There is no proven recipe for success in retail, however, certain factors do help.
Proven and tested formats: One of the peculiar aspects of the recent retail boom was the rapid scaling up of untested and unproven formats by new entrants as well as existing players in the pursuit of space growth. In terms of store level profitability, Pantaloons seems to have the widest presence with Big Bazaar, Food Bazaar, Pantaloon and Central being well established formats with proven profitability. For Shopper’s Stop, only the core department store format seems to meet this criterion. Koutons’ two main formats (Koutons and Charlie Outlaw) seem to be profitable.
Diversified formats: The Indian market is large and diverse with traditional classifications around product line and target customer profile being overlayed by major differences across the large metros and smaller towns and cities. Retailers whose offerings target the largest proportion of the customers wallet are better equipped to scale up and capitalise on growth
opportunities in the sector. Amongst the retailers under consideration, Pantaloon seems to have the potential to capture the largest share of the consumer wallet with offerings spread across categories as well as income segments whilst being a little weaker on geographic spread.
Working capital efficiency: Organised retail as a sector has been hamstrung by low return ratios for most players (sub 15% ROE’ are the norm). One of the main drivers of this has been the high working capital requirements of the business, driven by high inventory levels and rental deposits. Amongst the companies under consideration, Shopper’s Stop is the most efficient, underpinned by tight stock management, whilst Provogue is the least efficient with high inventory alongside an unusually large loans and advances figure.