Having been in the retailing business for some time, the Spencer management realized that retailing cannot be carried out at all locations. For example, locations such as south of Bandra in Mumbai were not viable due to high rentals. Locations such as some in South India and Kolkata were good as rentals and turnover were very favorable. As a result, Spencer has aggressively closed down 170 unviable stores, and as a result the number of stores has come down to 212 (i.e. 0.91 mnsqft.).
Spencers Retail management has also realized that many smaller stores were not viable and has increased the proportion of larger stores to 55% from 30% earlier. Going ahead, the company is focusing only on opening large stores in good locations. Spencer is planning to open 0.2-0.25 mnsqft of new retail space.
Signs of improvement are visible as turnover/sqft/month has increased from Rs660 to Rs860 and the company expects this to increase this further. Cash losses are down to Rs130mn/month now and should come down to Rs100mn/month by June 2010. At these levels the company will achieve break even at the store level. However cash expenses are also required at the distribution level
(Rs60mn/month) and corporate level (Rs25-30mn/month) and these losses will continue for some time. As a result, overall company level break even will occur in after 2 – 3 years.
Spencers is also focusing on increasing gross margins of products sold. Currently gross margins are 17-18% and the target is to increase it to ~25% levels. Currently most of Spencer sales come from food products and groceries. The company is trying to increase the proportion of high-margin items, such as apparel and electronics, to increase gross margins. Apparel constitutes 5% of current sales and the target is to increase it to 13-15%. The company has also tied up with international brands to sell apparel –
Beverly Hills, Polo etc.
Spencers management is considering investment from private equity players, but talks have not reached the stage of valuations. Another option being actively considered is to list Spencer when it is close to breaking even.