Shoppers Stop: Another shot at survival

Need a new cocktail dress for your office party this week, but the thought of dealing with bumper-to-bumper traffic and jam-packed malls puts you off? No worries, you can always opt for a personal shopper instead. Your personal shopper will pick a range of options— in sleeves, embellishments, cuts, material, colour, and length—and either send you photos or show them to you over a video call before bringing the selected dresses to you to try out. You can buy the one you like without even stepping out of your home. Alternatively, you can visit a store and brief your personal shopper who will do the legwork as you work from the store’s exclusive lounge. You can then try the shortlisted outfits at a private trial room and check out without wasting any time in interminable queues at the billing counter.

That’s the new Shoppers Stop Ltd (SSL), the country’s oldest department store chain which is looking for a fresh lease of life in the face of stiff competition from online retailers and more highprofile bricks-and-mortar chains. Improving customer experience is part of managing director and CEO Rajiv Suri’s plans to reinvent the chain and increase its profitability after years of high debt and shrinking profits. Suri, the former CEO of the fashion business of Dubai-based retail giant Majid Al Futtaim (MAF), says he has five core business priorities: engage with the five million-plus First Citizen customers who account for 75% of sales, provide a delightful customer experience through the Personal Shopper service, improve the share of private labels to 17% from 10.1% in the next three years, strengthen the company’s omni-channel play, and accelerate the beauty business. “We have a strategy we would like to reinforce rather than change. We are looking at five pillars to our strategy, mainly revolving around the customer and product,” says Suri.

It won’t be easy in a market where customers are spoilt for choice. The question is: Can Suri’s past experience in modernised retail, brands, marketing, and the omni-channel business help SSL rise from the ashes? He is fortunate he inherited a trim SSL in January 2018, even though the brand was in danger of fading into oblivion as new Indian and global brands entered the market. SSL started from a Mumbai suburb in 1991 selling menswear at a time when there was no Future Retail, Reliance Retail, Lifestyle, Amazon, or Flipkart. Over the years, the K. Raheja Corp.-promoted premium department store chain spread itself thin by investing in newer entities and expanded across segments to apparel and non-apparel across 38 cities with an operating space of 4.4 million sq. ft.

Not all the expansions paid off. While the core apparel business did well, widening losses and high debt levels at grocery retailer Hypercity Retail (India) drove down growth. SSL rejigged its business in FY18 and divested its stakes in Hypercity, family entertainment centre chain Timezone Entertainment, and Nuance Group India, a dutyfree airport retailing joint venture with Swiss major Nuance Group. The 51% stake sale in Hypercity to Kishore Biyani-led Future Retail for ₹655 crore in a cash-and-stock deal was a much-needed booster shot for the retailer, which now aims to go debt-free by the end of FY19.

Former managing director Govind S. Shrikhande, in a 2017-18 annual report, noted that these strategic exits would help SSL get an “eagle eye focus required to significantly scale up our core businesses” and increase “shareholder value”. Shrikhande resigned as managing director after 17 years and passed the baton of the Fortune India 500 company to Suri in June 2018. With a near no-debt position and the strategic sell-offs, his successor has got a “clean slate” and the right situation in hand to take the company to the next level, Shrikhande tells me. “From where I left, by simply executing the current strategies, SSL’s Ebitda should rise to 8% in 24 months,” he says. The operating margin (Ebitda before exceptional items) stood at 5.3% in 2017-18.

Suri believes private labels are the way to go. He should know: The 55-year-old CEO has worked for retail majors across Europe and West Asia, and he spent two weeks visiting SSL stores across the country before moving into the corner office of the Mumbai-headquartered company. “The way to increase the gross margins will be to strengthen the private brands business,” says the customer-obsessed Suri, casually dressed in a black shirt and black blazer paired with black jeans. Shrikhande agrees. He says retailers selling largely private labels at low prices can attract a certain section of customers. But he cautions against SSL going overboard with the plan lest it should dilute its identity, for it has always sold multiple brands: “[SSL] is positioned as a premium departmental store and to maintain that it needs to have a larger collection of brands than anybody else in the country.” The distinction has to come from style and design. He suggests that 15-18% of private labels and another 5-10% of exclusive brands “is a great combination to create that distinction, remain top end and ensure that your kind of customers continues to come to you”.

SSL, an early bird in the game, considered itself a premium player even as newer competitors such as Pantaloons (since merged with Aditya Birla Fashions) and Westside entered the market in the late 1990s. Over the years, the new players started private labels to exploit their premium floor space, but Shoppers Stop stuck to big brands perhaps because it had little management bandwidth to manoeuvre as it was engaged deeply in building its grocery business. Shoppers Stop’s private label share fell to a mere 10.1% in 2017-18 from 14.1% in 2014-15, while, according to an estimate by Edelweiss Securities, the share of Pantaloons was at 63% and Westside was at 97% in 2017-18. Sales growth at SSL’s existing stores dropped from 10.2% in 2013- 14 to 2.1% in 2017-18.

Suri has a three-pronged strategy for his private labels business that he believes will make SSL “hugely different” from others—improve fabrics, collections, and designs for existing private brands; add more celebrity brands; and rope in international brands as exclusive brands. His connections with global brands like Abercrombie & Fitch, U.S. retailer Crate and Barrel, British fashion label AllSaints, and Canadian athletic apparel retailer Lululemon as part of his role at MAF will be a plus. “In private labels, the gross margin is as high as 50%, which is much higher than what you get from brands. EDLP (everyday low pricing), right pricing, sourcing, fresh merchandises, designs, and a variety of options are key to attracting customers,” says Abneesh Roy, senior vice president (research) at brokerage firm Edelweiss Capital, adding that these were the areas where SSL was lagging.

SSL is making strategic investments to strengthen the private labels team, the design studio, sourcing, product mix, pricing, and brand positioning. It has already hired for new positions—president of private and exclusive brands, head of design, and head of sourcing—and set up a 6,500 sq. ft. dedicated design studio for private labels with a sampling unit, ramp walk, and photo studio in the company headquarters. All these investments are part of its ₹120 crore capex budgeted for FY19 and the changes will start reflecting in summer-spring 2019.

Suri wants to use e-commerce in a big way to promote private brands. SSL’s partnership with Amazon (the ecommerce giant picked up a 5% stake for ₹179 crore in September 2017) will give it an edge. SSL still gets 98% of its revenues from bricks-and-mortar stores. So, it will be interesting to see how it converts the additional footfall at the shop-in-shop Amazon Experience Centres into sales of its own goods. “It has already been a year but I don’t think [SSL] shareholders see any great benefit coming out of the Amazon partnership. The quarterly numbers don’t reflect any kind of a significant boost that could have come because of Amazon,” says Technopak chairman Arvind Singhal.

Experts believe the next horizon of growth will come from a mix of offline and online retail led by omni-channel retailers. “Offline retail is sourcing its products locally and appealing to a younger, lower income demographic and is comparatively more profitable,” says S. Raghunath, professor of corporate strategy and policy at the Indian Institute of Management Bangalore. Edelweiss Securities in its FY19 second quarter results update note predicted the tie-up with Amazon was likely to accelerate Shoppers Stop’s omni-channel growth plan at a CAGR of 100% over the next two-three years. However, the recent changes in FDI regulations may result in changes in the estimate, Edelweiss told Fortune India.

For many shopaholics, SSL brings back memories of sweet-smelling store entrances as it was once a one-stop shop for top international beauty brands including M.A.C, Clinique, and Estée Lauder. Suri, who was on the board of Burberry Middle East as part of an earlier role as CEO of the retail arm of Jashanmal Group and is credited with British luxury fashion house Burberry’s launch in the Indian market, is bullish about the beauty business. It is growing between 10% and 12%, one of the fastest categories in the non-apparel category. “Customers tend to get used to a certain colour that suits them. If they like it, they are hooked to it. So, one is the repeat consumers and the other is the consumption going up,” says Suri. SSL plans to add 10-15 beauty stores every year to expand its footprint in India’s $6.5 billion cosmetics market; it had 108 beauty format stores as of September 2018.

It will also be interesting to see how they expand the beauty business in the online segment where specialised online beauty retailer Nykaa is aggressive, says Roy of Edelweiss .

Traditional retailers like SSL also face stiff competition from premium fast fashion retailers like Swedish brand Hennes & Mauritz AB (H&M), and Spanish brand ZARA. SSL plans to open four to six departmental stores every year for the next three years. Suri is also working on a revival plan for loss-making Crossword Bookstores, a whollyowned subsidiary of SSL.

To maintain the momentum amid skyrocketing real estate prices, SSL is operating through a revenue-sharing arrangement with mall developers under which they pay a minimum guarantee amount as rent or a percentage of total revenue, whichever is higher, especially in tier 1 and tier 2 cities like Lucknow and Ranchi. “We work in a very collaborative way with the developers,” says Suri. “If we do well, the developers will do well and vice versa. Both parties are aligned with the focus on getting footfall.”

India’s first large retailer was also among the first to try new things such as entering the groceries or the airport retailing businesses. “But the successive sets of leadership were not able to adapt and grow the business,” says Technopak’s Singhal. Will it succeed this time around?

This story was originally published in the February 2019 issue of the magazine