In a recent chat, V2 Retail's Whole-Time Director Akash Agarwal said that the company is likely to flourish in FY25 on the back of a strong like-for-like sales growth of 10%, despite industry concerns that LFL growth might remain sluggish in the near term.
Sharing details about store expansion, capex and demand trends, Agarwal further discusses about V2 Retail with Maitri Seth.
Sharing details about store expansion, capex and demand trends, Agarwal further discusses about V2 Retail with Maitri Seth.
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00:00 Welcome, Mr. Agarwal. Thanks for joining us. So, you have reported a 56% YOY growth in
00:07 the year ago period, which was backed by around 47% same sales store growth. Now, the question
00:14 to you is how do you expect the FY24 to close for V2 retail? And what are you expecting
00:21 of the next fiscal in terms of growth?
00:23 Yeah, so we have seen a similar kind of growth that we saw in the first nine months of the
00:30 year coming into the fourth quarter. So, we've seen the footfalls increasing and the customers
00:36 coming back into the stores. So, we've seen similar trends going on to Q4. And we're going
00:41 to close this year very strongly, just the way we did the first nine months of the year.
00:46 And looking forward for next year, our target is 10% SSG. Even with the 10% SSG, we would
00:54 get a per square feet sales for a month of about Rs. 1000 per square feet, which is our
00:59 internal first target for next year FY25.
01:02 Okay. And so, several industry peers have reported a weaker LFL in recent quarters.
01:10 But V2 retail has posted a stronger growth. And also strategies such as offer, you also
01:16 mentioned in your previous interviews that strategies such as offering discounts have
01:20 been a part of your strategy to attract more customers. Can you elaborate more on what
01:25 led to this much growth? And what strategies exactly played out really well for you?
01:32 So I would say the growth is, you know, constituted like the factors would be about 18 to 20 factors
01:39 that constituted to this amazing growth. But if I have to point out the four or five
01:43 main factors, the number one factor would be product development. So currently we are
01:48 selling about 35% of our designs are developed in-house by our own designers. That number
01:53 used to be just 10% one year back. The second biggest factor is now we are selling more
01:59 and more goods at full price. So for example, if we were selling about 80% of goods at full
02:05 price one year back, now that number is almost 87%. So that means less goods are slow movers
02:12 and we are churning out the inventory faster at the store level. And the third factor is
02:19 also because we have three manufacturing units and we get a costing benefit of about 10 to
02:25 15%. So we are passing on that benefit to the consumer. So that gives us a price advantage
02:30 compared to our competitors. So I think these three factors would be the most important
02:35 factors, but combined I think it's a cocktail of 18 to 20 factors that have contributed
02:42 to the growth. Okay, that's really interesting. But as per
02:46 industry reports, LFL is expected to remain weak at least in the near term due to factors
02:53 such as customers spending, shifting towards experiences and products, post COVID revenge
02:59 shopping, peaking and also the headroom for growth in certain key geographies is sort
03:05 of very narrow. So how do you plan to buck this trend of a sluggish LFL and sustain growth
03:12 in FY25 considering the factors that you just mentioned that acted really well for you?
03:19 I think it will depend on the strength of the execution and the efficiency of the company.
03:24 We don't foresee any slowdown in LFL growth. Like I said, even for next year, we are forecasting
03:30 at least a 10% LFL growth. So it depends how strong your brand is, how strong the assortment
03:36 is. So if we feel that, if we continue doing the good things that we've been doing consistently,
03:42 I don't think we have to worry about LFL degrowth or slowing down.
03:46 Okay. And so as of December, you opened around 14 stores and expect to take the count to
03:54 a fresh stores to 30 by the end of the fiscal. Are we on track to meet that target?
03:59 So we said we would open about 25 to 30 stores in the next one year. So we have already opened
04:06 seven stores out of that and we are on track. So we will be able to open 25 to 30 stores
04:11 in the next 12 months. Okay. And so going forward,
04:15 are you planning towards more store expansions or in FY25, would you also like to focus on some
04:22 sort of consolidation or improvement in store efficiency? And also like what is your target
04:28 for store expansion, not just in the near term, but in the next two, three years?
04:32 So I would say the last three years were a consolidation period for us. So now is the
04:38 time for expansion because we have established a model and we are posting strong numbers.
04:44 And going forward, we want to at least open 25, 30 stores every year, but we do not want
04:50 to compromise on profitability. So once we open one batch of stores, if we feel that we are still
04:55 meeting the metrics in terms of EBITDA percentage, in terms of post-prep sales, we will open 25,
05:01 30 stores every year because even with our internal accruals, we can easily grow at 30 to 35% every
05:08 year in terms of revenue. That's great. And also another aspect is about
05:15 online shopping and the e-commerce that is very significant. So how is V2 doing on that front
05:23 and how much contribution to sales are you expecting from this segment going forward?
05:27 So currently we are not doing any e-commerce. We don't have any online sales because our ASP is
05:34 only 240 rupees, which is very low for, you know, to be profitable and sustainable online.
05:40 So we will launch our Omnichannel model in a couple of months where the customer can pick
05:46 up the goods from the store or return the goods at the store where we can save a lot of logistic
05:51 costs. So it can be an additional channel to our existing customers. So we are already working on
05:55 that and we hope to be live in the next quarter. Can you elaborate a little more on this Omnichannel
06:01 model? Will it be your own model or will you be collaborating with other e-commerce platforms for
06:07 your sales of products? It would be our own website. So we will be using our stores as
06:12 mini warehouses and we will be leveraging the same inventory that we have at the store level
06:17 and delivering from the store itself. Okay, great. And another aspect that I was
06:24 reading about a few, reading a few reports and as per an RAI report, the southern and the western
06:32 part of India has seen sort of better growth in the retail segment, especially in the food and
06:37 apparel space and the clothing space as well. So you have also built a significant presence
06:43 in the northern part of the country. And are you also planning to increase your presence in the
06:50 southern markets? Yes. So Karnataka has been a good market for us. We just opened another store
06:55 in Karnataka. So we are looking for 5-6 stores in the same cluster because it has been a good state
07:02 and a good market for us. So we are open to expanding in the south as well. Okay. And also
07:08 talking about specific segments, what are you expecting of the major fashion and apparel space,
07:15 not just for FY24, but also for FY25? And apart from this segment, what are the other segments
07:22 that are likely to shine or remain weak on the contrary going forward for you?
07:26 So one biggest trend that we have seen is the growth of fashion products and fast fashion
07:32 products. So high fashion, fast fashion products used to only constitute about 15% of our business.
07:38 Whereas now we have increased it to almost 30-35% of our business because the customers are
07:43 demanding fashion and because of social media penetration, everybody is aware of the latest
07:50 trends that are going on in the market. So that is one of the biggest changes that we have seen
07:54 in the value fashion space. So innovation and staying up to date with the latest fashion is
07:59 very important to be successful as a brand. And I think because of ballooning middle class
08:06 and everyone having access to social media, this is the perfect space to be in. And people now
08:13 want to wear one, you know, they want to, the frequency of purchases have increased,
08:19 whereas the value of one product has decreased. So we have seen people coming back to our stores
08:25 more frequently. And that is the biggest trend change that we've seen.
08:30 Okay, so this is definitely a key trend. And there are other industry experts that have been talking
08:37 about how fast fashion is gaining pace, but at the same time, the kind of interest, consumer
08:44 interest that should be increasing in consumer interest that should be towards the fashion space
08:50 and not just in fashion, but also in the beauty and personal care space. Some people are of the
08:53 view that it is not still at par as it should be if we compare it with the per capita increase in
08:58 per capita income. So any other key trends that you see not just in the apparel and fashion space,
09:04 but other spaces like grocery and gifts, what are the segments and what are the strategies
09:11 around that do you have? No, like I have, the last four, five years,
09:16 we've seen the data where the rural spending is increasing. And even especially in tier two,
09:22 tier three towns, even if you look at the e commerce space, like most of their sales are
09:26 now coming from smaller towns. So obviously, the Indian middle class has more money to spend more
09:31 disposable income. So the spending is increasing across categories. And if you talk about groceries,
09:38 cosmetics, beauty products, and value fashion, I would say these are commodities and now it's not
09:43 luxury. So it's not very price elastic or inelastic. So like, even a lot of inflation doesn't
09:51 reduce demand, because it is an essential product for the customer. So I think it is a very safe
09:57 space to be in and the CAGR expected to you know, this sector, this space is expected to grow at a
10:04 double digit number for the next five years. So I think this trend is going to continue and whoever
10:10 comes out the strongest will become one of the biggest companies in India in terms of value
10:14 fashion retail. That's really positive of you. And you had also come up with a number of marketing
10:23 offers and also discounts, especially in the last quarter. And, and also, so what are your plans
10:30 around that? Will you continue with that or any, any strategies that you have around price cuts
10:36 going forward? So two strategies that we've undertaken, one is the freshness index at the
10:42 store level. So we want the freshness level at the store to be maximum. So we identify slow movers
10:48 after just 45 days, and then we start putting discounts, because we don't want to miss on the
10:54 fast mover that can take the space that the slow mover is taking at the store level. So the
10:59 opportunity loss is huge. That is why one of the biggest changes that we have made is even at an
11:05 early stage, we identify the slow mover and put discounts at the store level. And the second,
11:09 we are always giving our customers billbuster discounts and marketing discounts if they spend
11:15 more. So those strategies are in order to increase the average order value, average bill value,
11:20 so that the customer purchases more, so we can get more revenue for the same customer.
11:24 Okay, and around that, because so many strategies playing out for the next years and your store
11:33 expansion. So what are your CapEx plans for FY25? So if you open 30 to 35 stores in the next 12
11:42 months, so we would need about 80 crores of CapEx and inventory, working capital needs.
11:48 So it's broken down like about 35 crores is needed for CapEx and about 40 to 45 crores is needed for
11:54 working capital that is for inventory, which can be financed through our internal accruals.
11:59 Okay, and also there is one last question that I would like to ask you on the what's happening
12:08 right now, as you know that elections are around the corner. So any significant growth and up or
12:15 uptick in sales likely for V2 retail and any perspective on that, that you can share with us?
12:23 We haven't seen any kind of trend so far. But historically, in some states, usually there is a
12:30 higher spending during the election year. So hopefully that's the case this year as well.
12:36 But there's a lack of marriage season in May and June. So that might set off the positive
12:41 impact of the elections this year. Okay, thank you so much for talking to us. It
12:46 was great having you here and all the best to you for all the future ventures. Thank you so much.
12:52 Thanks a lot for having me.