Shoppers Stop’s hypermarket chain HyperCity continues to be a strain on its profitability as it struggles to breakeven against the backdrop of slowing economic growth, rising interest rates, inflation and falling consumer spending.
Led by the huge losses in the HyperCity, Shoppers Stop posted a consolidated net loss of Rs 3.18 crore in the quarter ended September 2013. HyperCity has been eyeing break-even in 2014-15, but that milestone remains elusive, with the retailer posting a net loss of Rs 25.78 crore in Jul-Sep 2013, up sharply from net loss of Rs 21 crore in the year ago period.
A detailed analysis of the financials of the company would show that HyperCity has managed to increase its sales with the help of new stores and rise in customer footfalls, but it is yet to achieve operational efficiency and cost rationalization.
To achieve a breakeven in the HyperCity Retail, the company needs to revamp its in-store product-mix by cutting down low margin products while focusing on high margin goods such as apparels. Revamping the product-mix is essential for the company as its transaction size increased by only 6 per cent during the quarter at Rs 1,061. Conversion ratio also dropped to 41.9 per cent during Q2 FY14 from 43.1 per cent in Q2 FY13.
The company needs to increase the share of fashion products in HyperCity stores as they generally deliver high margins as compared to others such as electronic items. HyperCity’s fashion mix stood at 11.4 per cent at the end of September quarter.
Moreover, focusing on increasing private labels can improve the margins of the company. Private label sales have been increasing rapidly for at least last five years when the global economies hit the recession.
The K-Raheja Group-promoted company will not have a smooth road ahead as the worsening macro-economic scenario could impact consumer sentiments and purchasing power, delaying the breakeven.