Trent goes full steam on expansion

Tata-run retailer Trent Ltd, often criticised for being ultra-conservative in expansion of stores, is going off the beaten track. The new strategy: launch an aggressive expansion drive, while simultaneously rationalising costs.

The retailer, which rolled out around 60 stores in the first 13 years of operations, is planning to add 24 more Westside departmental stores, around one third of its total count, this financial year alone. Currently, it has 66 Westside stores. In 1998, Tatas acquired the London-based Littlewoods chain, set up the retailing company Trent, and subsequently renamed Littlewoods to Westside.
Trent plans to achieve a store target of 100 for Westside and 50 for its hypermarket chain Star Bazaar in the next four years. Currently, Trent has over 100 stores across its three major formats—Westside, Star Bazaar and book and music chain Landmark.

In March, the company raised Rs 250 crore through qualified institutional placement to expand the business.

While other retailers such as Shoppers Stop Ltd are also marching ahead with expansion, Trent, it seems, wants to be ahead in the race. Shoppers Stop, which had taken 18 years to open the first 25 department stores, rolled out 26 stores in the last three years. Shoppers Stop is now stepping on the gas and is looking at opening 24 department stores, or eight stores in each of the next three years.

The aggressive expansion of Trent is expected to help the company clock a top line of Rs 5,000 crore in the next two to three years from the Rs 1,844 crore it posted in 2011-12.

“The Westside banner continues to enjoy a strong following from its target audience, and we are keen to scale up presence, subject to availability of acceptable retail locations and estimated viability of store level economics,” a company executive said in an emailed response, adding: “Given our contracted new store pipeline, we expect to close this financial year with between 85 to 90 operating stores,” said a company executive in an emailed response.

Arvind Singhal, chairman of Technopak Advisors, said:"With all the experience and learnings they (Trent) have, they are now putting accelerator. I think it is a positive move, given the opportunities in the market."

While it is opening stores aggressively, Trent is changing its store expansion strategy to keep costs under check, said sources in the company. Of the 24 Westside stores, a vast majority will be stand-alone properties.

The rationale: It wants to save on the hefty built-up charges and common area maintenance (CAM) charges in malls, which are as high as Rs 40 per sq ft in many malls against the Rs 10 to 12 a sq ft considered viable for such department stores. Many malls are also located in places which are not very convenient for shoppers, company source said.

The executive quoted earlier said the retail chain was pursuing both mall as well as stand-alone opportunities depending on location, development scheme, frontage and overall estimated economics.

Added Sangeeta Tripathi, senior equity research analyst at ShareKhan Ltd: “Westside is not an anchor tenant in many places and has to pay CAM charges. Because of that their rent-to-sales ratio is higher. They are trying newer and different ways of rationalising costs. But it depends on whether they can get good footfalls there,”

Sources said the company is also opening more Westside stores in tier-II towns such as Dehradun (Uttarakhand), and Allahabad (Uttar Pradesh) to save on rents and expand its reach.

“Though throughput is lower in smaller towns, lower rents make up for that,” a source said. While rents constitute 15 to 20 per cent of sales in big cities, in smaller cities, it account for eight to 10 per cent. Also aimed at improving profitability of stores, Trent has brought down the size of its hypermarket chain, Star Bazaar, to 40,000 to 50,000 sq ft from an average of 70,000 sq ft earlier. The company has 15 Star Bazaars and plans to add three to four stores every year. “Sometimes, you need to float when times are tough. This is time to survive,” said the source at Trent.

The company, one of the few listed retailers to make consecutive profits in the last five-six years, made losses in the last financial year. However, on a stand-alone basis, it made a growth of nine per cent in its net profit for FY 2012. "Hypermarket is a cash guzzler and takes many years for break-even," said ShareKhan’s Tripathi.

Trent has shut down five of its loss-making value fashion stores Fashion Yatra and returned the franchise of Sisley stores of Benetton Group to the latter, in a bid to focus on Westside and Star Bazaar.

The source quoted earlier said the refurbished stores at Kala Ghoda in Mumbai, Magrath Road and Forum Mall in Bangalore are seeing a record 30 to 40 per cent same store sales growth after they saw inclusion of gourmet retail and designer prĂȘt section, new lighting among others.

Same store sales growth refers to the sales growth from stores which are in the business for more than a year.

It has hired international firm Fitch to redesign some of its existing stores. “We have been investing significantly in refreshing the look and feel of our Westside stores. This exercise has been completed in few of our stores such as the one at Kala Ghoda. And yes, the customer response has generally been very encouraging and these stores are witnessing relatively strong like-for-like sales growth,” said the company executive.

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