Shoppers Stop Limited (SHOPERSTOP) Earnings Call Transcript & Summary

Good morning, everyone. On behalf of DAM Capital, I welcome everyone to the Q3 FY '21 Results Conference Call of Shoppers Stop Limited. I would like to thank the management for giving us the opportunity to host this call. We have with us Mr. B. S. Nagesh, Customer Care Associate and Chairman; Mr. Venugopal Nair, Customer Care Associate and MD and CEO; Mr. Karunakaran Mohanasundaram, Customer Care Associate and CFO; and Ms. Asawari Sathaye, Customer Care Associate and Head Communications. We will start the call with a brief overview from the management before proceeding to the Q&A. Thank you, everyone, and over to you, Mr. Nagesh.

Thank you, Aasim. Hi, good morning, everybody, and welcome to this call. A very, very Happy New Year 2021 and really a welcome new year after the 2020 that we all have faced. Hope you and your colleagues, family members, your dear ones are safe during these testing times and thank you for joining us at this call. Before we discuss the Q3 performance, I must say I'm very happy to introduce Venu, who has joined us as the Managing Director and CEO of the company starting November 2020. During my last call, I had briefly mentioned saying that he's confirmed joining and he's going to be there with us. And I'm happy that he is sitting next to me on the call. Although Venu needs no introduction, let me introduce him. He's an international retail leader with 27 years of rich and varied experience in the retail and apparel industry across South Asia and Europe. Before joining Shoppers Stop, Venu was the CEO of Westside, looking after Trent. And Venu was instrumental both in organic and inorganic expansion of Trent. Before that, Venu was the Managing Director of Marks & Spencer Reliance, where he played a pivotal role in its growth, turnover and profitability. During his tenure, the number of stores under operations more than doubled with a significant growth in local sourcing. Venu has also worked in Madura and Arvind, both in India and abroad. He's already spent 9 to 10 weeks with us, and we are so happy to have him with us. I'll request Venu to take you through the Q3 results. Post his brief update, Venu, Karunakaran, our CFO, and I are available to take any questions. Over to you, Venu.

Thank you, Nagesh, and good morning, friends. Happy New Year to each and every one of you. It's indeed a privilege to be a part of the Shoppers Stop family and speak before you after improved Q3 results. Just to remind you, our quarterly results, press release and investor presentation are available on our website. I hope you have had a chance to browse through the highlights of the performance. Now I'll go through the details of our performance for Q3. We had discussed in detail about the new normal in the previous quarter, and this continues. I'll talk briefly about COVID, followed by customer behavior, the customer connect that we have, our journey across stores and omnichannel, product, people and of course, our 4 strategic pillars. Both at the macro level and at Shoppers Stop, there are several positive news during the quarter, which are as follows. When we spoke to you, we had 800,000 active cases of corona-infected people. It has now reduced to circa 200,000 in India. More than 50% of these cases are restricted to Maharashtra and Kerala. Both the central and state governments have now started vaccination for COVID. Our Prime Minister has started the vaccination drive from last Saturday, and we expect mass vaccination ahead of time, which will augur well for the retail industry. The Indian economy is expected to stage a better performance in the third quarter as compared to the V-shaped recovery seen in the September quarter. All the major indicators indicate positive recovery. In Shoppers' too our performance largely mirrors the Indian economy. From a mission-based visit, customers are now coming to our stores, are spending much longer time. I'm glad to inform you that all our stores are fully operational in the last quarter, excepting some brief interruptions, like the unrest in the North, which impacted the NCR region, particularly in December. As I said before, footfall improved month-on-month. We had 5% of last year's footfall in Q1, 19% in Q2, which improved significantly to 50% of footfall in Q3. We continue to see improving footfall in non-metros, particularly in Tier 1 and Tier 2 cities with improved sales. East is outperforming other zones for us with metro stores recording good footfall. Sequentially, we observed the footfall growing 36% in October and November, and 6% in December on a much larger base. Similar to previous quarters, we had 77% of last year's sales in non-metros, whereas the metros the same number of 60% -- 61%. Sequentially, as I speak to you, we see improving trends in January also. The average ticket size increased by 4% versus last year. We observed better sales trajectory in home, innerwear, casual wear, fragrances and kids wear. With offices now starting, we have seen slow recovery in men's formal wear as well. A number of our customers, who were not visiting our stores, have also preferred to purchase online with our personal shopping -- shopper assistance. Our response to COVID has been as follows. We have been talking about connecting customers in different ways, improving the overall performance, adapting to the new normal by focusing on omnichannel, maintaining liquidity and sustained cost through various initiatives. As we said in the last 2 quarters, we continue to exceed our internal targets. Our focus on cost reduction initiatives continues. We have renegotiated every cost. We are conservative in our spending. We had set ourselves a savings target of INR 450 crores. And as on date, we have saved INR 390 crores, including INR 75 crores in the last quarter. Our savings could have been higher, but we do need to invest in omnichannel. We are on target to achieve INR 450 crores of savings for the year. We may invest part of that savings in our omnichannel. Our rights issue has been oversubscribed. Post the issue, we have repaid debt of INR 125 crores. And after 2 quarters, we are now debt free. We have a net cash surplus of INR 46 crores at the end of the quarter. There is a continued focus on cash conservation across the company. Cash and bank deposits are at INR 224 crores as of December 31, 2020. The most heartening feature of our cost savings and liquidity is that there is an ownership at every level on cost and liquidity during these critical times. Our safety protocol for COVID continues. We discussed our new normal and omnichannel being the game changer in retail. I am extremely pleased to inform you on the progress in omnichannel, which are as follows. We had tech-related teething issues in July and August, particularly after implementing SAP Hybris for our omnichannel operations. I'm pleased to share that our tech is now functioning very smoothly. I would also like to add that we have completed the implementation of the ERP system, S/4HANA with SAP HEC, which is the first implementation in the retail industry in India. We have been continuously improving our customer interface and experience on our app and website, and are satisfied with the progress that we are making. We completed our tech stabilization project, Trishul, in November and have now started the scaleup project named Everest. Our average daily orders are at an average value of INR 2,349, and we had 30 million visits in Q3. Our delivery turnaround time reduced to less than 4 days. Our customer satisfaction has increased to 4.24 on a scale of 5. We are now working on new beauty experiences with virtual makeup and virtual skin analyzer, which will be launched in February. In addition to the above, with Amazon, we have more than 50 stores and distribution centers live. Our SKU count live on Amazon has gone up to 61,000 and we have -- we are fulfilling 99% of our orders to Amazon acceptable norms. This has helped us to make a quantum jump on our omnichannel e-com sales. Consequently, our e-com sales for the last quarter is 3x that of last year. The e-com share of our sales increased to 6% from a mere 1.5% a year back. Our sales in Amazon also increased threefold versus last year. We started fulfilling MAC.com with our beauty partner, Estee Lauder. We have now begun with MAC and progressively, we'll be adding other brands and products. Now let me talk about this quarter's performance. Our performance in Q3 significantly improved versus the last 2 quarters despite most of our stores being in malls and with cinemas being closed for most part of the quarter, it impacted footfalls. We achieved 68% of last year's sales. We recorded INR 885 crores in sales with 32% margin. Our margin impacted by higher discounts on private brands and obsolescence provisions on our stocks. As we said in the last quarter, our inventory provisioning policy is conservative and we have provided for INR 16 crores this year to date. As I said before, with our continued focus on costs, we saved INR 77 crores versus last year. Despite reduced sales, we made positive EBITDA of INR 21 crores. I'll now provide a brief update on the performance of our strategic pillars. First Citizen: During these critical times, we have been innovative to reach our customers. Our First Citizen sales continue to exceed 80%. For the quarter, our First Citizen contributed 83% of our sales as against 81% last year in the off-line. We have new enrollments of 309,000 with average ticket size increasing 6% versus last year. 33% of our new members repeated sales within 90 days of enrollment. We also continue with our Black Card, our premium subscription service, apart from First Citizen enrollment, which is also fee-based. On the shopping trends, we have the 40-plus customers now starting to come to our stores. With offices starting, we have also seen good recovery in men's apparel. With an increased focus on omni, our First Citizen contribution in omnichannel increased to 20.45%, an increase of 230 basis points. Personal Shoppers, which is our second pillar. Our Personal Shoppers continue to excel and contributed 16% to total business and an average cash memo size of 2.7x of average transaction size. Our Personal Shoppers continue to be innovative during these critical times to reach out to our customers. They responded with a range of digital initiatives such as video-assisted white-glove service and chat-enabled real-time online transactions. We have also developed an exclusive in-house app for our Personal Shoppers. Our repeat customers served by Personal Shoppers generated INR 65 crores of sales with an average ticket value of circa INR 12,000, 3x that of non-assisted shopping average ticket value. The third pillar is our Private Brands. And our Private Brands share has increased to 13.4% this quarter, an increase of 230 basis points versus last year. As in the previous quarter, our decline in Private Brands are lower than brands, both in offline and online. I'm extremely happy to inform you that our Private Brands had a unit growth of 4% versus last year. Also, the proportion of sales online of Private Brands was 21%. We had introduced several growing categories such as sleepwear, loungewear, athleisure and men's Indian wear. We are also significantly growing our infant wear and baby wear business through our private label named Karrot. We are creating a bottom wear destination for women's Indian wear by offering a large consolidated range. We are focusing on sell-through and move towards monthly launches to ensure we've got freshness in stores at all times. Moving on to the pillar of Beauty. Our Beauty business continues to remain strong, and the Beauty mix sustaining at circa 16%. We have launched our private brand, Arcelia, the bath and body range, and the initial response from customers has been very positive. The 2 Arcelia stores opened during the pre-COVID times have delivered the KPIs, and we would be opening another 3 to 5 stores in the next financial year. We have launched a number of new brands in fragrance, skincare and other ranges. We also opened the first 2-phased store in India, in DLF Promenade Mall, Delhi. Our beauty event with Malaika Arora for talent and beauty show called the EyeStoppers, which was done during the quarter, received an excellent response. Before I end, I will also update on the following. We believe the COVID impact will continue for the next 2 quarters. Our business should be continuously improving towards the levels of FY '19 by quarter 2, quarter 3 of next financial year. With COVID impact coming down, our store openings -- our new store openings for the next year will gain momentum. We are planning to open between 10 to 12 department stores mostly in Tier 2 cities, which will add additional footage of approximately 250,000 square feet. We have also identified some of our existing nonprofitable stores for renegotiation or closure during the next financial year. This exercise will ensure that our chain becomes more productive. Our omnichannel should continue to grow exponentially to contribute to a larger share. We have commenced our digital journey, and we expect e-com to have large share in the near future. Our focus on cost controls and maintaining liquidity will continue. Our safety measures for customers, employees and stakeholders will continue. Once again, I thank you for attending this call and wish you and your family to stay safe.

We can open up the question and answer, please.

[Operator Instructions] The first question is from the line of Nihal Jham from Edelweiss.

Sir, 3 questions from my side. First on the recovery, if I just try bifurcating our performance. While our footfalls for the quarter are down 50%, but our sales are down around 30%. So as you mentioned, there is obviously quite a decent increase in the average transaction value. What I wanted to get a sense of is that in the coming quarter, do you expect that the footfalls will come back to pre-COVID level and similarly, even the transaction values may normalize? Or is the increase in transaction value a trend that may continue and that can drive better recovery in the coming 2, 3 quarters?

Okay. So we see continuing footfall growth. So to that extent, compared to last year, we expect that improvement in footfall to keep growing. And we are seeing that consistently in January as well. And we reckon by quarter 2 to quarter 3, it will come closer to what it was in FY '19. The transaction value will also continue to be higher. I suspect that the footfall may not come back to 100% of where it was for FY '19, but close to it. And given that drop and with improved conversions that we are seeing, and a lot of focus which has happened on conversions over the last 2 quarters, we expect to see the benefits of those continue and hence, a higher invoice value.

Sure, that's helpful. My second question was for Mr. Venu Nair. First of all, sir, congratulations on joining the company. You did mention the 4 strategic pillars that Shoppers Stop has been speaking of. I just wanted a more specific comment that out of these 4, is there anything that will be a first focus for you? And also specifically on online, you mentioned that we are at a 6% share. But just from your perspective, is there a thought of where you want to take this number as your term progresses in the next 2, 3 years?

So in terms of the 4 strategic pillars and if I were to nail or rather call out the one which would be the most important for us, omnichannel is definitely first of the 4, and that's one which has become significantly more important post-COVID. And as a company, that's an area which has been elevated to having the topmost priority for us. Currently, we are at 6%, and we expect that to continue to grow, and we would expect it to get to between 15% to 25% over the next 2 to 3 years.

Also, if you look at it -- Nagesh here. Also, if you look at with Venu's expertise and his background from Madura, Arvind, Marks & Spencer, Trent and now to Shoppers Stop, I believe omnichannel will be the front-end customer-facing initiative and private brands will be the back-end supply-taking initiative. And the combination of this is what should really benefit the organization.

Sure, that's helpful. Just a last question on the omni part. I think last quarter also, the tie-up of the number of stores was around 50, which has stayed stable. So I just wanted to check that is a target of getting all the 84 stores on the Amazon platform by Q4 still in place? And if it's possible to share any metrics on those stores which are already onboarded?

Okay. So Nihal, I'll answer it in 2 parts. So first part, in terms of the stores, the first focus was to get the stores on to Amazon.com. And circa 50 of them had got on around the end of September. And then during the quarter, the focus was increasing the number of SKUs which were online. So we started off with about 15,000 to 20,000 SKUs, which then progressively went up. And now currently, we are at about 61,000 SKUs being online and available across these 50 stores. The second focus then was to improve our delivery performance. And Amazon have a very strict performance criteria where we have to achieve a 99% CPT, which is a turnaround time of within 24 hours. And that took us about 4 to 6 weeks for us to stabilize and get that sorted. So 2 things which have improved. One is the number of SKUs available going up to 61,000 and then the turnaround time being consistently now at 99%. The third phase or what we go next once we get out of our end-of-season sale towards the end of January, would be then to add the balance stores also on to Amazon.com. So that's the next phase, which will happen from February.

Also, it is important to understand that it's not necessary that we should connect all the 80 stores. The connection of the stores to Amazon will be based on the consumer journey that we see and also productivity and profitability of the assortment that is there in the store. So if there are 2 stores 3 kilometers away, and 1 store has a larger assortment, if it can serve the community around 5 kilometers, then we will prefer to add only that store and not the other store. Because it is not about number of stores connectivity, but it's about the reach that we can achieve through our physical network into the communities that we want to serve.

Sure. I get that. And just on that follow-up, that any metrics in terms of how the store -- revenue per store maybe improved ballpark once the stores were onboarded on Amazon? Maybe the mature ones which were onboarded first?

No. If you look at it, the incremental business that we are getting from Amazon is all going through the stores only. So if your total improvement that we have seen is about 6% from a 1.5% contribution and Amazon is contributing to 20% of the total online, that's the improvement that we are seeing in the stores.

[Operator Instructions] The next question is from the line of Ankit Kedia from PhillipCapital.

So my first question is on the revenue recovery. Last quarter, we were targeting to have a flattish kind of a revenue from quarter 4 onwards. Now we are guiding for next year, quarter 2 to quarter 3 for full revenue recovery. So are we seeing some demand pressures from the customer side in the last 3, 4 months with December month being soft and while January is also in the similar lines or marginally improving? So could you throw some light on that?

So what we are seeing -- we had -- if I start with Q3, so in Q3 itself, we saw a significant improvement in the -- both footfall as well as the recovery levels and especially the festive period was very good at 75% to 80% recovery. And that continued pretty much till the end of season sale. End of season sale also the absolute numbers were good. It's just that the spike that normally gets associated with the end of season sale was not as high because of the fact that there was still a limitation in terms of the number of footfalls into stores, the number of people who could walk in. Once the spike has gone away, the comparatives have started to improve again. We expect -- and we are cautiously optimistic in terms of the recovery levels. And we expect those numbers to keep growing from the current levels of 70% to 80% and beyond as we get into the Q4 and beyond into Q1.

Also, the theaters and multiplexes, which were supposed to open up and the food courts to go to full capacity has not happened. And therefore, in the mall, the traffic remains to be muted. And as the multiplexes start getting open and traffic comes back, we expect the recovery to happen. So our focus will be on ensuring getting revenues back and profitability back, okay? And therefore, even at a lower extent of customer footfall and revenue, we should be focusing on profitability for the coming quarters.

Sir, my second question is on the private label. You said acceptance of private label online is nearly 20% out there, while off-line would be still 12% to 13%. So with Venu sir's experience, what changes are we doing to get this number to 20% in our off-line stores as well and -- which will be visible to the customer or at the back-end side, be it on the pricing, display, merchandising?

So, I think it will be led by product. And first and foremost, offering the latest trends and fashion with clear segmentation for each of the brands. So what we have been focusing on is to sharpen the definition of each of our brands across menswear, womenswear, both Indian wear and Western wear in women's and kids wear. Having that sharpened focus on brands, then to have monthly launches and freshness, focusing on sell-through, so that would help us to drive not just sales but profitable sales, both offline (sic) [ online ] and offline. And third, within the store, having a very aspirational visual merchandising with clear space in the stores, which would put our private brands in focus. Along with that, offering great value, so fashion with clear aspirational visual merchandising and great value with a big proportion of that mix being under the price point of INR 999. So that in terms of our customer offer as a hierarchy, there is the national brands and then complementing that would be our own private brands, which would offer great fashion at significantly great prices.

Sir, private label, just a follow-up. What would be our strong point in terms of men's formals or men's casuals, women's ethnic or kids or beauty, what we have just launched? So if you can just give us some pyramid, what is stronger for us in terms of customer acceptance?

Sorry, what is?

Private label, which product where we are more strong, in terms of men's, women's, kids or beauty?

See, as a -- Shoppers Stop is a house of brands, and we offer a good mix of national brands and our own brands. Our own brands come in offering the latest fashion at good prices, combined with the quality that our customer trusts us for, and that puts us -- gives us a good platform for our customers to shop with us. What makes us stand apart is the fact that we would have a clear sharply defined private label with the newness, which would come in every month. Hence, every time a customer shops with us, every time she comes to our store, she would have something new to buy from us across each of the categories. Equally in Beauty, and I think that's another area where we would complement our national brands or brands that we already have, along with our own range, Arcelia, where we have launched the bath and body range to begin with. Nagesh, would you like to add?

Yes. So to get to your specific question, I think the biggest opportunity which we are going to be seeing is in the kids and our brand Karrot is going to be the lead in that. Because of the kind of baby boom that we are expecting this year as well as the fact that whatever we have launched in the last 2 quarters has seen significant growth. In the existing men's, we have seen a good growth from men's casual. In fact, men's casual has run much, much ahead of women's. And then the next will be ethnic wear. And then within that, if you look at it, there were 2 large assortments and ranges, which we are missing. And with Venu and the Head of Private Brands, Ajay, joining in the last 2 quarters, we have seen that being launched. So one is the lounge wear and second is the athleisure wear. So between these 2, we believe there will be a significant growth in our mix and contribution from Private Brands.

Sure. And just 1 last question for Karuna sir. Sir, on the cost-cutting exercise, while we are near our target of INR 450 crores, getting into next year, given that we are talking of a normal [indiscernible] to come from Q2 to Q3 of next year, how much of this cost cutting would continue next year? How much could -- rentals now being near normal from quarter 4 onwards, so the other expenses part, if you can just throw how much we should model for next year?

Ankit, thanks for the question. See, remember the last time we spoke about this. So we -- as you said, we plan to save close to INR 450 crores. And next year, we should be able to sustain almost INR 200 crores of these savings, Ankit.

And this would predominantly be including the employee cost savings as well?

Yes, including the employee cost savings. That's right.

The next question is from the line of Gaurav Jogani from Axis Capital.

Sir, my first question is with regards to the store closures, the 4 store closures we have done. So are there any further possibilities of the store closure during the year? And also, as you said, the store opening guidance for 10 to 12 stores. So that would be for the -- applicable for the next year from Q2 onwards? Or how should we look at it?

Gaurav, the second point was on store opening, is it?

Yes, the second point is store openings. Yes.

Yes. So in terms of the store closures, we expect to have between 5 to 7 store closures. And some of them -- I mean we start with, obviously, renegotiation of the rent where we can, so that we can make these stores productive and profitable. And failing that only we would close. The new store additions, we expect to start from Q1 of next year. So most of these stores which we are opening are in malls and the work had stopped during the COVID period, which has now restarted, and we expect to have the stores starting to open from April or May of 2021. And in total, we expect to add 10 to 12 new stores during the year.

Sure. Sir, my 1 question -- a follow-up question to this is now earlier we have guided that the store opening would be on a partnership model, wherein the landlord or the tenant would also be contributing some part to it. So in this light, what would be the CapEx per store going ahead? And how much CapEx can you build for the FY '21?

Gaurav, we are negotiating. I mean in some of the stores, the landlord is almost contributing 80% of the capital cost, and we are contributing 20 percentage. And it depends on store to store. In some of the premium malls, we do have a slightly higher percentage. So yes -- to answer your question, yes, we are negotiating with the landlords for the CapEx, but it's a bit difficult to put a percentage right now, predominantly it will be from the landlord, Gaurav.

Sure. And sir, to rephrase it, like what could be built as a CapEx per store going ahead for FY '21 or maybe the years ahead? A ballpark figure would help.

I didn't understand your question. What do you mean by that?

Sir, CapEx per store, what could be -- that we can build in per store basis?

CapEx per store -- okay, you're talking about CapEx cost per store?

Yes, yes, sir, exactly that, please.

Okay. See, right now, Shoppers Stop remodeled the store itself. We are planning to open a store between 20,000 to 30,000 square feet. We don't have a larger footplate what we used to have. So on an average cost of INR 2,500, it should be around about INR 5 crores to INR 6 crores. Part of it will be funded by the landlord and part of it would be funded by us.

Sure, sir. Got it. And sir, 1 more question with regards to this particular quarter only. As so the depreciation this quarter was a bit higher. And would it be alluded to these 4 store closures that we had this quarter because of that?

No, Gaurav. And if you see our last Q4 presentation, we did mention that we are changing the life of the asset. And for every quarter, we will have a INR 10 crore impact that we said in the last -- fourth quarter itself. So that is the -- there are 2 reasons. One, because of the change of the life of the asset, we have circa INR 10 crores. And compared to last year, we have also added 11 new stores. So that is also contributing to depreciation of around about INR 2 crores to INR 3 crores. So that's the reason for the difference of almost INR 13 crores versus last year, Gaurav.

So this wouldn't come in the base from Q4 onwards, right? I mean the INR 10 crores or the additional that was due to the change in the life of the asset?

No, that was coming from the last year Q4. So if you have seen in the last 3 quarters, we have the additional depreciation of almost INR 10 crores because of the addition -- change in life of the asset.

Okay. Okay. Sure, sir. And sir, 1 last question from my end is with regards to the omnichannel initiative that we have taken, we have seen good progress on the sale with the sales now being around 6% odd. And once the contribution does go to 15% to 20% as we envisage for the next 2 to 3 years, how can it contribute to the profitability? I mean is there any differential between the margins of what we have at the brick-and-mortar store versus the online store?

So Nagesh here. I think we need to go into a little history and then look at how the way forward is. Historically, all online businesses have been making losses. And we did make losses on selling. Even the 1.5%, the loss was substantial. In the last 2 quarters, whatever online sales we are doing, it is almost reaching a breakeven stage. In fact, at the unit economics, there's a positive contribution. If I look at the gross margin, after supply chain, it will be almost 4% to 5% lower because of the supply chain cost of 5%. And if we try to anticipate the 6% contribution of this year going to 15% to 20% in the next 2 to 3 years' time, I think the contribution should become very positive even at EBITDA level. So we are not seeing the omni business to be a loss-making business, like you see in the online business and the various ventures that you have in the country and internationally where they keep losing money, we don't see losing money in the online business anymore.

[Operator Instructions] The next question is from the line of Binoy Jariwala from Sunidhi Securities.

Just a quick one on -- is there any onetime write-offs related to inventory provisioning or anything captured under depreciation in this particular quarter?

So we have already said, Binoy. We have provided INR 16 crores as of date. And probably, even if I take, divide it by 3 and then INR 3 crores to INR 4 crores will be there in the Q4 also. I mean I would expect that, then further inventory provisioning for the next quarter also. On the answer -- I have just mentioned to you the increase in depreciation is because of 2 reasons: one, because of the change in life of the asset and additional 11 new stores what we have opened.

Fair enough. That's fine. But there is no onetime setting in depreciation, right, onetime write-offs or anything of that sort?

No, in addition to that if you've seen our balance sheet, our inventory level is also significantly lower compared to last year. If you see our own stock, it has come down from INR 484 crores to almost around INR 282 crores. I mean almost INR 170 crores to INR 180 crores reduction in the inventory levels right now.

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

My questions are on the e-commerce business. So out of the total e-commerce sales you have done, could you give me a split of how much of it is on your own website or app versus aggregators like Amazon, et cetera?

Percy, Nagesh here. I mean if you look at it, the way forward for businesses that even the online and offline business will not want to segregate, there's a lot of mix happening across. If you just want an indicative, I mean 80% came from our own shoppersstop.com and the balance 20% came from Amazon and MAC. But going forward, because there is a pickup happening, there's a curbside pickup, there's a home delivery happening, there is a cross merchandise happening, so we will not want to segregate because eventually, the future is all about digital commerce and it will be totally omni. But as of today, like I said, we've got 20% from Amazon and MAC and 80% from the shoppersstop.com.

Okay. And a related question, and forgive me if this is a bit naive, but why on Amazon do we need to onboard each store separately? Why can we not have sort of Shoppers Stop as an entity on Amazon and then you decide from which store to fulfill the order?

This is for customer convenience. Because you -- I'm sure when you shop, you actually realize that sometimes some inventory you do not get or after you bought, you realize the delivery time goes up. But if you look at it here, suppose if you're staying in Versova and nearest store is Andheri, the moment you come in, what you're seeing is, first, the system picks up what is available in Andheri store, okay? It also brings down the delivery cost, the logistics cost and the ease of delivering you faster. Second is if you look at the future, the future will be where we'll be able to tell you that this was kept aside or you may say I would like to pick it up. Rather than waiting for 2 days delivery, you may say I want to pick up on my way to office from your Andheri store. So the system picks up the nearest store. And this is what the hub-and-spoke is. And if you look at it, this is what the online players are trying to do. Amazon buying the Whole Foods or anybody in India wanting to buy an off-line channel is basically because they want to physically reach and be closer to the customer. We are doing the reverse. Because we already have a physical chain and we are closer to the customer, we are trying to see how we can actually through technology and logistics and digitally connect our customers.

[Operator Instructions] The next question is from the line of Ankit Kedia from PhillipCapital.

Sir, my question is on the inventory. In Q1, we have written off around INR 12 crores of inventory. Q2 call, it was INR 5.5 crores. So you said in 9 months, around INR 16 crores, INR 17 crores we have written off. So I assume this quarter, there would be no inventory provisioning. So why is the gross margin down? Is it due to the increase in online contribution or something else also to do with it?

Ankit, let me give you the numbers. In Q1, we provided INR 5.5 crores. In Q2, we provided INR 6 crores, and Q3, we provided around about INR 3.5 crores -- INR 3 crores to INR 3.25 crores. That comes to around about INR 16 crores for the last 3 quarters, okay? That's one. Second, as you rightly said, any inventory provisioning will impact the gross margin. Third, our gross margin is also impacted by the private brand. Because of the inventory, we were selling with offers. So that is also impacting the overall gross margin. Our omni, even though it's only 6%; though, I agree omni on the gross margin is lower, but that will not impact the overall gross margin.

So from a private brands perspective, are we still deep discounting and liquidating the inventory? So...

Yes, we do, we do, we do. Some of the stocks of Autumn-Winter '19 and Spring-Summer '20, we do deep discounting, and we are selling it off, because it's better to sell at a discount rather than to write off a [ tee ].

[Operator Instructions] The next question is from the line of Tejash Shah from Spark Capital.

Just a couple of questions. So what number of stores will be housed in the mall with multiplex as on today?

We have -- among 84 stores, 11 stores are standalone and the balance are in shopping malls.

Sure. So sir, in a hypothetical scenario of multiplex taking much longer time to recover or perhaps in worst scenario structural shift against multiplex altogether, how do we see our demand being independent of the trend going forward?

So if you look at the infrastructure by the mall operators for a multiplex is almost 20% of the mall. We do not see a scenario of the multiplexes not opening at all. That I've been totally ruling it out because it's a very large industry, and Indians love entertainment. In terms of opening up in phases, yes, it will happen. And our dependency is -- we contribute to 25% to 26% of the customer entry of a mall. So if the mall entry is dropped to that extent we get impacted. But don't forget that 83% of last quarter sales came from our First Citizens. So irrespective of the multiplexes opening or not opening, we'll continue to be serving our First Citizens. But with multiplexes opening, this will actually enhance. So if we can maintain profitability at 75% of our business with our First Citizens, the jump in the business and profitability with multiplex opening will be substantially higher compared to earlier years because of the cost reduction as well as the average tickets size going up. The third important thing is Personal Shoppers are contributing to INR 12,000 average transaction value compared to INR 3,000 plus for a non-Personal Shopper or a regular customer. So to me, I am seeing this as a very positive change and the productivity improvement has happened in the company in the last 3 quarters. And I see more and more positivity coming out of it. And maybe Venu also has an answer to this. Yes, Venu?

Thanks, Nagesh. And just to add to what Nagesh just clarified on multiplexes, I mean sorry, on malls and multiplexes, the second factor also to consider is the other big footfall driver into malls is our food courts. And as Nagesh said, for the Indian consumer, entertainment and visiting malls is a big part of that. Food courts have progressively opened faster than the multiplexes itself. And that's something which we are seeing contributing to footfalls coming up and even over the last 2 weekends, when I've been visiting malls. So one thing which you find is that the footfalls into food courts are significantly higher. So that again helps driving footfall into stores and into the malls. The other aspect which also I must flag is that with our mall partners and developers, we've had -- we've worked together, and we have negotiated our lease costs, and we see our occupancy costs going down, which again helps on profitability. So that's something which we continue to do, in line with the level of footfalls that we see.

Sure. Sir, this is helpful. But just last one on this. In our guidance of recovery, which we expect by midyear, mid-calendar year, we have taken an assumption of multiplexes opening by then?

Yes. But multiplexes opening, but not at the 100%, okay? We believe that they will gradually open. So our coming back is probably not 100% dependent on multiplexes.

And that's where the omnichannel because what we are seeing increasingly is that customers are choosing to shop using our Personal Shopper and white-glove service. They do shop even when they are not coming to malls and hence, the recovery being ahead of the footfall growth itself.

Sure. And last one bookkeeping question. I missed perhaps if you gave this earlier. What will be category mix in our omni sales?

We said this, no, Private Brands is 20% and brands are about 80%.

No. And within that apparel and cosmetic, if you can give break up?

It's broadly the same as offline, 60% is apparels and 40% is non-apparels.

Okay. And cosmetics, in particular, if you have number.

Very similar.

Yes, more or less similar. And if it is something different, I will definitely come back to you. I'll come back to you personally on them.

[Operator Instructions] The next question is from the line of Binoy Jariwala from Sunidhi Securities.

Just wanted to understand the -- in Shoppers Stop, what is the typical refurbishment cycle? And what is the typical refurbishment CapEx? And likewise, for the beauty store, how does the economic work? What is the typical store size, sales per square foot breakeven period on EBITDA and CapEx per square foot?

So as far as the refurbishment cycle is concerned, in the earlier period, we have taken it as 5 to 7 years. Going forward, to me, it would be in the region of 3 to 5 years. So 5 years is the right point to look at it from a refurbishment cycle of any Shoppers Stop store.

Okay. Sir, on the beauty stores?

The beauty stores, I think the average has been about 2,500 to 3,000 square feet. And the first 2 stores have before the COVID shown path to breakeven. And in terms of the gross margin return on floor space, the gross margin return on square feet, they are almost towards the other brands. So we are fairly ahead of -- on all the KPIs in the beauty stores.

Okay. Would it be possible to quantify like what could be the gross margin percentage? And likewise, CapEx and working capital per square foot on the beauty stores?

Normally, we don't disclose the gross margins category wise and you're aware of that. I mean it is strictly confidential. Yes, all I can tell you is the Beauty margins are higher than our normal apparel brand margin.

And within that, our own private brand is even higher.

Yes, that's right. Within that, our own private brand is even higher.

[Operator Instructions] The next question is from the line of Sameer Gupta from IIFL Securities.

Just one actually. Just looking at the store metrics in a more granular fashion, so can you just explain on a sustainable basis, what kind of a cost per square feet number are we looking at? And this is including your corporate overheads and excludes the cost of goods?

Yes. See, that again depends on store to store, Sameer. See, if you take our income statement, you can see that we have a margin of between 32% to 34% and EBITDA margin in ideal circumstances would be between 6% and 7%. So that leaves a gap of say 26%. On the 26 percentage, leave aside our head office cost of 3 to 4 percentage. So that's the overall broad number I can give you. But obviously, this cost will be lower in a non-metro city, and it will be higher in a metro city. So again, the store to store, like, for example, if you take a store in a premium -- within Bombay, that will be higher. I can't give a broad number. It depends on store to store, Sameer.

I agree, sir, but I'm asking on a sustainable basis, is it supposed to be similar to what it is today? Or there are some structural changes that can happen? And over a period of time, this difference of 26% that can come down gradually is the basic thought process here?

Yes, the basic thought process is we have that.

Yes. And honestly, if you look at it, the biggest structural change that is happening is that we have redesigned our format for a lower area coverage. So against an average of 35,000 to 40,000 square feet in the historically, today we are working on a 20,000 to 25,000 square feet. So the 2 stores which have been opened, their productivity on a sales per square feet is almost 40% to 50% higher, okay? So the moment you look at these stores, automatically, the throughput for these stores will be much higher. All the new stores that are opening that Venu spoke about, between 10 to 12 stores, are in the [ range ] of 25,000 square feet.

Got it, sir. That's very helpful. So we are basically looking at lower store sizes, which will -- basically absolute basis might be the same sales, but cost per square feet may also be the same, but the size itself will be lower. So that will be...

Also the other structural change that is happening is the private brand has moved from 11% to 13.5% and is on a growth trajectory. Private brand's gross margin is almost 35% to 40% higher than the others, okay? And their contribution on a per square foot again will substantially go up. So these are things which are -- has had traction in the last 2 quarters and the coming quarters are looking positive, and there will be some structural changes to Shoppers Stop.

The last question is from the line of Binoy Jariwala.

Karuna, could you help me with the break up in the rental and non-rental savings of the INR 390 crores? And there is an increase in loans and advances in the 9-month FY '21. Could you just help me understand why was that? And last one is on the inventory. We've reduced inventory by about INR 225 crores in this 9 months. Are we comfortable with the current inventory level? Would it require a bit of more discounting or any write-offs, anything you can highlight on that?

Okay. Let me go on the reverse order. I think the first (sic) [ last ] question you asked is about the inventory. If you see our balance sheet in the investor presentation, we have clearly mentioned what is our inventory and what is ROR inventory. And ROR inventory is where we can return back the goods to the supplier. If you see our own inventory, it's around about INR 292 crores. The INR 292 crores includes Beauty, OR products as well as Private Brands. Almost roughly 1/3 is Private Brands, the rest of 2/3 are non-Private Brands. I think Ankit asked the question. As far as the provisioning is concerned, we have included whatever that has to be provided for the OR, that is our own inventory that we have already considered -- I mean, we will consider in Q4 as and when it happens, we have included in the forecast. What is the next question you said, about the lease rentals and non-lease rentals. I don't want to mention the breakup, but all I can tell you is the lease rental would be 1/3 of the total or slightly more than 1/3 of the total savings, say 40%, and non-lease would be around 60% of the total savings. Sorry, I missed the third question. What was the third question?

Actually, the increase in the loans and advances...

Yes, increase in loans and advances is primarily because of the GST input credit what we have taken on the goods where we have purchased. We are unable to utilize it because of the lower sales and because of the ROR purchases what we have paid. That may get replaced as we go back. See, one of the rules GST has, if we don't pay the supplier within 6 months of buying the stock, then we have to reverse the input credit because they are on the ROR basis, so that input credit will be availed only when we sell the goods.

Okay. Just a bit on the inventory part. You just missed the comment, whether are we comfortable with the current level of inventory? I'm especially talking of our inventory, not the SOR. Are we comfortable?

Yes, we are comfortable and we are still working on -- if there is a possibility to reduce that further, we are working on that.

As that was the last question, I would now like to hand the conference over to the management for closing comments.

Thank you. And I think just to summarize again in terms of where we are, I think as a business, we are very pleased with the way Q3 has performed, and we continue to see the progress. We should -- the COVID impact as it starts to get even lower, our [ business ] will keep growing. In terms of expansion, we talked about the opening of 10 to 12 department stores, mostly Tier 2, and we'll be adding 250,000 square feet over the next financial year, apart from 3 to 5 Arcelia stores, which also we will be adding. Our omnichannel business will continue to grow and grow exponentially, contributing to a larger sale. Our focus on cost controls and maintaining liquidity continues and our safety measures for customers, employees and stakeholders also continue. Once again, thank you for attending this call, and please do stay safe. Nagesh, would you like to...

Yes, I just want to thank all the investors. And like I started off in my opening remarks, I'm so happy to have Venu, who's settled down in the company in the last 9 weeks and continues to work with the team and lead the team towards the various objectives that we have set up. And my support to Venu continues and slowly and slowly Venu is taking over full charge to run the business. Thank you once again and wishing you all a wonderful season going ahead, and all you and your family members are safe. Thank you very much.

Thank you.

Thank you.