Shoppers Stop Limited (SHOPERSTOP) Earnings Call Transcript & Summary

Good afternoon, everyone, and welcome to the Q2 FY '21 Results Conference Call of Shoppers Stop Limited. I hope you and your near ones are doing well. I would like to thank the management for giving IDFC Securities [indiscernible] Nagesh, Customer Care Associate and Non-Executive Chairman; Mr. Karunakaran Mohanasundaram, Customer Care Associate and CFO, Ms. Asawari Sathaye, Customer Associate and Head of Communications, Investor Relations and Sustainability and other senior management personnel. We will start the call with the commentary from [indiscernible] and over to Nagesh, Sir.

Thank you, Rohit. Very, very good afternoon to all of you, and welcome. I hope you, your colleagues, your family members and dear ones are safe. These are really testing times, not an easy time for anybody. But I hope all of you are doing well. And thank you very much for joining us at the Shoppers Stop Earnings Call for Quarter 2. You are aware that the quarterly results, the press release, investor presentation are all available on our website. And I hope you had a chance to browse through the highlights of the performance. Before I go through the details of our performance for quarter 2, I think there are several positive news during the quarter, which I thought I'll just share. I'm sure all of you are absolutely on top of it in terms of what's happening with the COVID in the country. There is a decline, and that's a very big positive for us, not only as individuals or as organization but as a country. Also, all of you as investor analysts, you know what's happening in terms of organizational performance. I think the second quarter has been better than the first quarter and particularly the month of September, there seems to be green shoots and there are recovery. And I think that's a positive indication. As we go forward, I'll try to correlate some of our performance to what's happened in the market. and what's happening to various other industries. During the most part of quarter 1, stores were completely shut and you are aware of it, we have presented that to you. While the trend continued partly in July and August, we're so happy that stores were fully operational in September, barring a few exceptions. In the last quarter, I had mentioned about the new normal and it continues. Yes, it is true the new norm. If I talk about the customer behavior, the Customer Connect we have, our journey to e-commerce and omni, our whole organization's attempt to transform itself into a digital organization. And of course, I'll also talk about products, people and the 4 strategic pillars that we have taken up as the way forward for the next 2 years. While most of the stores were opened, COVID regulations do continue. We could open stores in Maharashtra from mid-August. There has been intermittent shutdown in various parts of India, particularly wherever the COVID impact was significant. So therefore, if I look at the number of days last year this quarter versus this year, we had 80% of the days compared to last year. On the other hand, if I look at the number of hours, I think we have been operating at around 18% approximately on the number of hours because many places the stores have to be closed at 7. Of course, now during the last few weeks, some of the state governments have allowed us to open up to 9:00. So even the store hours are coming back to normal. Hopefully, this will continue and we'll be able to operate across the country on full normal hours. We've also have observed during this quarter that some state governments took a call to close stores and shopping malls during weekend. So I would say we've come very close to the normal behavior, but there have been erratic movements but not as much as we saw in the first quarter or in the month of July, August. We have seen some significant changes in the customer behavior. But many of them, some of them I thought we can mention, although footfall improved month-on-month because we had 95% decline in [indiscernible] quarter 1, 89% in July, 83% in August, 65% in September which actually means that we got 35% of our last year's customers back into our stores in the month of September. But you have seen this across -- the standard across the country. And as in the first quarter, the stores in nonmetros have shown higher level of resilience. And therefore, our nonmetro stores are performing better than the metro stores. The decline has been about 59% versus 72% decline in metros. So definitely, there is a positive movement in the nonmetros. Similarly, stand-alone stores recorded a lower decline versus mall stores by almost 10 percentage points. I believe the government is now allowing multiplexes and restaurant, food courts to open this week. The footfalls will start coming back into the malls in a better way because in the absence of food court and multiplexes, okay, the stores that are operating in the malls with less number of footfall. Now this will again give us a chance to increase the footfalls as we go forward. The average ticket size has considerably increased. This clearly shows that the customer is coming with a very clear intent of shopping. The window shoppers, the casual shoppers, the impulse shoppers, the moviegoers, the food eaters, I mean they were not there in the mall, and it is also visible. Our average ticket value has increased by 30% over last year. Our average bill value has also increased by 6%. We also see in terms of families less women and children. As we said in our investor deck there has been a shift. It's a very positive shift for us, knowing that we are a 30-year-old brand, the country's first premium department store chain. We have started seeing younger generation coming back to us, and we have had a 3% positive movement of younger members into our stores. What this tells us is that people are also finding our offerings and the way we are running the business better plus also finding us as more trusted and more safer place to come and shop. We're also seeing that the Personal Shopper is actually becoming a very positive way of interacting with us. And our customers are preferring the combination with online with our Personal Shopper assistant. I mean this is truly a omni business, but it is just not online. There is a rationale. There is a transaction and there is an emotional part happening in the transaction itself because people are involved, even though you're shopping online. On the categories, beauty had the least decline followed by home and toys, whereas footwear, luggage, apparel and a few other categories had a larger decline. I mean this is something that we will have to actually look at it as we go forward because many of these are connected to other industries like [indiscernible]

Sorry, to interrupt you. Mr. Nagesh?

Yes.

Sir, sorry, suddenly, your voice is breaking. May I request you to repeat once again?

Okay. Please. Can you hear me now.

Sir, one moment, please. [Operator Instructions] please stay connected, while we reconnect Mr. Nagesh. Thank you for your patience, everyone. Sir, you are connected back to the call.

I'm sorry, I'm calling from a remote location, and therefore, there will be some disturbances and some issues in terms of the communication. I did mention that on the categories, beauty had the least decline followed by home and toys whereas footwear, luggage, apparel and a few other categories had a larger decline. Our own response to COVID has been as follows: We have been talking in the last 2 quarters on the importance of cost reduction during these critical times and maintain liquidity. I think this is one of the most important things for any organization under these circumstances. You need to survive to start thriving and start reviving as you go forward. We are tracking very favorably versus all our internal KPIs. And I must say that I'm very proud of the team as they have been able to exceed on all the internal targets on cost reduction. We have been renegotiating every cost with our service providers. We have successfully renegotiated lease rentals with our landlords. And I must thank the landlords who have been considerate towards us during the last 2 quarters, I mean, the true sense of partnership. In my previous meeting also, I had mentioned that we had targeted INR 450 crores, INR 4.5 billion as the savings plan for this year. In spite of the fact that last year, we added 11 stores during Q3 and Q4. We saved INR 1.85 billion in the first quarter. And in the second quarter, we have saved INR 1.3 billion -- INR 130 crores, the total savings would be in the region of INR 315 crores for the first 6 months. As we move forward, the festive season is coming, it's extremely important for us to also gun for proportionately higher increase in revenues. And therefore, although our commitment to the savings target remains, our increased cost savings, I also want to put it through for some marketing efforts so that we are able to pull through much larger sales within the coming quarter. There is a continued focus on cash conservation. As a company, we have cash and bank deposits at about INR 85 crores. We have availed term loans of about INR 150 crores as of 30th September. Our net debt is at INR 215 crores. I think a good part of our cost savings and equity is the ownership at every level. Like I mentioned, the team has done some wonderful work of being able to cut costs all across. And it is not a onetime effort. I believe this is continuing. What this will also do and which is very positive for the organization is over this period of the year, we will learn to work with less number of people. We will learn to work on lower cost, become a more frugal organization. And therefore, many of these savings may actually get carried forward in the coming years as we go. As I said, at the end of the quarter, we opened all the stores. The store opening and closing have been inconsistent, but fine. They have impacted sales. Being very conservative and wanting to be sure that every employee and every customer is in good shape, I mean we have put a lot of protocols. Our CHRO, along with the operations team, they monitor on an hourly basis, the COVID situation, I get a report on a daily basis on the employees' health and well-being under COVID. So that we know as to what's happening. And I must say things are looking very much in control. Last time I also spoke about our journey to a world-class omni-retail company. Honestly, this is a transformation that we have to go ahead. Do we have choices? No, we don't have choices. The only thing is how fast can we do it, how easily we can transform. There will be disruptions, but can we still manage it well? So a few quarters back, we had started a project, one which is called Trishul and the one which is called Everest. The idea was to first stabilize the system, get everything right and then look at growth. And in this journey, we have actually engaged with an international consulting group to support us over the next 12 to 15 months so that something that we don't know we get to know from people who know better than us. We've had tech challenges. We had tech-related issues, especially because you are aware that we have implemented SAP Hybris. Last year, we went out of JD and implemented SAP HANA. And with this, now we are a fully compliant SAP organization and with lots of analytics and lots of warehouse management systems in place. We actually improved our interface on app and website based on optimization, advanced analytics in order to get into achieving personalization and delivery turnaround time optimization. And our benchmarks are the best-in-class in the country. So we would want us to be compared to the best-in-class in terms of all the KPIs. And to me, the best-in-class could be Amazon, could be Myntra or could be anybody else. But we don't want to lag behind on that. All the KPIs such as our average daily orders, value of these orders, conversion, more importantly, our First Citizens sales contribution and every other KPI has significantly improved against last year. And although we are talking about end September, the first 2 weeks of October has also given us very positive hopes. We have also added 110 new brands on the drop ship model in the shoppersstop.com. And they have already contributed to 5% of e-commerce sales. Now I think this is something good for our brick-and-mortar business because sometimes we can't accommodate all the assortments and all the brands because of the limitation of space. But however, with the drop-ship model, shoppersstop.com is also able to provide to our customers assortments otherwise we are not carrying. For example, we had Indian wear for the women, but we never sold sarees. Now through the drop-ship model, we have already started selling sarees across the company. We never sold wedding wear, especially the mid and the higher end. But now we also have wedding wear, which is actually coming from the partner. So therefore, this whole drop shipment is going to be a unique assortment increase for us, and this will help us to get better customers, will also help us to increase the share in the wardrobe of our customers. We have been talking about our partnership with Amazon. It's been quite a struggle for us in the last few quarters. But now I'm so happy to say that we, as an organization now are fully connected. As of last week, all our 4 distribution centers are connected to Amazon, and now we have 50 stores which are connected to Amazon. In terms of the assortment, we're slowly opening up the assortments one by one. As of now, we have just opened the private brands and maybe watches and a few other brands. But over the next 2 to 3, 4 weeks, we will add up and open up the full assortment of what Shoppers Stop has across the country onto Amazon site. And our customers will be able to access not on the product, but they'll be able to access and get delivery directly from the stores, which I think will really enhance our capability of serving our customers. Our e-commerce sales has grown by more than 50%, and our share of e-commerce has increased from 2% to 8% in this quarter. The way things are going in the first 2 weeks, I'm very, very hopeful that we should be hitting a double-digit figure very soon. If I now come to the last quarter's performance, like I mentioned, July was better than June, August was better than July and September has been better than August. So continuously the growth is there. Having said that, we did have store closures, and we did have restaurants and cinema halls closed. But like I said, things are opening up, so we should be positive. However this has impacted our sales in quarter 2. We had sales decline of about 65%. We recorded INR 371 crores as sales. The gross margins will continue to impact because of the first 4 months or 5 months of disturbance in closure, the private brand inventory that we had brought in, we had to clear that off and there was no way we would want to carry this inventory to the next year. So it is being sold on discounts and markdowns. And not only that, we also adopted a more conservative inventory provision as per policy. And as on date, we have actually provided INR 12 crores for inventory in the quarter. As I said before, with our continued focus on cost, we have saved INR 130 crores versus last year. Our EBITDA loss was INR 83 crores versus INR 133 crores in Q1, and the information on the financials are available with you through our investor deck. And post our presentation, I'm sure Karuna and the whole team and myself will be able to answer any questions that you have. Let me come and now share the update on the strategic pillars that we have? First, I'll start with First Citizen, and they are our loyal customers. Our engagement both offline and online continued to exceed customer expectations. We spoke about an e-com with improved user interface on our app and website, page download optimization, delivery turnaround, we achieved significant improvement in higher First Citizen transaction. As a result, our First Citizen sales mix increased to 25% in e-com. And additionally, we had 22,000 First Citizen members shopping online. So this is positive for us because if we have about 80%, 83% of business coming from First Citizen and if 25% of them are shopping offline and online. And just imagine, if we are able to reach 50%, 60% of First Citizen also shopping online. This becomes like a family shopping, we should be able to serve the customers almost 24/7 as and when they want. With the system next to their house or stores being connected, connected through Amazon, I mean, typically and truly a digital transformation happening as we move forward. On the off-line, we added 130,000 new members, despite this pandemic. Overall sales from First Citizen, like I said, has been a healthy mix of 83%. This is 6% higher than last year. And our average ticket size has also increased by 12%. Every quarter, we have been talking about our Personal Shopper scheme that we started. This has been a good initiative and has been a really good savior for us during this pandemic time. Our Personal Shopper continue to excel, and they have contributed 14% to total business, with an average cash flow size of 2.8x of the otherwise average transaction size. So which means whenever the Personal Shopper is interacting with the customers, the transaction goes substantially higher 2.8x. Not only that, we are able to serve our customers through what we call as White Glove service. Customers at home or office can view the product through a video call and place an order and payments are made through a link that they may receive on their mobile. We also have real-time Personal Shopper online interaction through what we call Yellow Messenger service. And through Endless Aisle of Personal Shoppers improved our overall customer experience in our omnichannel. And the online prebooking of Personal Shopper Appointment Services for customers is available through website and app. So literally, we have gone forward in terms of digitization but gone back in terms of the Indian ways of serving the customer on a personal basis. So although we are saying one is going digital, it doesn't mean that the personal touch has to move away. But this actually creates a unique possibility of customers being served with people and the technology together. With the success in Personal Shopper, now we are training every customer care associate to manage Endless Aisle. Last quarter, the Endless Aisle contributed to 2.8% of revenue. That actually shows that probably we are losing these customers because either the assortment or the SKU or the size was not available to the customer. However, when such incident happens, our customer care associates are able to go on our app and through the Endless Aisle serve the customers. Now this is very, very important for us. You can imagine what a 2.8% can make a difference. And if we can really move this to 4%, 5%, the availability quotient in the company will go up very high and really serve the customers better. And last quarter, we have actually launched 2 new campaigns in Personal Shopper. And this has really increased the awareness of Personal Shopper and our customers are asking for Personal Shopper online as well as when they come into the store. The next strategic pillar was our private brands. After a long, long time, we have seen an increase in our private brand share. It's now gone to 15% this quarter. Our decline in private brand business is much lower than brands, which means private brands have performed better. Customers are actually making a choice, a conscious decision to buy our private brands. In September, our private brands declined a mere 19% versus 47% of the overall brands. The value buying is evident. And the response to our new merchandise launched at less than INR 999 has been very good. We have added several categories on essentials such as sleep wear, loungewear and inner wear. And I'm sure with our new CEO also joining with a background and experience of product, we should be able to really look at this strategic pillar and improve substantially to reach our ambition of 20% of the business coming from private brands. Coming to the next pillar of beauty. Our Beauty business continues to remain strong, and the Beauty mix sustained at roughly 15%. We have now started working on getting private brands in Beauty. And in Q3, we'll be launching one segment of private brands in Beauty. And over the next 1, 2 years, we will enhance and complete the whole beauty service brand business so that we are able to take care of private brands also through fragrances, skin care and feminine hygiene. This quarter, we actually launched an event called Eye-Stopper. The whole objective was to reach customers and talk about how they can actually do different makeovers for their eyes. And this has been a very successful event. We actually ran a context for beauticians, for makeover artists to send videos and which is actually judged by Malaika, and other distinguished guests. And as I speak, we received 2,500 videos of roughly 3 minutes. And this was just the various star personalities and we'll talk about the details on the outcome of this event as we go forward in the next quarter in terms of business. So these were the 4 strategic pillars. But before I end, I definitely want to give you some more updates. Last quarter, when I met you all, we spoke about our Managing Director and CEO exiting the company. And I said I would stand by the company in an, although nonexecutive Chairman, but will support the management in the best way possible. I'm so happy to inform you that Mr. Venu Nair will be joining us as Managing Director.

[Operator Instructions] Thank you for your patience, everyone. We have line from Mr. Nagesh connected back. Sir, you may go ahead.

So I was talking about our new Managing Director and CEO, joining us in the first week of November. So I'm so happy that Mr. Venu Nair, who is currently the CEO of Westside and who has before this worked in Marks & Spencer, and he was the managing director and CEO of Marks & Spencer in India for many years. And before that has had global experience where based out of London, he also work for Arvind and for Madura. With an overall 27 years of experience, an engineer and an MBA from S.P. Jain, I really look forward to Venu joining us and supporting our journey of taking Shoppers Stop to the next level and especially in terms of our next move towards private brand and the 4 strategic pillar that we have talked about. This will really help us in terms of our growth and I will continue to support Venu and the company in its next journey as we go forward. In the last board meeting, which was held last week, the Board of Directors have approved the rights issue to strengthen the balance sheet. We've already appointed the bankers. We plan to start and end the process by next month, subject to, of course, approvals of the regulatory authorities. And like you always believe that the retail business has a lot of operating leverage, so we don't want to have too much of financial leverage and therefore, keep our debt as low as possible. I think that is one of the objectives of what we want to do. We believe that the COVID impact will continue for the next 2 quarters, although with every quarter, it will keep coming down. There have been second waves in many parts of the world. We are hoping that the second wave in India does not come through because of the various things that are happening. We will continue to focus on our cost controls and maintain liquidity. Like I mentioned, we have commenced our digital journey, and we expect our e-comm business, whether its shoppers.com or amazon.com or amazon.in to which we are connected, will actually be a large share of our total business in the future. Our safety measures for customers, employees and stakeholders will continue. And I'm sure that all of you will keep safe and keep your families safe. Enjoy the rest of the discussion, we'll opening up the question and answers. Some of the questions I would answer and some I like to redirect to Karuna and team who are sitting in a different location. Thank you once again, and thank you very much for attending the call.

Should we open the floor for questions?

Yes, please go ahead.

[Operator Instructions] First question is from the line of Percy Panthaki from IIFL Securities.

This is Percy Panthaki here. My first question is on the cost saving targets that you have put, I believe, about INR 450 crores, which very roughly translates to about 10% of your revenue. So I just wanted to understand if you could give some more granularity on this INR 450 crores. And also whether once the business is back in full swing, let's say, a year down the line or whenever how much of this INR 450 crore will be permanent? And the second part to this question is, I'm assuming that rental renegotiations is a material part of this INR 450 crores. So when you renegotiate your rental, is it renegotiated with some clause which says that a year down the line or a couple of years down the line, there will be an automatic x percent escalation since -- on the lower base or something of that sort. So yes, so that's my first question, sir.

So since you've asked the question in 2 parts, let me answer it. The first question answer, let me give you on the real estate part of it. See, most of the rental breaks that we have got are breaks that we have got for quarter-by-quarter. And now the rental breaks that we have got it is up to third quarter. And because these rental breaks are substantial ranging from 25% to 50% to 75% to pure revenue share. So this will keep getting readjusted quarter-on-quarter. Will this rental breaks be permanent? I don't think so. Wherever we have moved from a fixed rental to a revenue share, yes, that will remain permanent. So that's one part of it. If you look at the total savings out of the INR 333 crores savings that we have received in the first half, a large amount of savings has come from other expenses and rental is just one part of it. And I believe and I'll leave to Karuna to answer if you want a little more granular. I believe that many of the savings, say, let's say, out of INR 450 crores, a wild guess INR 200 crores plus savings we would be able to continue even in the next financial year after things have actually come back to normal. Karuna, you have anything to add?

Yes. So Nagesh, thanks, Nagesh. In fact, you've covered everything. Just to give the overall numbers, our lease rental will be around about 40% of the savings. The other cost would be round about 60% of the total savings. As Nagesh rightly said, next year out of this INR 450 crores we should be able to, what you call, to sustain almost INR 200 crores on this. You are right Nagesh, I have nothing more to add.

So how do we look at your EBITDA margins once COVID impact is totally gone and business is fully restored to normal. How do we look at your savings? How do we look at your EBITDA margin because INR 200 crores as a percentage of sales, is a very material number. So do you think that your EBITDA margin can go up like 400 basis points or something like that which is the pre-COVID levels?

Percy, you have asked the question and you have answered it yourself. So INR 4,000-odd crores -- INR 4,500-odd crores was the last year's turnover. okay? And if the EBITDA margin was 5%. And if anything goes right and if we believe the INR 200 crores can be carried forward, that should be the kind of returns that we should see as far as EBITDA is concerned, okay? And therefore, as you move forward, the most important thing is ensuring that the revenue reaches that kind of a scale, which means that how fast can we actually go back to the '19, '20 numbers in the years '21, '22. I think that's what all of us are working or attempting to. But we are very clear that about INR 200-plus crores, okay, will not get repeated and will not be covered back. This will be a savings, which will be more or less a permanent savings in the business.

So if I could just get a better understanding of this INR 200 crore number, which is approximately, let's say, 4% or 5% of your sales. If you could very roughly break it up into different heads as to this 4% to 5%, where is it coming from? I understand travel is one. But obviously, that cannot be the majority of this INR 200 crores. So what are the other line items from which you are generating the savings?

Over to you, Karuna.

Yes, thanks Nagesh. See probably one -- slightly more than 1 percentage should come from the employment cost and other 1 percentage should come from the overall operating expenses. I mean these are the 2 large savings, okay? And as you rightly said, I mean, there is a smaller amount in electricity, there is a smaller amount in probably what you call advertisement and marketing and so on and so forth. So -- but if you ask me the 2 largest, it will be employment and store operating expenses.

Right. But isn't that mainly because your number of hours has -- of operating has gone down and these sort of will expand once you have normal operating hours.

We have factored that. After that only we are talking about INR 200 crores savings.

Okay. Okay. Understood. Secondly, I just wanted to understand what you are looking at from the terms of a near-term trajectory of recovery, your EBITDA loss from about some INR 130 crores, INR 140 crores has come down to INR 85 crores this quarter. Is there any chance that there will be an EBITDA breakeven in Q3?

Karuna.

Yes. We normally don't give guidance during this critical time. See, the Q3, like our EBITDA breakeven largely depends on the sales what we have. Yes. So it depends on how the sale is going to happen during the festival season. It's highly variable on the sales numbers. Right now, we are optimistic, and we believe because both Dussehra and Diwali has come in the same quarter, plus we also have the Christmas at the end of December, end of season sales. So things look brighter, optimistic, but we don't want to give any guidance right now about the EBITDA margins.

See, I can only tell you that the first 2 weeks of the Dussehra in the Eastern region is showing us minus 25% compared to last year.

[Operator Instructions] Next participant is Nihal Jham from Edelweiss Financial Services.

Sir, 3 questions from my side. The first one, you gave a sense of the recovery in festive season, especially with East where it has started out. And I think it was around 25%, as you mentioned. I just wanted a sense from you, do you expect that this is what the trend will be for the entire festive season after even Dussehra and Diwali is through? Or you expect that this would improve by the time the festivities are over?

In the past, we have always looked at the quarter -- festive quarter performance based on how Onam kicks up in South, okay? And this year, because during the Onam time, the lockdown was quite heavy, I think this is the first indication of improvement in the most of the festive season by the customers. And I think this is an indication that things will improve. And this definitely is an indication that things will improve substantially over quarter 2. How much, because there are too many ifs and buts, both in terms of second wave, closures, government decision, therefore, it is difficult to comment, but the indications are very positive.

That's helpful. Sir, the second question was on the appointment of Mr. Nair. Congratulations on that. I just wanted a sense of that from the Board's perspective, what are the key priorities that would be put in front of him. As I understand this background, is it right to say that private labels will be priority given he is coming from that side? And the other related question with that is that is it that Beauty could take a backseat in the new scheme of things, just your comments on that?

So I just want to go back that Venu's joining is fully aligned to the strategy that was created by us and approved by the Board early January. And in that, the 4 strategic pillars that we have are fully, fully aligned as far as he is concerned. And in the strategic pillar other than we're saying, we'll do Personal Shopper, First Citizen, digital transformation, private brands and Beauty, okay, for us, the whole bet is on women, okay? Because we believe that the women's percentage of shoppers is high, and we actually serve them better, it will work well. And then women start coming, the children will be coming much more. So if you look at Venu's background, the fact that he has been in Marks & Spencer and Westside, almost all the areas of running a retail business, of running a private brand, of addressing women and children is fully covered. And this experience will help us and be rest assured that the alignment of the new Managing Director, CEO, to our business and the Board is 100%. And therefore, these 4 strategic pillars will not be missed under any circumstances. Some may perform higher and better, but nothing will go into the back seat. And therefore, to the investors in every call, we have said, irrespective of what happens, we will share with you our 4 strategic pillars every quarter. So you know what's happening. It's not that we'll share with you only when things are going up. If things are going down in these 4, we will also share with you.

Makes sense. Last question from my side, specifically on the digital and e-commerce, a lot of initiatives have been taken both on the back end in terms of new software implementation and even in the front end when it comes to our tie-up with Amazon and the focus on First Citizen and on the group side and on the app. I just wanted to understand once this entire exercise is complete, what is the kind of interface that we are looking to provide to our customers. And also a related question to that is that in the future, are we only looking at Amazon or we may look at other marketplaces also to host our collection?

So we have, I think, quite a few things on our task, okay. For us, shoppersstop.com is going to be the major and Amazon will be the one which will start giving us the booster dose. So therefore, I think we will concentrate on these 2 over the next few years for us to get the full potential of this partnership as well as the full potential of our shoppers is going. I mean I think we have to appreciate that the shopper goes back to INR 400 crores. And we are already at 8%, if we're able to maintain 10%, you are talking of going INR 400 crores on online. And let's not forget that last year, we're at INR 75 crores. So to me this simple exercise itself will make us very digital. And with the combination of click and collect, with the combination of alterations that we can do. I mean this opens up a full gamut of service that we can do to the customers, our Yellow Messenger service, our White Glove service. Our associates going to customers' home and delivering when it is next to stores, see the possibilities can be as immense as that if you are shopping [indiscernible]

[Operator Instructions] Thank you for your patience, everyone. We have line from Mr. Nagesh connected back. Sir, you may go ahead.

Just imagine the possibility that if you're shopping from Andheri, and your requirement is there in a Andheri store because that's the way we are linking it, we can give you an option to collect it in the next half an hour from our Andheri store, on the curb side? Or we can even deliver to you in maybe 0.5 hour or 1 hour. See what we are doing, the possibilities are immense, okay, both on click and collect, alteration, ship from stores. So that was the possibilities. I think we're journeying really well. I would also say that this is a huge technology shift, not only in terms of technology but also human capabilities. Let's not forget, we were a brick-and-motor organization just a year back or a few years back. And from there, we are turning. See there's also cultural shift. I think in the last quarter, we had mentioned that the whole leadership has gone through a digital dexterity program, which means they have actually gone through what happens in the organization versus site. The same digital dexterity is now being put across the organization, which means that by the end of March, 100% of our organization would have gone through a program as to how we have to transform ourselves digitally in order to serve the customer digitally. So I think that's the journey that we are taking in.

That's helpful, sir.

Next question is from the line of Shalini Gupta from Quantum Securities Private Limited.

I just wanted a couple of 2, 3 data points. One is the footfall decline would be how much sir? It will be round upwards of 70%.

Yes. I think we mentioned that it was 95 -- minus 95% in the first quarter, went to 85%, 80%, 75%, it's hovering in the region of 65% to 70% to 75%.

Okay, sir. And sir, like see, in the first quarter, you had said that you will be opening 5 new department stores. Is there any change in that?

We are still saying that those stores are there. But depending on what happens to COVID, we will evaluate it again, okay? And then open it. They opened 1 store in Lucknow, which is the Phoenix Market City. We have opened other smaller stores, I think, 3 or 4 stores, but we are also closing stores because that is part of our whole journey.

And sir, lastly, like, if you could just give a sense of how much you said that a lot of the rentals you have gone into a situation where you're sharing -- revenue share shares with the landlords. But that will change that, that is not permanent that is going to change probably next year. So sir, just the sense of how the rentals [indiscernible].

I would suggest for your working, I think you should take it as rental savings will probably not come back in the next financial year, but all other savings will continue to come back. I think that's a fair way of working, if you are actually working on the projection for the coming year.

Okay. But sir, then you will have to give me a sense of how much the rentals are this year?

No, we actually -- Karuna did mention to you that out of the INR 450 crores savings, 1/3 is coming from rental, okay, which is approximately about 1/3, balance 2/3, he also mentioned that the maximum saving is going to come from employment and admin and some of other operating costs. And if the savings is much more than what we have thought, we are going to put it back into marketing. So roughly INR 111 crores of rental and about INR 300 crores -- out of INR 333 crores, so 1/3.

Okay. And last [indiscernible] last question. How much was it in financial year '20?

Can you please repeat the question?

Sir, like e-commerce now, as you've said, is about 8% of sales. How much would be in financial year '20?

It's round about 1.5% to 2%, Shalini. You are talking about last year, isn't it?

Yes, yes, yes.

Next question is from the line of Ashit Desai from Emkay Global Financial Service.

My question is on gross margin. I think you highlighted about some inventory provision this quarter. If you could repeat that figure and I mean how do you see gross margins going forward? Also, if you can comment on the discounting level in the market today?

So I will comment on the second part. The first part, I think, Karuna, you can talk about it. There has been a depression of about 560 basis points on the gross margin. But if you look at it, one is partly the provision that we have taken because of the conservativeness, which was, as I mentioned, about INR 12 crores. As far as the overall drop in margin is that you are aware that we started off the year having 7 brands and private brands, unlike the other part of the business which is either on concession or SOR and what we call as returnables is the inventory that is outside bought by us. And therefore, it was important for us to convert this into cash, and also ensure that we don't carry too much of stock. Otherwise, we'll not be able to bring in fresh inventory. And therefore, we took a call to discount it heavily. And the depression in margin is basically because of the private brand where we actually had a depressed margin of about 2.6% compared to the earlier year. I believe that all the margins should come back to the earlier years in the coming years once we clear off these stocks which will happen in the next 1 or 2 quarters.

Nagesh, I have nothing more to add, Nagesh, you have answered all the questions.

Okay. And second question is on if you can share any target of store closures and openings going ahead?

So honestly, if you ask me, generally, we look at between 5% to 10% of store closures. But because of the COVID, okay, this may remain in the same region of 5% to 10%. But because a lot of landlords have given us concessions and made it as pure revenue share, we would like to take even those calls once the market goes back to almost, let's say, between 75% to 100%. And I think that's the way we look at it. However, we will continue to look at Tier 2 and Tier 3 for new openings, okay? As far as closures are concerned, I think you already have identified store closures and they'll be mostly in metros. But roughly, you can say 5%. So 5% on, let's say, 90 department stores will be well on [indiscernible]. But most of these decisions will be taken up and executed in the last quarter.

Next participant is Vikram Kotak from Lansdowne India Equity.

One question is answered. My second point was, see very impressed with the Slide #9, which is on digital footprint. Can you throw some light on the what are the conversion ratios in the...

Sorry to interrupt you, but your voice is breaking?

Vikram, we can't hear you clearly, Vikram. Can you please repeat the question?

My question is that can you talk a little bit about the conversion ratio on the digital footprint both in terms of the [indiscernible] customer as well as the other customers. What kind of conversion you do through digital. I see a lot of visits on your site. But what kind of conversion and volume through the conversion?

So Vikram, you have seen the growth that we have seen on the online, okay? And out of the total number of customers that we have got from the conversion starting at less than 1%. Now I think you have reached almost a conversion of between 1.5 plus minus. And I think we are targeting to go to the 2% as we move forward. And as we go, I think the benchmark in the country should be in the region of between 2% to 2.5%.

Okay. And this should be over in about next 15, 20 months, we can achieve that?

Yes. Yes. Yes. Yes. Yes. And we have added 20,000 additional First Citizen customers. And the best thing is that even online for us, the average transaction value is very healthy. So it is not that online we are selling it at a much, much lower value. So many of these KPIs are actually adding up to the way probably the future will get picked up. But a lot of things will also depend on how we execute and what the market will be like.

And Nagesh, any value addition more from Amazon in terms of their strategic holders, shareholder also and also a partner in terms...

You know what today I want is to start doing INR 100 crores a month on Amazon. As of now we are not wanting anything else. I mean the whole possibility was to see how we can run from the best in the world, and how you can make things happen. Okay? personally, I would want the team to learn. And even if you replicate 5% of what the guys do, I think we will be a much, much larger omnichannel company. And Shoppers Stop, like I said, is firing, last 2 weeks has been fabulous, but we'll tell you once we come to the next quarter.

Absolutely. All the best, congratulations.

[Operator Instructions] Next participant is Gaurav Jogani from Axis Capital.

My first question is with regards to the investments in the digital assets. I mean given the increasing scale, do we need to further incur any more investments in the same?

So I would first answer a little more qualitatively and leave Karuna to answer in terms of numbers. I think all the investments that you're seeing as fructifying now are the ones that we made last year. Okay? But however, in the digital journey, I think this investment never stops. Okay. So I believe that there will be investment happening because of the tie-up that we have done with the leading consulting company who are going to support us over the next 12 to 15 months' time in the next phase of growth. And like I mentioned, that may lead us to 4x to 5x growth in the online business. So other than that, I don't see any major investment as of because Hybris upgrade has happened, S/4HANA has just been implemented, and these are already planned in the earlier year. So the same CapEx, which has to be done for these 2 projects will continue, but there's no -- nothing new will happen on that side. And I think we also mentioned to you all that we also did some analytics investments and also did investments to get a one view of the customer. Now as of now, we have started seeing this. So we are able to see a view of the customers online, off-line, in stores, outside the store, and they're starting to get analytics on their behavior. So I think these are early days. I think it will be a much better informed organization in about 3 to 6 months.

Again, Nagesh, I have nothing more to add, Nagesh. I mean the only thing I want to add is our operating leverage is constantly improved versus last year because the volumes have increased. That's it.

And sir, the next question is again with regards to digital, how is the cost of doing the business online? I mean is it more or less [indiscernible] ? Or I understand on how do you see the cost this year?

I had just mentioned in the last quarter call that compared to huge losses in the online business. Last quarter itself, we had been in the smaller numbers, we were very close to breakeven. So it looks like that in this journey, we should be able to see a breakeven in the online business. And if we are able to achieve that in the coming years, then after that it will be all accretive.

Next question is from the line of [indiscernible] from New trends.

Can you hear me?

Yes.

So I wanted to get your perspective on the overall retail sector now, especially after the Reliance deal. How do you see it disrupting and post COVID what are the kind of impacts on your online business? And the second question would be about the number of shops that you have overall through the country and how many you are opening and closing, maybe part of it you've already answered.

So I will just take up the first question to me. Everybody is talking about the Reliance Jio coming and disrupting. To me actually, they are going to open up the market in a very big way. I mean let's not forget that when 25 years, 30 years back when Shoppers Stop came in, it opened the whole lifestyle retailing. 35 years back, 20 years back when Big Bazar came up, it opened up the whole value retailing. And I believe that with Amazon and Myntra and Reliance coming in, there's a huge opening up of shopping online. Also, I think the digital infrastructure in terms of payments was already opened up and the digital infrastructure in terms of highways was already opened up by June last year. So I actually see this as very, very positive. And let's also not forget the modern retail overall is still not 15%. The online is still not 5%. So if the market expands, each none of us were able to compete to hold on to the customer, we'll be able to see very, very good growth. And yes, there will be a way of discounting that will again come in order to compete between the 3 big players, but I see this as opening up, and I'm actually seeing it now. I mean honestly, a lot of our First Citizen shopping is not happening on discounted products. It's happening on fresh and full value products. Okay? It's not that we don't have discounts happening in the market. So at the end of the day, customers also want you to go through an experience and customer also wants to be with the trusted companies. So I think we will fall into that bracket. And therefore, to me is an opportunity over the next 2, 3 years' time. Yes, if you're not able to compete and not able to capitalize on this big opportunity of the whole country going through a digitization, then we will be the sufferer 3 to 4 years down the line. The same is the case with the industry. I talked to a lot of industry players and most of them tell me that their online business is going up. Most of them are building their company to take an online business. So I think it is very very positive, it's a very [indiscernible]

[Operator Instructions] Thank you for your patience, everyone. We have line from Mr. Nagesh connected back. Sir, you may go ahead.

Yes. So I think that's the way I see. As far as we are concerned, we are going to leverage our off-line network. I mean, today, we are the largest chain of department stores in the country. We have the best of brands in the country. We have the First Citizens who are contributing 83%. We have a first-party database of First Citizen. And we have been working on retention marketing. So even in tough times, First Citizen have come in and out of relationship we have still survived with the help of them. So I would say we'll capitalize on these current strengths and the opening of market by Reliance and other players will help us to become more digital.

Yes. That's it. I think he has answered.

Next question is from Ankit Kedia from Phillip Capital.

Sir, just wanted to know what is the current inventory on the books on private label? And was the discounting and private label ahead of some of the national brands which we have. And while they are not discounting so heavily what we hear from others, what caused us to discount so heavily given that this was the first season of our private label we had from our new center, which we had.

So Karuna, would you please tell us about the inventory of our private brand, and then I'll talk to him about the discounting part.

Yes. Ankit, we have around about INR 95 crores on the private brand, Ankit, that's the inventory we have and we are reasonably confident of liquidating. There will be some, what you call, provisioning in the next 3 and 4, but that will be relatively insignificant. As of now we have about INR 95 crores.

And this INR 95 crores also includes the inventory that we have actually bought in for quarter 3 and quarter 4, which are fresh inventories, Karuna. Am I right?

Yes, you're right, Ankit. You're absolutely right.

Yes. So in terms of discounting, I think, Ankit, the market has been discounting today, you can see products being discounted all across between 50%, 60%, 70%. And the fact is that the industry goes between 4- to 6-month stock. And for 4.5 months, literally, there was no store opening. Everybody has to sell. Okay? I think each one of us are seeing only things which are happening where we are concerned. But in the market, there's a huge discounting, huge clearance happening and the inventory we carry on for the next 1 or 2 quarters in the market across the fashion brands. So I wouldn't agree to saying that the brands are not discounting. And as private brand is our responsibility, so we have to take a call. And currently, if you ask my strategy, I'll prefer to have cash than have margin. Okay? And that's a call we have taken to see when we convert into cash even at a loss of margin, which we'll recover as a fresh stock coming with the full margin.

And sir, did I hear it right that 260 bps was the impact on gross margins because of...

Yes. Yes. Yes, please.

Sir, my second question is regarding the fundraise. So end of the year, can we be a debt-free company again if full INR 300 crores is used for debt repayment?

Karuna?

Ankit, well, INR 300 crores is coming right now. You are aware our net borrowings is around about INR 215 crores. Our endeavor is to have debt-free by the end of the year. If it doesn't happen by the end of the year, but by mid next year, it should definitely be there, Ankit.

Sure. And sir, my last question is on the Personal Shopper. If I look at the contribution of Personal Shoppers is actually declining year-on-year. Last year same quarter, it was 16.5%. Now it's at 14% and even sequentially, while it's a wrong way to look at it, but it's still declining. While we are putting emphasis on Personal Shopper the contribution of Personal Shopper is actually coming down. So what is the reason for that? Or is it just a revenue base which is impacting?

No, no. One is the revenue base. The second is that as far as Personal Shopper is concerned, he is also moving into online. So there's a lot of online also happening. And overall, we will actually get the whole organization chain towards End of Aisle and Personal Shopper business. So we see the contribution going up to between 17.5% to 20% in the next few quarters.

Sure. And sir, Beauty also -- while you said that the beauty is growing, the contribution of Beauty has also come down actually if you see from last year to the current quarter.

It's purely because of the mix changing depending on what the consumers will buy. So it's just currently people are not going out. So therefore, they're not buying. And the skin -- the Fragrance is doing very well. Skin care is doing very well. And I think rest of the makeup, the lipsticks have not done well. I think they will all catch up once normalcy returns. So I would say it is more to do with customers buying essentials in the last quarter. As we move into this quarter, we'll see how they buy for the festive. But honestly, that mix change is not bothering me because these are all outcome ratios. If something else does well, the mix comes down. But they are lead indicators that beauty is doing well as we go forward.

So volume-wise, we are not seeing an impact. If we're seeing the impact on the value-wise? Is that the way actually you think?

Yes, yes. I don't see an impact as we go forward.

So thank you so much and all the best sir.

Thank you. Can we have this question as the last question, if you don't mind. We have already exceeded the time.

Yes, sir. The last question is from the line of Resham Jain from DSP Investment Managers.

Am I audible clearly?

Clearly. Yes. go ahead.

Yes. So just 2 questions. One is on -- if you just look at quarter 3, it's seasonally the strongest quarter. And we have managed our cash losses quite well from Q1 to Q2. And with Q3 with lower -- slightly lower discounting than what we did in Q2 and a much better season, should be cash losses is because you have reduced your costs substantially will be in a very low level than what we are seeing currently. Is that a fair expectation?

Nagesh, can I take this?

Yes, please go ahead, Karuna.

Yes. We just answered this, I think someone asked probably at the beginning of this thing, yes, we do expect the losses to significantly come down because it's a most important quarter. Other than that we don't give normally any guidance, yes. To answer your question, yes, either the loss of the profit, it should be -- the loss should be significantly down the first 2 quarters.

Okay. Okay. And sir, my second question is, earlier, we used to mention that our margins are getting impacted by 100 to 150 basis because of technology cost. Is that still there or that is not the part of cost or the losses which you are incurring currently?

I don't think we've said anything about technology costs here.

In the technology, the omnichannel implementation and other things, which you have built a team, you used to mention that 18 months back. So I just wanted to just check on that.

So what will happen is that if online business was contributing to 2% or was losing money, I'm sure that had an impact on the overall margin. If online business now actually adds up and contributes to 8%, 10%, whatever it is, and does not lose margin, okay, then it will not add effectively to the margins, but will actually stop the bleed, because of this, the margin was coming down. So as you go forward, I'm not seeing the online or e-com business actually creating a lot of drag on the margins because we are seeing that we become either breakeven or it will actually be positive.

Understood. Yes, that's helpful. And sir, future retail shares, what have we done with that.

I think fully sold off.

Literally.

Rohit, can I close the call?

Yes, we can close the call. That's it.

Yes, wrap it.

So I would like to, first of all, thank you, once again, all of you for participating and asking the questions because every question of yours triggers a thought in our mind and also tell us as to how we can do better and better. So thank you very much once again. I wish each one of you and your family wonderful festive seasons. Please shop at Shoppers Stop, please shop at shoppers.com. And next time when we connect before then send us a feedback as to how your journey has been. Some of you may have more questions or some of the others who did not get a chance to ask the questions, please do write back to Karunakaran. All of you have his connect. And we will either call you back or we'll answer all your questions. Once again, thank you very much for attending the call. Be safe. Have a wonderful festive season ahead. Thank you.

Thank you very much.

Thank you.