Shoppers Stop Limited (SHOPERSTOP) Earnings Call Transcript
July 16, 2020
Earnings Call Speaker Segments
Dear friends, it's a pleasure to interact with you after a long time. I wanted to inform you about the developments that have happened in the company in the last 2 weeks and also share with you as to how we are taking care of the development and what are the changes that we have done and how we're likely to look at the next few months during the transition. Rajiv Suri, who joined us in early 2018, decided to step down from the post of Managing Director and CEO, and he will be there with us until the 25th of August. He has cited personal reasons and the reason that he and his family would like that -- like to move back to Dubai that is where he came in from and has also taken up a role in a noncompeting company in Dubai. We, as a Board, met last week, and we have accepted this resignation. We would like to thank Rajiv for what he had done in the company in the last... [Technical Difficulty]
Nagesh, we lost you.
Hello, Mr. Nagesh...
Nagesh. We lost you, Nagesh. We lost you in between.
Hello?
Hello?
Can you hear me?
No, Nagesh. You probably may have to repeat. We heard from the -- like the Board has -- you talked about the Board meeting and then we lost you.
Hello?
Yes.
Can you hear me now?
Yes, we can hear you now.
Yes, we can hear you now. Yes.
Okay. So I just want to repeat. In the last 2 years, under the leadership of Rajiv and the support of the Board, we actually restructured the whole organization and got very senior members with a high level of skill, past experience in the retail and their functional businesses into the team. And the team consists of 10 CXOs, who come from different streams. And this team is all set to take on the new challenges. However, due to Rajiv's exit, we have decided the following: As per the Board, I am stepping in to take care of the transition, and we've appointed 4 senior members from the CXO... [Technical Difficulty] in running the organization. They are actually the Head of Finance; the Head of Product; the Head of Marketing, E-commerce; and Head of HR. The 4 committee members, along with me, would actually be transitioning the company from Rajiv to the next CEO. Since the last 1 week, I've already got involved attending review meetings with Rajiv to understand the nitty-gritties of the working of the business so that during Rajiv's exit, I can really support their executive team with all the decision. And I have full support of the Board of Directors to take on this task. To get Rajiv's replacement, I, along with 3 Board members, specifically Board members who come from the digital field and those members who have been engaged in e-commerce, online and digitization, are actually involved in the shortlisting and selecting of the candidates to replace Rajiv. And this has been done in my office, along with the Board members and the help of the CHRO of the company. I believe the early signs that I've seen in the last 1 week's time, that we should be able to have a replacement in place in the next 90 days' time. And I'm confident that we will be able to get a fairly competent individual to replace Rajiv as the Managing Director, CEO of the company. This call was to inform you about these developments and to assure you and each one of you that I, along with the Board, are fully committed to ensure that the organization is stable, the organization is moving forward in its journey, in spite of the fact that COVID has brought in a lot of stress into the retail sector. But since we had already started the momentum of bringing in technology and moving towards the online business, which has actually seen some very good results during the last 3 months, which I'm sure we will share when we come on the quarterly call at end of this month -- early next month. So I will now stop here and open the house for any questions if anyone of you have. Please feel free to ask the questions around the topic. Unfortunately, we will not be able to discuss or talk about the results of the business performance as we were in the blackout period. Thank you very much.
[Operator Instructions] The first question is from the line of Avi Mehta from IIFL.
Just if you could help clarify 2 things. There has been a change in the way we were kind of looking to take this business once Rajiv took over, which involved a lot of, as you rightly said, team transition, investment, the focus on capital how would change. Would you put all those capital investments on hold till the new CEO comes or what is the plan over there? And b, if possible, could you share what are the benchmarks or criteria that you would be looking for when you kind of go through the process of CEO, would you look at internal candidates, external candidates, any color on that would be helpful.
Since every decision that was taken with Rajiv, the Board was fully involved. So fortunately, for us, most of the capital investment was to be done towards technology, implementation of new technology towards making Shoppers Stop more digital was already done. And also, we were able to implement everything, and we were all ready even before the COVID struck us. So if you look at the whole SAP and the SAP Hybris and the gravity, this were actually the technology to see that we get one-view of the customer was implemented. And as of today, we are getting that one-view of the customer, although at a smaller number because of the COVID situation and the stores are closed. Number two, we had planned, and I think Rajiv and the team had placed it before the investor friends that we are looking at 12 stores last year, another 12 stores this year to open. And as we move forward, we'll be opening many stores. So last year's CapEx plan and all the store openings were completed. This year's CapEx plan and the store openings are held due to the current situation, and we are not looking at any of those to be opened up or invested till the time very, very clear as to how things shape up in the next few quarters. That as far as the investment is concerned. And I want to...
Sorry, the private label as well.
I'm coming to that. So -- and if you look at in terms of the investment on technology and moving Shoppers into omnichannel and a digital business, I think we are absolutely on path with it. We have seen some very good movement during this period. And thankfully, during this period, we have been able to see the interest of the customer coming online and the digital plan that we have put together. Rajiv had also mentioned about the private brands. And I think during the last 2 or 3 quarters, we have mentioned about the team that we put together to build the private brand. Our ambition and our task toward private brands remain exactly the same. There is no change. In fact, we are looking at development much more than just retail. Some of the private brands have also gone into multi-branded sites. From there, it is being [indiscernible]. So I think we are progressing on the private brand space. There is no pullback in terms of the strategy as far as private brand is concerned. So just to ensure and assure all the investor friends that there is no pullback on the plans which we have made. In fact, some of the plans which fructified as of March, April, are going to be the pillars on which we will take this organization forward. Because as you all know, with the COVID situation, I think there will be a huge surge towards an omnichannel business. And I'm stressing on omni-channel and not just e-commerce because to serve the customers, you require stores nearby. And fortunately, for us, we have 90-plus locations where we can serve the customers. So we continue with the journey. CapEx plan on real estate and store opening are held on till the time we have a very clear view of the future and the city opening and the state of COVID in the country.
Perfect. And sir, any clarity on the process, if you could share and what are your goalposts or any...
So to give you an example of what kind of a person we are looking, I think I would like to share that the candidate is internal or external. You'll appreciate that I will not be able to share that on the public platform at this point of time. We would like to look at Rajiv's story plus maybe a minus 5 to 10 years of age and plus a little more of digital hands-on experience or somebody who has really worked on digital because I think as an organization, as a Board of Director and as Chairman, I was very pleased with what Rajiv did to the organization and the way he brought in the whole rejuvenation of the organization. It's unfortunate that at the time when we were looking at this, COVID struck us and Rajiv decided to go back to Dubai.
Next question is from the line of Abneesh Roy from Edelweiss.
Mr. Nagesh, good to interact again with you. You are a veteran in the retail and have been in Shoppers Stop for a very long time. My question is essentially on the way forward. So Mr. Suri did a commendable job on the beauty part of the business. He had experience prior to that in the earlier job and he had this international experience. But in private label, if you see, in spite of hiring the CXO from other private label companies much larger plus new design head, et cetera, you have not seen any movement as a percentage of sales. So would it be fair to say that you will be focusing more on getting this part of the business higher when you're handling it yourself? And in the new CEO's role also, this will be a key factor, key experience, which will be required? Second related thing is if you see Shoppers Stop stock in the last 1.5, 2 years has come down significantly from 500, 550 level to around 150 currently. In the same space, Trends has done exceedingly well. In spite of corona, everything is corrected, but Trends kind of stock has held on. So what could be the way forward in terms of wealth creation, that is medium, long-term because you'll again hire a great CEO, but ultimately it's all about wealth creation also. So if you could clarify on that by a bit. And on the private label, what can be done? You have tried a lot of stuff, but somehow into the numbers, we are not seeing that.
So let me answer the second question first. You'll appreciate that the markets are the markets they are. I think as management and as Board, we have to ensure that we perform to deliver everything that was being done after the 2018-19, and which was a good year for us. '19-'20 was journeying towards a better year and with a lot of investment going into technology and digital changes. Unfortunate, whatever happened, I don't want to dwell deep on it. But let me reassure the investor friends that private brands and omnichannel will be the 2 key pillars out of the 6 pillars that Rajiv has spoken and built upon, which should be stressed upon in the coming year. And early signs are showing very positive results on both. In fact, on the omnichannel business, we have put together a very large consulting team. And we have engaged them, and we are working together with them to really chart a path where we'll be able to see some results between 6 to 9 months. And definitely between 9 to 15 months, we'll be able to reestablish the omnichannel presence of Shoppers Stop. So on both private brand and omnichannel, yes, they will be a place that we will concentrate on. Coming on the stock prices, I think we will do everything to perform, and we'll leave the stock movements to all of you.
And sir, one small follow-up here. Retail expansion, still you want to go aggressive because now it's a different world, and we don't know when normalcy will come. So in that context, many companies are changing their physical expansion plan. So are you seeing the numbers change on that? The time line can change because now everything has been delayed, but should you cut the numbers also in terms of physical expansion?
So you will also remember that the Tier 3, Tier 4 and Tier 2 cities that were opened in the last 1 year, many of the stores actually performed to the extent even breaking even at an EBITDA level within the first 2, 3 quarters. I still feel being part of the industry that the country will provide a huge amount of opportunity in the Tier 2, 3, 4 cities. And we also are aware that we came out with a newer format, which is a smaller format of 25,000 square feet. And these formats give us very, very high sales per square foot as well as early breakeven. Our belief is that smaller formats in Tier 2, 3 and 4 is the way forward, apart from being omnichannel and online. However, the smaller formats will have to go into properties that we are able to negotiate better deals. The deals could be revenue share, the deals could be even CapEx free. And I think that is the opportunity we will look at it. However, the earlier properties that we have signed, we will take a call on them as we move towards December to March.
[Operator Instructions] The next question is from the line of Ankit Kedia from PhillipCapital.
Sir, as I understand, Mr. Rajiv had handpicked the CXO team, the top 8 or 9 people under him. Do you foresee or what is the incentive for that being now if they don't gel well with the new CEO and you see accretion at that level as well? So is the extra incentive for them now in the system?
Very, very good question. First of all is I would not like to imagine a situation where the new CEO will come in and we will not gel with because imagination, memories are the enemies of mankind. So I would not like to do that, Ankit. As far as the incentives are concerned, all of them are very senior people. They all left organization from very, very important positions to come and join Shoppers Stop, not just because of the incentives of money. They also came because they say -- saw Shoppers Stop, a 30-year-old brand, having the ability to turn around and take on a new phase with the investments that we had planned and with Rajiv exclusively bought in. As a Board, we would be absolutely committed to ensure that every CXO team plus the leadership team and the high potentials are fully retained. And therefore, as we move forward, there would be plans to ensure that if we are able to create, and we will be able to create wealth for our investors, all our employees and senior people who are involved, do participate in that. But you will also appreciate that as part of the cost-cutting measures, we have taken some serious, serious cost cuts even at employee level and senior manager level. And these are senior managers who have taken that cut because they believe in the company, they want to take it forward to say that we'll be a turn around the company in the current situation. So be rest assured, as management, as a Board, we would ensure that every senior person is part of the wealth creation that happens over the next 24 to 36 months.
And sir, do we have a ESOP plan in place for that?
Yes. Yes. All the senior members have ESOPs. And in fact, every year, based on their joining date in the cycle, they get their ESOP. If you have seen our notes that we put into the MCA and stock exchanges, the last week, the Board meeting, we allotted ESOPs to all our senior executives, which was done, I think, last Friday or last Saturday.
The next question is from the line of Aliasgar Shakir from Motilal Oswal Asset Management.
Sir, my question is on value retail. In the last few years in the overall apparel space, value retail is one category, which has done very well and a lot of peers in that space have outgrown probably many of the other players, likes of us, probably who are in the lifestyle space. I understand that a new CEO will come and probably there will be separate strategies, which will be in place. But I just would like to know your thoughts on it. I mean, we haven't probably entered that space. What are your thoughts on that space? Do you think that is an opportunity that Shoppers Stop probably should target and there is a growth opportunity lying there?
I think the first thing what I want to share is that it has taken us 1.5, 2 years to work very hard to put our strategy for the next 5 years, both physical as well as omnichannel. And based on that strategy, we have done some heavy investments, both in opening up new stores and putting up the technologies together. So my endeavor will be to get a CEO who believes in our current strategy and takes it on. I don't anticipate that we're going to see a CEO who will come in and actually he strategize the company. Yes. So that's something we are very, very clear about. However, I did mention that the CEO will bring in the thinking on the technology, digitization and this digital play and take it forward from where Rajiv has left. So that's something we're very, very clear about. Yes, about getting into value retail, if you're talking of the likes of some of the competitors who have actually got into it, we have no plans to get into a new format of value retail. However, the focus of private brands is always going to be from good to better because the best part of it or the better part of the assortment is already taken care by the brands that we have. And like I mentioned to the earlier participant that we are looking at increasing share, and we have seen some very good results in this period of the last 2 months' time. Therefore, we'll continue to endeavor that and we will continue to ensure that the private brands start delivering value to our current customers and the new customers that we get. As part of the strategy, we don't have a plan to get into value retailing as an independent business, as a sub or as a different vertical of the business.
This is very helpful, sir. Just one quick follow-up. I mean, my concern was more from the point of view that in the last few quarters, as we discuss the results, we observed that the footfall in the Shoppers Stop lifestyle stores have continuously kept falling. So it was just from that concern that with all the initiatives you have taken and of course, there has been some benefits that we have seen in terms of improving the ticket size or the size of the customers, but declining footfall is an area of concern, which probably keeps eating into the business. So if that's attracting...
I must share that I'm also on a global board of retailers and the global businesses across brick-and-mortar have seen decline in footfalls. What it is doing is we're getting more and more focused customers. I think Shoppers Stop as a department store has a very large play in the mix segment that we are dealing and get into the millennials, we do have a huge opportunities to expand our share. I think we are still at about 24%, 25%, around 30% share in that segment. So we have a huge opportunity to expand, and the expansion is available to us in all the Tier 2, 3 cities. What the omnichannel player is going to do is, we may end up reaching INR 90 to INR 100, but this will help us reach 600 to 1,000 [indiscernible]. And we are already seeing that kind of a response in the last 3 to 4 years each time. So our play will be to get and occupy the segment even in those cities and towns where we don't have a brick-and-mortar store through online and omnichannel and the Amazon partnership. And our brick-and-mortar in a new format, which is already an experimented format and successful, 20,000, 25,000 square feet, they'll go into Tier 2, Tier 3, Tier 4. But like I said, these things will happen only post December to March when we get a very clear view of how COVID situation is and how the real estate will be emerging.
[Operator Instructions] We take the last question from the line of Pankaj Tibrewal from Kotak Mutual Fund.
Can you just briefly speak about on a strategic way, a couple of years back, we saw Amazon tie-up with you guys, but we haven't seen much progress there. So can you just take us through your thought process and how important that partnership will be because a little bit worried on what Reliance is trying to do and the way they have scaled up in the last 5 years. And now the next way forward for them across their businesses is alliances and partnerships. So just wanted to get your thoughts that we have been early in the game, but we haven't seen much progress on that side over the last...
So yes, we were early in the game, about 2 years back when we signed the partnership. But I think the partnership was signed, but the technology on our side was not in place to get aligned with them. And like I said, the technology has now been put in place, both SAP, SAP Hybris as well as Gravity, which is to understand the consumers, and it is already kicking. It is working. So now we have the tie-up pictures, we have the opportunity to connect. And the connect is actually about connecting our stores directly so that our customers, when they shop at Amazon, okay, we are able to deliver them from the nearest store, which means that unlike as of today for brick-and-mortar, where we have 4 warehouses, okay, we would have literally 92 distribution points or maybe more than that depending on the kind of product for the customer. Our plan is by September to be connected with more than 50% of our brick-and-mortar stores on the technology to work as have been spoke. And that should actually give us the impetus to start seeing much, much better numbers. In fact, during the COVID time, when we have activated a few stores, which has already started, we have seen some very good results. So we are now hopeful that in the next 6 months, we should be able to see the full Amazon tie-up becoming fruitful. Amazon is a very important partnership, and we will continue to actually explore as to how mutually we can make this happen. Coming to other players who have launched into the business, I just want to share with you all that U.S., the largest market in the world, has the largest brick-and-mortar retailer, Walmart, and has the largest content, Amazon. And between the 2 of them, one has a 12% market share and one has 15% or 16% market share. I mean, traditionally and even going forward, no customer gives away all the wallet share to a brand or set of brands, okay. So market is very large. The niche and the segment that we are dealing with huge opportunity, okay? We made a lot of efforts to put things together. I think now is the time for us to start showing results from that. Except for COVID, we would have seen some very, very good movement forward. But I would say that COVID, we'll watch till December, March. And by that time, you will see us playing as a full omnichannel player with all guns firing subject to COVID depending on how things happen.
So the Amazon partnership will only be as an outlet distribution for Amazon shopping customer or...
No. It is not outlet distribution anything. This is where the Shoppers Stop dot in on Amazon, okay, will actually be able to help customers who will come on to Amazon to shop at Shoppers Stop. The deliveries will happen through our stores, but what I'm telling to you is when the customer shops on Amazon in Shoppers Stop, the product view that he gets or the availability he or she gets is from the nearest store that she or he is shopping.
Because correct me if I'm wrong, our precious asset is the first citizen booking that we have, right? And we haven't seen any cross-sell opportunity or incentive for a first citizen or vise versa Amazon customer to come and shop at Shoppers Stop. So that engagement, something which you guys are looking in so that you expand your base of...
Like I said, I think the technology fell behind the partnership. Now that the technology is in place, some of these will be put in place as we go forward, and you'll see some of these happening. And the first citizens are also already shopping at shoppersstop.com. And there also, we have seen much better traction than what we had seen 3 months back. So in that way, COVID is helping us to build that channel. But the real fire will happen when COVID is out, and we are seeing both the channels work in tandem.
Thank you. I now hand the conference over to Mr. BS Nagesh for closing comments.
Thank you very much, and thank you for coming on this call. I know those of you who are in Mumbai, Mumbai is going through some heavy rain. And I just want to wish each one of you to be safe, you and your family to be safe. And assure you that this transition from Rajiv's exit to the next person coming in will be managed very smoothly. And I'm fully commitment -- having a full commitment and committed to making this transition happen well. Thank you, once again. And look forward to meeting you all in the conference call after the next quarter. Thank you.
Thank you.
Thanks a lot. Thanks. Bye.
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