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Publication: The Economic Times Mumbai;Date: Jan 5, 2011;Section: Front Page;Page: 1

ON ROAD TO PROFIT
Big retail cuts losses 21% on sales spike
Sagar Malviya & Maulik Vyas MUMBAI

RETAIL chains owned by large corporate houses managed to claw back with double-digit sales growth and reduced losses
during fiscal 2009-10, reflecting buoyed consumer sentiment and greater cost control.

According to their financial statements available with the corporate affairs ministry, unlisted companies such as Tataowned
Infiniti Retail and Trent Hypermarket, Reliance Industries’ Reliance Fresh, Aditya Birla Group-run More, Dubai-based Landmark
Group’s Lifestyle and cash-and-carry store Bharti-Wal-Mart reduced combined losses by 21% to 945 crore during 2009-10 from
1,209 crore a year ago. These chains also clocked a 34% jump in sales to 5,385 crore.

Although all the retailers continue to be in the red, they are optimistic about the future.

“We are targeting to be EBIDTA positive by 2013 and break even by 2015, and we think we are on track,” said Thomas
Varghese, Chief Executive of Aditya Birla Retail. “This year was very good in terms of sales and we have managed to bring down
our costs and losses substantially.”

Lifestyle International, which has a positive operating profit at 175 crore, said it sees strong demand going forward. “By next
year, we will be profitable,” Kabir Lumba, Managing Director, Lifestyle, said. “We see strong demand once again and we have
increased our efficiencies as well.”

While More posted a net loss of 541 crore, Reliance Fresh showed a loss of around 135 crore. Trent Hypermarket, which runs
Star Bazaar, posted sales of 290 crore for the year ended March 2010 with a net loss of 29 crore. The company had sales of 124
crore with a net loss of 18 crore between July 2008 and March 2009.

Infiniti Retail posted a loss of 72 crore and Lifestyle’s net loss was pegged at 17 crore.

About two years ago, most retailers had found themselves on the wrong side with huge inventory, cash crunch due to higher
working capital requirements and issues in raising funds. Focus now on profitability

AS THE focus shifted from mindless expansion to profitability, Reliance Retail and the Aditya Birla Group together closed 250
stores. “Cost as a percentage of sales has come down drastically because everyone has cut flab,” said Kumar Rajagopalan,
CEO of industry body Retailers Association of India. The association represents several of these unlisted retailers.

The main agenda was to lower rentals and cut employee costs than to open more stores, he said. The common strategy,
however, among all these retailers was to push their own brands, or private labels, to earn higher margins. Operating margin of a
private label is between 14% and 15% as against 8-9% for national brands. The takeoff of private labels is reflected in the
operating losses, which have almost halved to Rs 648 crore in 2009-10 as compared with Rs 1,343 crore in the year ago.

For instance, More launched over a dozen new brands, such as Feasters, Kitchen’s Promise and Best of India, across product
categories while Lifestyle launched ethnic apparel brand Melange. Now, most retailers are back to their expansion spree with
either lower rentals or a revenue-sharing model. And building the supply chain is on top of their minds, especially for newer
entrants such as Bharti-Wal-Mart and Carrefour. There’s a change in strategy too. While Reliance and Aditya Birla are focusing
on opening more hypermarkets and leverage from the scale in sourcing, players such as Lifestyle are expanding their home care
stores. But the pertinent issue of raising funds still remains.

“Retailers were able to manage their costs properly but it’s a short-term advantage only,” said Pinakiranjan Mishra, Partner,
Ernst & Young. “In the long term, you have to increase the number of your stores to have economies of scale. So many players
are likely to go for fund-raising activities in the next few quarters.” Analysts say back-end issues, such as dealing with vendors,

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logistics, using shelf space efficiently and reducing wastage, will now be given more importance. “They have learnt their lessons
from the slowdown. Their main folly was to focus on consumer interface without building a strong back-end,” said Anand Mour,
Vice-President at Indiabulls Securities. “We see retailers rectifying that with huge investments in supply chain now.”

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