It is not just Subhiksha but several retail chains that are reeling under the recession. Over the last few months, about 30 supermarkets have shut shop in the city. All the outlets were part of big retail chains, that decided to pull down shutters on these outlets to cut costs.
Senior officials of supermarket chains say they are faced with a 15 to 20 per cent dip in footfalls, budgeted spending and worse, rents they can ill-afford now. In addition, manufacturers of various FMCGs slashing retail margins is further choking the industry, they say.
Hyderabad, like other cities in the country, saw a rash of supermarkets over the last few years. Last year alone, over a 100 new outlets came up in the city, some of them in malls while others as stand alone stores. Industry observers note that this (malls coming in the last year) played a major role in landing retailers in this big problem they are faced with now. “Rents were peaking last year. The average rate was Rs 100 to Rs 165 per sft, depending on the location. Add to that 12 per cent service charge on the rentals,’’ says a retailer, explaining how it has become difficult to sustain these outlets when the average bill amounts of consumers have dropped significantly.
Now, officials of various retails chains are re-negotiating rents with the property owners and according to sources some are seeking a relief of 50 to 60 per cent on their rents.
Samar Singh Shekhawat, vice president (marketing), Spencer’s, that has closed 55 to 60 outlets across the country, explains that rents have fallen by 30 to 40 per cent in Tier II cities and by 15 per cent in Tier I. However, in most cases property owners are in no mood for negotiating the rents, forcing many to close down some outlets. “Most landlords are in denial,’’ he says, adding that retailers are now trying a “partnering’’ approach with them.
Nevertheless, no retailer is treading into malls anymore. “In fact, some stores located in malls have already shut shop,’’ says an industry insider, referring to an outlet in a mall at Banjara Hills that pulled down shutters recently. Industry experts note that mall space doesn’t come for anything less than Rs 100 per sft which is clearly unaffordable in these times.
There is also a lot of ‘rightsizing’ happening and this is not related to the manpower strength. “A 10,000 square feet store, for instance, is being rightsized to about 7,000 sft with officials seeking permission from the property owners to sublet the remaining portion,’’ says a retail industry source.
Industry observers say that chains expanded blindly over the last couple of years and now are faced with the problem of managing logistics. “There would be four supermarkets in one stretch of road alone. There was obviously no analytical thinking done on their sustainability,’’ says a senior industry expert.
Heads of retails chains say it’s not the rent alone but the dip in sales that has left them gasping. “Even during festivals such as Sankranti, sales weren’t as anticipated,’’ says Sriram Kakkera, CEO, Magna. While he notes that the retail sector is confident on basic product (groceries) sales, in other sectors such as apparel the industry is working on a “hand to mouth’’ business model. “We are curtailing our purchase cycle and purchasing stock as required,’’ Kakkera says.
However, even in groceries consumers are giving big brands the go by. “Consumers are cutting down on premium goods such as high cost shampoos, deodorants, high value cereals. The sale of cheaper varieties is gradually going up,’’ says Sandeep Agarwal, managing director, Ratnadeep Supermarket. And the drop in sales of products such as health drinks has manufacturers slashing retail margins.
While most retailers say that the check in inflation hasn’t checked prices of goods such as pulses, Samar Singh Shekhawat of Spencer’s tries to be optimistic. He says that Spencer’s may have shut down 55 to 60 nonviable stores across the country, but it added four hyper stores in January alone. Besides, he notes the business is now “leaner, fitter and more focussed’’.
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