such as household products or fresh food, which give less than 20%. Most other retailers got dragged down because they focussed on these two less remunerative categories.
Modern retailers across all segments of the industry are closing or relocating unviable stores to stem losses and tackle operational costs. Retailers such as Reliance Fresh, More, India Bulls, Spencers and Subhiksha, which concentrated on replacing neighbourhood kirana stores, are among the worst hit. Many of them are renegotiating rentals with developers.
These, in turn, have begun paring rates by between 25% and 50% to survive a challenging business environment. But with its instinct for street-smart and savvy planning, Pantaloon Retail appears very much immune to this misery. At least, for now.
Source: EconomicTimes.com
