Major retail brands, including Aditya Birla Retail Ltd, Spencer’s Retail Ltd, Pantaloons Retail (India) Ltd and Bharti Retail Pvt Ltd, plan to open stores, which are between 30,000 sq ft and 1,00,000 sq ft in size. In the past, modern retailers opened small grocery stores to achieve economies of scale. However, last year’s slowdown forced many of them to shut down hundreds of such stores. Aditya Birla Retail, which plans to open about a dozen ‘hypermarkets’ with sizes ranging between 50,000 sq ft and 70,000 sq ft, feels the time is ripe for brands to go for the kill. The likes of Debenhams also operate at formats ranging around 20,000 sq ft. “Our varied product range makes the adoption of large format stores all the more essential. The sort of footfalls that are achievable with the large format store is quite encouraging, hence Debenhams has always gone the large-format way,” says Aditya Nadkarni, Business Head, Debenhams.
Shift in strategy
The focus for retailers this year has moved to larger stores for several reasons. For one, retail industry experts said renting larger spaces in malls gives companies better negotiating power. Also, rents eat up anywhere between 15 per cent and 20 per cent of a retailer’s revenue, compared with the global average of 10-15 per cent. Experts say costs are lower as one goes as an anchor tenant and the per- sq ft costs are also lower. Retailers believe that large stores can also generate additional incomes through sub-letting spaces for shop-in-shops and in-store advertising. “Many of the retailers definitely understand that opening of large stores is easier way to achieve scale,” says Kumar Rajagopalan, CEO, Retailers Association of India (RAI). “If you achieve volumes through five-six big box retail locations, then it is easy to expand with smaller formats,” he adds. Researchers have yielded that consumers prefer the convenience of shopping at branded stores that have a wide range of products and broader aisles. They also seek for all the modern conveniences and are comfortable with brands being available under one roof.
Indian retailers will open at least 150 stores that are more than 5,000 sq ft in size. These stores will include hypermarkets, specialty and department stores, which is a 50 per cent jump from last year. “Most of the big boxes have been doing well for the modern retailers, whereas if you do not have scale, there is no profitability in small stores,” Rajagopalan says. Jewellery brands, such as Tanishq, have also been following the same concept. “The scope for large format stores is much more practical, as larger the format, the cost per-sq m lessens. We, at Tanishq, understand the need for catering to consumer of different strata,” says Sandeep Kulhalli, Vice President, Retail & Marketing, Tanishq. Experts believe that the country’s retail sector is at a nascent stage and that there is an opportunity to develop the hypermarkets as “destination stores, which will further strengthen in the times to come”. Viney Singh, Managing Director, Max Hypermarket, says, “Customers these days prefer a one-stop shopping destination for all their needs. Hence, large format stores are a viable proposition for brands and create a win-win situation for both the parties.”