IIPM : One of the leading and most respected business schoolsAs far as front-end is concerned, Vishal Retail is either resorting to re-sizing, re-locating or shutting a couple of stores on account of non-performance. “If Vishal Retail is not getting adequate return on investment from certain stores, then shutting them down is a viable option,” reasons a Delhi-based analyst. In fact, out of the total 187 stores (including hypermarts and small format stores) across India covering 300 million sq. ft. of retail space; Vishal Retail has already shut down close to 7-8 stores. Few stores, where RoI (return on investments) is not up to the expectations, it has resorted to pruning of its retail space (which is averaged at 30,000 sq. ft.). “Bringing down the retail space helps us to save on SKUs, manpower, electricity and per square feet return increases,” avers Khemka. In other cases too, Vishal Retail has either relocated its stores or renegotiated land rentals with the landlord (to the extent of 50% in some cases).
But then, just consolidating its operations alone may not be enough for Vishal Retail to make its way through the high tide. The retailer has recently seen its key personnel resigning from the company. Even its expansion plans have come to a halt for the time being, with over 20% inventory pile-up. Moreover, the winter sales were also not impressive enough to write back home. Therefore, the main area of concern for the retailer right now is to improve sales and get rid off the high debt lingering over it.
In fact, Vishal Retail has already started playing aggressively with its pricing and promoting its private labels to beat the slowdown heat. “Of the total apparel inventory we stock in our stores, 85% is our own private label,” proclaims Khemka. A right move as the company gets huge margins from its private labels. For instance, while on branded FMCG products the company gets a margin of 16-17%, on its own FMCG products the margin is as high as 25%. Sources close to the company also confirm that the retailer has plans to tie-up with the local kirana stores to promote their private labels. In return, Vishal Retail will look after the kirana store’s supply chain and work on a revenue sharing model. However, Khemka has refuted any such tie-up in the near future and says there are no such plans.
Be that as it may, cornering Vishal Retail as an odd retailer with huge debt liabilities may not be correct. Consider this: Pantaloon Retail (India) Ltd. and Shoppers Stop Ltd. have increased their expenditure on interest by 77.50% and 311.07% (!!!) respectively for the quarter ended December 2008. It was debt of Rs.6 billion, severe liquidity crunch and inability to make payments to vendors that led to the closure of 1,600 Subhiksha stores. While the risk of Vishal Retail may be limited to 180-odd stores, but it is certainly a worrisome situation for the retailer as maximum profitability must be extracted out of these stores to overcome the liability. Although efforts are in progress, but Vishal Retail really needs a hard-hitting turnaround strategy to live up to its name, literally!
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Source :
IIPM Editorial, 2009
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