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Shoppers Stop Ltd
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Good morning, ladies and gentlemen, and welcome to the Q2 FY '23 Analyst Conference Call of Shoppers Stop Limited. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Ms. Mamta Samat. Thank you, and over to you, Ms. Samat.
Thank you, Michelle. Good morning, and thank you for joining us on the Shoppers Stop Q2 FY '23 earnings conference call. Today, we have with us the senior management represented by Mr. Venu Nair, Customer Care Associate, Managing Director and Chief Executive Officer; Mr. Karunakaran Mohanasundaram, Customer Care Associate, Chief Financial Officer; and Mr. Jaiprakash Maheshwari, Customer Care Associate, Vice President, Finance and Accounts. We will begin the call with the opening remarks from the management, after which we will have the forum open for the interactive Q&A session.
I must remind you that the discussion on today's earnings call may include certain forward-looking statements and must be viewed, therefore, in conjunction with the risks that the company faces. Please restrict your questions to the quarter and yearly performance and to strategy questions only. Housekeeping questions can be dealt with separately with the IR team.
I will now request Mr. Venu Nair for the opening remarks. Over to you, sir.
Thank you, Michelle and Mamta, both, and good morning, friends. Thanks for joining us today to discuss the Shoppers Stop financial results for the second quarter of the financial year 2023. Along with me, I have my colleague Karuna, our CFO; and Jaiprakash, who heads our FP&A [ team ].
I am delighted to share that we achieved the highest ever sales EBITDA and PAT for Q2 in the history of Shoppers Stop. All the KPIs have improved significantly, and I will share this with you over the next few minutes. Before I start in detail, can I just remind you that we have shared our Q2 and first half results in the investor deck and the press release. And I'm sure you would have had a chance to go through the same.
Let me now talk on the Q2 performance and the way ahead. For the last 6 quarters, we have been growing consistently. Customer sentiment was strong in the quarter and continues to be so in the Q3 of this year. The wardrobe reboot, followed by the [ offers ] reboot is making us to be one of the best destinations in our chosen segments. Our customer footfalls, both offline and online combined, have surged significantly to an overall 40.8 million visits in the quarter that we are talking about, which compares to 25.3 million visits in the corresponding quarter last year.
From the time the economy rebounded from the third wave of COVID-19 in Jan '22, I have been saying that we've had a strong momentum, and that is continuing. Sales, gross margin, EBITDA and profit have witnessed strong growth. Sales grew by 62%. Gross margins improved by 180 basis points, driven by an increased share of full price merchandise and on EBITDA, we made INR 75 crores as against INR 2 crores last year. We also grew versus the pre-COVID period. Our non-GAAP sales grew by 19% and EBITDA grew by 55% versus the pre-COVID period. Our gross margins also improved by 40 basis points.
The sales growth has been particularly impressive during the festive period. During the Pujo, our East region, which had the highest impact due to Pujo, grew by 35%. It is pertinent to note that during the quarter, we had closed a few of our stores for refurbishments, which are now open. We could have had sales of another INR 20 crores and profit thereon if the stores had continued to be trading during that period. However, we do believe that customer experience is critical, and hence, we chose to shut the store in full while the refurbishment was on.
On some other KPIs, our ATV grew by 8% versus last year, primarily due to the increased demand for premium and lifestyle products. The growth in ATV has now been consistent for 10 quarters.
Let me now share some important details on the operational costs. On a like-for-like basis, we have saved INR 20 crores, but we have also invested in marketing and digital commerce besides inflation in the existing stores. We also had a one-off expense of INR 2 crores from the consideration adjustment from Crossword, which we had sold a year back. Specifically on Crossword, we received -- we have now received 90% of the amount and the balance 10% will be received after 2 years, after which, 100% of the amount due would have been received.
With the strong sales and tight control on costs, we reported an EBITDA of INR 75 crores in non-GAAP, a growth of 55% and INR 155 crores as per the GAAP financials. Our CapEx investments in new stores and refurbishments are INR 38 crores. We opened 3 stores, that is one department store and 2 beauty stores during the quarter. Our expansion plan is on track. We are currently under fit-out in 4 stores, with 2 stores having opened last week and a further 3 beauty stores where also we are under fit-out. As always, our CapEx has been funded through our internal resources.
We reduced our working capital by INR [ 18 ] crores, and our cash from operations remain positive. We continue to be cash surplus or a net negative company. Today's retail landscape is changing rapidly and dramatically, driven by the big shifts that consumers getting far more informed product choices, multiplying rapidly, technological advancements and public policy liberalization are all contributing to new flows of information, knowledge and resources.
During these changed times, customers are looking for multi-choice multiproduct destinations. Our company has been ahead of the curve, focusing on omni, and we are confident that we are well placed to reap the benefits of these investments.
From operations, I will now move on to the performance of our strategic pillars. Our first and foremost strategic pillar of First Citizen, which is our loyalty program. Our engagement with our loyal members has been at its highest level. For this quarter, they contributed to 77% of our sales. Our new enrollments have increased by around 2 lakhs during the quarter and cumulatively by 5 lakhs. We have consistently engaged with our First Citizen members. To give a few examples, our 360-degree campaigns with focused content and creatives were extremely successful. Our active base has increased by 300 basis points, and we achieved this by concentrating on activating loyal citizens -- loyal First Citizen members who had lapsed and had not come to our stores for a while. And last, we introduced unification for our loyal members, which also has been very successful.
Most importantly, we continue to grow the First Citizen Black member base, and this grew during the quarter. To remind you, the average transaction value is over 2x that of a normal first citizen member and overall, they spend 4x more than our regular First Citizen members. As you are aware, Black Card members have to pay INR 4,500 to join this program, and we have been witnessing steady and sequential growth ever since it was launched 2 years ago. We held a number of exclusive programs for our Black Card customers, and this has been extremely well received. The feedback from our customers indicated that these programs are hugely successful. And this is something that we intend to continue to do, providing exclusive experiences for our First Citizen Black members that they couldn't get elsewhere.
Personal shoppers have also continued to engage with our customers, and this is again a point of difference for Shoppers Stop. A number of our customers love the experience that they get because of the advice and assistance that they get from our personal shoppers. And this is something that we are continuing to dial down on. Our association with HDFC Bank credit card has been progressing, and we added circa 3,000 cards in the first 6 months.
Moving to the next strategic pillar of private brands. During the quarter, our private brands recorded its highest ever sales in a quarter at INR 192 crores. Our private brands grew by 76% last year -- over last year. Specifically, our apparel business within private brands grew by 78% and a whopping 64% over pre-COVID numbers. Consistent with the previous quarters, it has been increasing its share. As of now, our private brands constitutes 21% share on apparels and 15% on overall business. The average selling price increased by 25% during the quarter for private brands. Kids continues to grow within private brands and grew by over 93% on last year.
To move the journey of converting these private labels to private brands, we have Sanya Malhotra as the brand ambassador, and we have had 2 campaigns with Sanya during the first half of the year. We had Sanya fronting [indiscernible] for the first quarter of the year. And in the last quarter, beginning September, Sanya has been the brand ambassador for Kashish, and this specific campaign has been extremely well received, with Kashish growing by 170% year-on-year.
Our focus on the Indian wear brand, Bandeya, in Men's has also been very well received by our customers, and it has grown by over 3x this quarter. Our focus on womenswear and private brand continues and this category has grown by 82% overall. Most importantly, women contribute to the largest share of our total customer base, contributing to 57% now versus 55% last year. This is for Shoppers Stop as a whole.
Moving on to Beauty. This is our third strategic pillar and our sales for Beauty for the quarter grew by 45% against last year. During the quarter, we launched 24 brands in our stores, bringing the total number of brands that we have brought in into the store at 35. On our private brand, Arcelia, we launched 35 new SKUs during the quarter. And in total, we now have 135 new SKUs on a year-to-date basis. The [ COVID ] supply chain issues have continued, though it has improved as well. During the quarter, we opened 3 new beauty doors, and we have another 3 doors that are under fit-out.
In the last quarter, I had spoken to you about the importance of content in Beauty, and we have continued to invest in the team. Beauty content marketing increases brand awareness, differentiates the brand, builds audience relationships and drives more revenue. Customers rely heavily on different types of content to make buying decisions, research new products and learn how to use different types of beauty products. It's critical that our brand is there to engage with them throughout the customer journey. We have begun this journey and this will help us to diversify further in Beauty, which is a growing category. This also will be a big point of difference when we launch the SS Beauty app, which I will talk to you about when I talk about omnichannel in the next segment.
At this stage, I'm extremely glad to announce that, as a part of strengthening this strategic pillar of Beauty, we have now obtained exclusive rights for retailing and distribution of a few Beauty brands from L'Oreal and Clarins. Brands that we will be distributing from L'Oreal will be in the niche fragrance segments, Atelier Cologne, in the couture brands, Prada, Valentino, Mugler and Viktor & Rolf, and in the premium brands, Ralph Lauren and Azzaro. Clarins will have an offering of skin care and makeup.
Our objective of venturing and adding distribution within our Beauty pillar is threefold: to create and evolve to serve the rapidly growing beauty and personal care market in India; create a better and unique brand proposition to create a win-win for our retailers; have a better brand representation by bringing the best-in-class global practices to India. We expect the sales from L'Oreal to commence from December and from Clarins in Q4 of this fiscal. The SS Beauty stores continue to trade well, and that's something which will continue to grow as we go forward.
Moving on to omnichannel, and we achieved our highest ever gross sales through our digital channels. We have been leap-frogging in our digital sales at [ 9% ] this quarter. This is significant, considering that we had a large base in financial year '22, largely because stores were either closed due to lockdown or partially closed and hence, our largest portion of our sales coming from e-com. However, as mentioned in the last call, we do look at online and offline together now, given that a large portion of our sales offline is influenced by our digital presence. Apart from reaching out to a larger customer base through Amazon, we also serve 30% of our digital sales to customers in cities where we are not present through shoppersstop.com. We are also in the test phase of the SS Beauty app, which will augment the SS Beauty stores that we have opened. This will be an app dedicated to Beauty. And we are in the test phase, as I mentioned. We expect to go live with this new app later in this quarter.
Further, we continue to leverage on the investment that we have made in digital mediums across data lake, analytics and personalization tools. Using these tools to aid the personas that we have created on First Citizen helps us to target and offer much more focused offerings to our customers in the communication that we have with them.
Finally, on expansion. We opened one department store and 2 Beauty stores during the quarter. The pipeline is very strong, even as I speak to you today, we opened 2 stores last week, and we expect to open another 4 in the next 6 weeks. There have been delays due to regulatory approvals, which in turn delayed the opening of our stores. We are on track to open 12 stores for this year, and 9 of these will be in Tier 2 cities. In addition to these, we are planning to open the 15 Beauty doors that I had committed in the previous call. And again, 3 of these have opened, 4 are under fit-out.
In summary, we have grown consistently since the impact of COVID had paused all economic activities 7 quarters back due to the lockdowns. We are extremely focused on execution of the strategy that we had put in place after COVID, and we are pleased with the progress being made. All our KPIs have consistently improved in this period. I am particularly impressed with the growth of our strategic pillars of private brand, beauty and omni. We expect sales to remain robust and our growth momentum to continue for the remaining half of this fiscal. Even as we speak, the festive sales for Diwali is strong with 4 days to go.
With our new partnership, we will evolve and serve and grow rapidly in the beauty and personal care market in India. We are planning to create better and unique brand proposition to create a great experience for our customers in retail, in beauty. In this process, we have better brand representation by bringing in the best-in-class global practices to India and also bringing in a lot more newer brands in beauty to the country. Our private brands has been firing on all cylinders with a current annual run rate of INR 1,000 crores. We have been investing into this segment, which we will augment and continue to grow. We continue to remain debt free, which helps us to leverage better.
I wish you and your family a very happy Diwali. And we'll open the call to questions now.
[Operator Instructions] The first question is from the line of Sameer Gupta from India Infoline.
This is Percy here, Percy Panthaki. My question is, can you give some idea on the competitive intensity, especially to do with the sale days this quarter? And how much was it higher or lower than normally what you see in Q2? And if there's any adjustment to be made between the timing of sale in Q1 and Q2? And if we look at it on a half year basis, have the sale days been lower than what a typical year would have?
Thank you, Sameer (sic) [ Percy ]. Thanks for the question -- sorry, Percy. Sorry about that, Percy. In terms of the sale days, overall, there was a reduction of 10 days in the total number of the sale days, as you called it, for the end of season period. Most of -- I mean, some of the reduction, I would say, 7 days out of the 10 happened in the previous quarter, as in, quarter 1 and the 3 days in quarter 2. To be more specific, it went down till the 19th of August in FY '20, whereas the year, we finished on the 15th of August. So from Q1 was where the impact was [ new ], Q2 was lower. And overall, the reason -- and I think it goes back to what we have been saying about the consumer sentiment being strong. And also because of that, the confidence for brands to focus on new and fresh merchandise, latest fashion rather than selling out what was left behind from the past. [Technical Difficulty] specifically see was the mix of full price went up even during the end of season sale period, which again is a reflection of the strong consumer sentiment that we have been saying.
So in context to that, just wanted to understand the EBITDA and the margins. I'm assuming that, obviously, because the sale period is sort of lower, there is a positive effect on the overall EBITDA of the company. So I just wanted to try and see if it is possible to quantify that impact in rupee million terms.
I think specific to the end of season sale period is probably too granular to be covered. What we did see was the growth of 50 basis points over the pre-COVID period on gross margin. And of course, EBITDA growth was 55%, which is not necessarily only due to margin. But specifically, I think at the gross margin level, it was a growth of 50 basis points over FY '20.
Right, sir. My next question is on margin trajectory over the next, let's say, 3 years. There are 2 moving parts to this. One is your investments in omni, et cetera. So I don't know whether we should be taking a reduction on that for, let's say, FY '25, '26 level? Or do you think it would continue at these levels as a percentage of sales? And secondly, apart from that, whatever EBITDA you're clocking, what is the trajectory there? And where do you see these numbers going? And what are the drivers for margin expansion over the next 3 years?
Percy, Karuna here. So normally, we don't give any guidance on the margins. Answering your other questions, yes, the margins should improve because we are focusing on private brands, which will improve the overall margins. We are also focusing on Beauty, again, which will improve the overall margins. And as you rightly said, omni, the margin will come down, but we should be able to offset because our private brands and beauty will have higher margins. And in terms of a very broad guideline on the EBITDA margins, Percy, we have been quite consistent in saying that probably for the next 2 to 3 years, we will be in high single digits and we should be a low double digit in the fourth year. So that's the consistent guidance we have been giving, Percy, for some time now.
And the main driver of this expansion, like, for example, if I just use this quarter, I know it's not representative of the full year margins, but this quarter, you have done 5.9% if I take your non-GAAP numbers. So this moving up to double digit over 4 or 5 years, apart from product mix change, is there any other driver which will be responsible? Or do you think that this 400 basis points or whatever number it comes to, product mix change itself is enough to drive that?
No. It will be a combination of the product mix change, plus overall productivity gain in our fixed expenses. It will be a combination of both, Percy.
[Operator Instructions] The next question is from the line of Ankit Kedia from Phillip Capital India Private Limited.
Sir, I have 3 questions. First one on the ESOP expenses, is this recurring in nature? What is the total quantum of ESOP expenses we should build in for this year and next year? My second question is on the Beauty offline distribution, which you have just entered into. It's a very working capital intensive business. How big is the opportunity for you from these brands of L'Oreal? And going forward, are we in constant touch with other brands to launch more brands in India? And thirdly, what is the management's view on value fashion, given that some of your peers are aggressively entering into the value fashion segment? And are you all considering that?
Hi, Ankit. I will answer the ESOP part and Venu will take the other 2 questions. On ESOP, we expect a INR 14 crore to INR 15 crore impact this year and more or less the same impact next year also, probably slightly lower. So this is the first 2 years. But having said that, Ankit, this is a noncash item. There is no cash outflow because of ESOP expense. We are debiting the expense and crediting the reserve ultimately. So I thought I'll just clarify that.
On the other 2 questions, Ankit, the first one was on Beauty distribution. And as I had mentioned, we are starting off with a fragrance brands of L'Oreal and also Clarins, which will start in Q4 next year. It is a business, which helps us to secure supply and also, given that we are also one of -- we are one of the largest retailers of beauty, and these are brands which would be retailing from our own stores, it helps us to actually have a better offering for our customers from our own stores and online channels. We do intend to continue looking at this avenue to bring in more new brands into the country, especially the ones which are focused in the segment that we operate in, which is the premium and lifestyle segment. There are still a number of brands which are not present in the country, and this gives us the opportunity to bring them in, both for distribution as well as for retail. So that's something we intend to continue dialing down on.
And your third question in terms of the value segment, you are absolutely right. The value segment is a large segment in the country. It is a segment we are not present in specifically, apart from -- and given that we are focused on the premium and lifestyle segments, and it's a segment we are continuing to look at and evaluate. And as and when an opportunity arises, it is something that we may want to get into.
And sir, just a follow-up on the Beauty. Are the margins in the distribution business or Beauty would be similar to the company average? Or do you think it can be slightly higher, given that these are premium brands?
Cumulatively, it would give us the flexibility to have higher margins, which is one of the reasons we are getting into it. Effectively, we are controlling the entire chain, from the time the product comes into the country to when we sell off to the customers. And hence, yes, definitely much better margins.
The next question is from the line of Gaurav Jogani from Axis Capital.
Sir, my question is with regards to, again, the Beauty arrangement, offline arrangements with both L'Oreal and Clarins. So sir, if I get it right, in the note, you have written that you have rights for both online and offline distribution and it's exclusive. So does that mean that those brands only you will be able to retail and not the other players?
The rights is exclusive for distribution and retailing is not exclusive, and we will be supplying to the other retailers for those brands.
So in that case, they will have to source it only from you, right, in India?
Yes, that's correct.
So in that particular part of the margins that you are distributing to other retailers, so the margins there would be lower than what the company would be making, right, in terms of their retailing?
Yes. For that particular part, yes. But overall, as I said, given that we are also the largest retailer for this, and hence, it gives us the opportunity to have more margin that we currently make. I think what is also worth mentioning is that it is a business where we are funding completely from our internal flows, and it has -- the internals flows are quite strong, as I have already mentioned. Worth also pointing out that the distribution will be in a subsidiary business, which is separate.
Sir, just one more clarification on this part. So if you would be able to highlight what is the current size of this particular business from the existing -- I mean, the existing vendor who had just given out this license and what kind of an opportunity can it create for you going ahead?
I think there are a number of new brands we are talking about. So I would not want to get into specifics in terms of the size of that. It's something which we can give you separately. But overall, there are -- these are set of brands, which are new to the country. And that's the one that we are going after.
The next question is from the line of Bharat Chhoda from ICICI Securities Limited.
Congrats on a good set of numbers. My query was regarding with -- currently, we are at around 119% of pre-COVID levels. So how much of that would be driven by price hike over the pre-COVID levels, like? And what would be a sustainable HSG expectation going forward?
Thank you, Bharat. Our overall ASP increase has been to the tune of 10%. And these were price increases that we have taken at the beginning of the year. So it's not something which we did during the quarter. It was around when the season began -- the previous season, that is [ '23 ] launched in February of '23. That is when we had taken the price hike. And those -- the price hikes have been well received. We have not seen a dramatic impact on volumes despite that. And as I said, our overall [ win ] values have continued to grow and have now grown for 10 consecutive quarters, which essentially points to the fact that we have customers putting more items into their basket when they engage with us in the stores or online.
And sir, that HSG that we are expecting going forward on this base?
We don't normally give guidelines, but it should be in the high single digit -- mid-single digit to high single digits, Bharat.
Sir, just one more thing. Like our private label brand share has increased from around 12% to 15% if we compare to pre-COVID levels. But actually, if you look at the gross margin, it has not translated into much more of a gross margin. It is like 32.8% compared to 32.4%. So what is it -- like, what is the reason of this not translating into a better gross margin in spite of a higher private label share?
So Bharat, if you are comparing with the -- this is the pre-COVID, there are 2 reasons. One, in the pre-COVID, we had a onetime gain on the gross margin probably by 50 to 60 basis points, specifically in quarter 2. The second one, if you remember, our omnichannel or our digital sales was less than 1 percentage. Right now, it's 5 to 6 percentage. So that -- and normally, you are aware the margins in the digital channels are lower than the offline. So -- and that's the business we are investing to grow right now. So these are the 2 combinations, has impacted the overall increase in the gross margin, specifically for this quarter.
Thank you. Going ahead, at least if this momentum in private label continues, so we would see an improvement in gross margins. Is that understanding correct?
Absolutely correct, Bharat.
The next question is from the line of Nihal Jham from Nuvama Institutional Equities.
Sir, a couple of questions from my side. First, on the Beauty distribution business. Would the distribution infrastructure for you primarily be the stores you operate or you would be required to invest in separate warehouses across the company?
Nihal, for the Beauty distribution business, we would be using our existing infrastructure of our warehouses to do it. So we don't expect a significant incremental cost to do that business.
Sure. That is helpful. The second question was that you've broken the store expansion between the Tier 1, Tier 2 and Tier 3 cities, but I think you are looking at 3 stores out of the 12 this year in the Tier 1 cities and the other 9 being in Tier 2 and Tier 3.
Your voice is not clear, Nihal. Can you just come closer to the mic?
I'm so sorry. Am I audible now?
Yes, better.
Sir, I was asking that you've given the bifurcation of the store expansion of the 12 stores, wherein 3 are in Tier 1 and the other are in Tier 2 and 3 cities. So going forward, when you're targeting 10 stores each year for the next 2, 3 years, would it be fair to assume that majority of them would be in these Tier 2, Tier 3 cities when you look at getting into more cities going forward?
So Nihal, you're right. The current base and also the current pipeline for stores that would open this year and next year would be in, I would call it, Tier 2 cities, probably not as much into Tier 3 yet, but that's obviously an opportunity going forward. At the moment, we are focusing on Tier 2 and even the Tier 1, for both [indiscernible] where we may not be present. I think what's important to underline is we will be where there is an opportunity that exists, where our customers are, and where there is an opportunity, we would be. The splits being higher into Tier 1 or Tier 2 is because of the fact that we don't have a presence there, and that is where the opportunity is higher. As the economy grows and as cities enlarge, that's where the opportunity presents itself, which we would capitalize on.
Understood. Sir, this last thing I was looking for a data point was that, can you give me the offline customer entry. We are clubbing it currently with online. I was just looking for the offline customer entry for this quarter.
Offline customer entry grew by 3 percentage.
So it was around 25% in Q2, so it grew Y-o-Y 3% is what you are saying.
Yes.
The next question is from the line of Aliasgar Shakir from Motilal Oswal Financial Services.
Couple of questions. First is on Beauty. So I think we have a target to add about 15 stores in this year. I just wanted to understand with this tie-up with L'Oreal and the other, should we expect this target to go up? And probably, if not in this year, should we expect the pace of addition to go up because of the [ standard ]? And second is on the private label. So I understand in the smaller stores, the mix of private label, particularly in the shares is far higher, probably even about 35%, 40%. So I just want to understand, given that now we are opening more smaller stores, how should we look at the private label mix? I understand we've grown to about 15% now. But should we expect this to grow much more significantly as we add a lot of stores in the smaller store size?
Thanks, Aliasgar. On the first one, on Beauty, yes, 15 stores that we are targeting for this year, and we are in line to have that. And going forward, again, we've maintained the guide that it will be 15 to 20 new Beauty doors that we would look at, which is what we do target. As we -- as the momentum grows on this, we will look to accelerate that, and that's something which I think we would have a better view on in the coming quarters as we get there. What I would like to state is that, this is a segment where we see a huge opportunity for ourselves. We are the largest physical retailers online and with the augmentation of that with our SS Beauty app and the SS Beauty stores, we do expect to continue our growth journey forward. The focus will continue to be growing the real estate that we have, along with acquiring customers online through the SS Beauty app on Beauty specifically. Next year onwards, we would also look to add boutique doors, for example, the L'Oreal brands that we have brought in.
For at least a few of them, we would have standalone boutique doors for those brands specifically. So that would be an addition to what we have already said. So that was Beauty.
The second part -- your question was on private brands and the mix of private brands. So currently, as you rightly said, it's 15% to our total base or 21% to our overall. We expect this to continue to grow. And again, as we go into Tier 2s, some of these brands have greater resonance and that continues. And we expect the overall share of private brands to grow up -- to go up to between 25% to 30% in the next couple of years.
The next question is from the line of Varun Singh from IDBI Capital.
So my first question is on the data point, that 25% of online customers shopped from cities where Shoppers Stop did not exist. So this number is quite encouraging. I just wanted to understand if you could give more color on what exactly -- is there a product that these customers would have shopped for, I mean, will that be private label products at Shoppers Stop or branded stuff?
I mean these are from cities where we don't -- we are not present and that's very encouraging. It gives us a view of where our future expansion can be as well as the demand that we can get. On shoppersstop.com, we are a household brand, we offer everything that we have in our stores. As I have mentioned in the past, as an omnichannel retailer, every single store of ours -- and today, we have 91 stores -- 91 department stores, over 100 Beauty doors, all of these doors are linked to shoppersstop.com. And hence, consumers and customers across the country are able to buy all of what we retail from anywhere. And hence, it's not just private brands, it would be a combination of everything.
Sure, sir. And second question is like out of 12 department stores, you mentioned that around 9 stores, we will be opening in Tier 2 cities and also looking at the other statement that you made that our focus is not value fashion, but premium and lifestyle segment. So, sir, on premium and lifestyle segment, why are we not sensing higher opportunity in Tier 1 cities and why only in Tier 2 cities?
So I think I need to clarify myself. Firstly, we are skewed towards metros and Tier 1s today and roughly around 65% to 70% of our business comes from Tier 1 and metro cities. And this is something which we will continue to grow. It's a fact that our presence in some of the cities that are growing is not there. This is what presents us with the opportunity to go into those cities. And hence, I have clarified that we will be where our customers are, whether it's Tier 1 or Tier 2. So again, while we talked about the -- and I think the Tier 2 needs to be understood very clearly where when we are saying Tier 2, it does mean it could be a place like Gwalior, for example, which we are terming it as Tier 2 but for a lot of destinations that could also be a Tier 1. So I'm not wanting to get drawn into that. But essentially, these are cities where we are not present, consumer is there, customer is there, opportunity is there, hence we're doing it.
The other part too, also 3 other cities, the 3 other stores which we are opening out of the 12, they're actually in Bangalore, Delhi and Pune. So these are, again, places where we already have stores, opportunity is there, we're going into it. So it's -- and I think we should not draw very strong inferences on the Tier 1, Tier 2. I think what's important is we are going in. There an opportunity is there, where we are not present and hence, creating customers and consumers for ourselves.
So, that will be kind of more of a working geography or places where we see relatively less competition, something like that, sir?
In these places, it's basically we are a one-stop shop. We are a multi-choice, multi-product retailer. And as consumers are getting exposed to wider choices, they -- we become a great destination because of the fact that as household brands, as a one-stop shop, customers can come to us and make their purchases. So that's the reason we go into these places. Doesn't -- I mean, competition would be present, but that's something which we [ enter ] and it enlarges the market when that happens.
The next question is from the line of [ Disha Sid ] from Anvil Share and Stock Broking Private Limited.
Sir, I just wanted to check on 2 points.
You're sounding too low. Could you please switch to your handset, please?
Yes. Sorry for the inconvenience. Sir, I just wanted to check that the private brands, which we are at 15% of total sales, you mentioned that going forward, it will go 25% to 30%. Am I -- did I get it right?
Over the next couple of years, that's the aim that we would want to, 25% to 30% of our total apparel business.
Okay. And so that is -- which is 15% right now, correct?
It's 21%, moving back to 25% to 30%.
Okay. And secondly, on our same-store growth, sir, what is it in this quarter? And what do we aim going forward?
For this particular quarter, on pre-COVID numbers, I mean, I guess, last year, it makes no difference, on pre-COVID numbers, we had a 10% growth. And as Karuna had clarified earlier, our target is to have mid- to high-single-digit growth on a quarter-by-quarter basis.
Okay. And sir, can you just throw some light on margins for private label and Beauty segment, which is higher margin? And what is the difference if you can quantify, please?
These are confidential information. We don't normally share what are the margins for the private brands. But having said that, it's higher than the brand margins.
And Beauty are higher than private.
No.
The next question is from the line of [ Manjunathan Jogen ], a retail investor.
Can you hear me?
Yes, we can hear you. Please go ahead.
Just I would like to know what is the outstanding of loans.
You mean the term loans?
Any kind of loans, or total how much do we have loans?
The loan is around about INR 134 crores as on 30th September, 2022, Manjunath.
Sorry, can you tell me again?
The loans are INR 134 crores as on 30th September, 2022.
The next question is from the line of Jay Gandhi from HDFC Securities.
I just missed this one. You mentioned the offline customer entry. If you could just repeat that for the quarter.
Offline customer entry was a growth of 3% over pre-COVID numbers. So, it was on pre-COVID numbers.
Okay. So pre-COVID, you did around [ 10.5-odd-million ], so 3% of that, and the conversion ratio, typically, is that kind of -- does that hold?
Conversion was fairly flat. The absolute number that you gave of 10 million, I am not sure, it was much higher. So overall, the conversion was fairly flat, and the customer entry total growth of 3%.
Right, so if you could just share these details at some point. I mean, I don't think these are very confidential anyway, these numbers. So I mean it does certainly helps us reconcile to the top line at some point. I mean, it's just a feedback.
Okay, fair enough.
And sir, the other thing I wanted to ask is, what was interesting today is the 19% jump in sales, right? I was trying to connect that to the working capital movement. Now inventory days have -- I'm comparing pre-COVID versus the current quarter, so inventory days have kind of broadly grown in 21%, slightly higher than the 19% jump in sales, but, more worrying was that the payable days have grown at 29%. So it's literally around INR 1,800 crores, it's a good INR 400 crores, INR 500 crores jump. So I get that we are net cash surplus right now. But do you worry that at a certain point, maybe in the next 12 to 18 months, we might have to rein this payable days in, and hence effectively, at some point again, [ assume a debt ] or perhaps stop growth, either of the 2.
Neither of the 2, Jay. See, when we classify our inventory, we have consignment stocks, which is what we call as an [ RoR ] stock. And we also classify what is the creditor should be below that. So predominantly, if our RoR stock grow, our creditors will also grow up to that level, except the last, take for example, the September month sale, we pay in the month of October, that could be the only difference. Other than that, our creditors are absolutely in line with the expansion of the business.
Right. Sir, but in terms of days, it would not change, right, if I compare September to September, pre- versus post-COVID? I get that you probably have some payments to make in October, which will not reflect in the balance sheet right now. But even in terms of days or the proportion to sales, that may not necessarily change, right?
For our non-RoR business, it will not change. In fact, it will marginally come down.
Right. So -- but unfortunately, I can see that it's kind of inched up. And it's not just pre- versus post-COVID thing, it's actually for the last 3, 4 years, our support from creditors has eased up.
So I think let me -- from a business point of view, Jay, a couple of things need to be factored in. As I mentioned, our private brands business grew by 47%. And obviously, the overall share of private brands has also grown significantly over the pre-COVID numbers, which we already talked about. Further, we are looking at a fairly large growth in this Q3 as well. And apart from the festive season for which we bought inventory also, we have bought in for winterwear, which have already come in and hence, that is reflected. So it is the investment into the future growth, which is being reflected as higher inventory. And that's something which we expect it will get utilized and come down as we -- as the quarter progresses. Further, I think what's important to note is that our working capital continues to be negative.
Right. That's fair. I'll probably follow up with you at some point just for a look at it.
You can call us any time.
There is a follow-up question from the line of Ankit Kedia from Phillip Capital India Private Limited.
Sir, in the presentation, you have mentioned on the expansion in the industry, there are some innovative deal structuring happening with landlords and they're increasing stock of Grade A malls in Top 7 cities. So are you expected to lose market share?
Sorry, there is some background noise. Your question is not very clear.
Sorry, sir, I was saying in your presentation, you have mentioned there are some innovative deal structures with landlords for the industry. And at the same time, there is significant supply of Grade A malls in Top 7 cities. So with these 2, with your over-indexing to Tier 2, Tier 3 cities incrementally, are you expected to let go of these Grade A malls in Top 7 cities? And at the same time, how is the deal structuring being done with the landlords currently by you guys and by the industry?
Okay. Firstly, Ankit, we are not looking to let go or not be present in Grade A malls, Tier 1 cities, metro cities. These are large markets. These are places where we have a very high brand equity, and these are places we would absolutely not just be present but continue to grow. So that's something I want to be absolutely clear. But these are where our -- and I think it needs to keep going back to, we are where our customers are. These are places our customers are, they are significant, and we will always be present. In terms of the deal structuring and what we have been looking at as we get into some of the newer cities, et cetera, we look for CapEx support from our landlords and this is something which has helped us to go faster, because that way our overall outflow gets optimized, and that helps us to go faster in terms of our expansions.
And sir, lately, we are seeing Reliance start Centro, it used to be Central. How do you look at the competitive intensity from a departmental store perspective now, given that last 2 years, there were some tailwinds, given that only Lifestyle and you were aggressive in the market? And now with Reliance coming in and signing up properties, how is that playing out in the market now?
I think, so far, the number of stores of Centro that have opened are quite minimal. So I guess it's a bit early to comment about it. And even otherwise, we -- as a rule, as a practice, we don't comment about competition. What we would say is that when you have a larger critical mark in terms of number of retailers, number of players present together, it becomes a destination or becomes a larger destination for customers to come in, and that's what we would expect to see. And also worth mentioning, I guess, the fact that even today, the size of the market is large compared to the number of -- or the size of the organized market. And I think the organized retail is still under a [ REIT effect ]. And hence, the headroom for growth is very, very significant all across.
Sir, but that would also mean if there are [ enough ] people and the same property, the rentals would increase. So are you seeing that in the market now?
I think competition has always been there, demand for those properties will always be there. And so to that extent, we've not seen a drastic movement per se.
The next question is from the line of Bharat Sheth from Quest Investment Advisors Private Limited.
And sir, my question is on this distribution business that we are undertaking for Clarins and L'Oreal. So you said it will be through subsidiary. And we will be using our own existing infrastructure, which is a part of the Shoppers Stop. So do Shoppers Stop will earn some kind of logistics margin or distribution margin from subsidiary?
See, the distributing company will import the products only for Shoppers Stop and other retailers also. So for the consolidated Shoppers Stop, there will be an additional margin.
Only gross margin will be additional. But in standalone, I mean, we will be able -- so that will give some kind of operational leverage of our existing infrastructure. Is that fair understanding?
Yes, absolutely right, Bharat.
The next question is from the line of Gaurav Jogani from Axis Capital.
Sir, just one question with regards to the receivable rights of INR 5-odd crores during the quarter. So this will be included both in GAAP and non-GAAP, right?
Yes.
So to that extent, our margins would be better if we adjust for this INR 5 crores in that sense because since it's a one off.
Absolutely right.
Yes. And sir, can you help us out what is this regards to?
So this is the receivables we have written off in our digital business. We have to reconcile between -- on the goods that have returned and then the customer account balance. So that's the one where we have to write off. It's a onetime write-off we had this quarter.
And I think, sir, if I'm not wrong, a couple of quarters back or maybe, a similar entry was there, right? Not this -- maybe the quarter prior to this one?
Yes, you are right, again. Yes, that's right.
Yes. So it's not regarding to that, right? It's a different one.
Absolutely different one. Yes.
[Operator Instructions] The next question is from the line of Devanshu Bansal from Emkay Global Financial Services.
Sir, I just wanted to understand the conversion trends. So we have delivered about 6% CAGR on a 3-year basis while other formats, which were jewelry, other luxury formats are also sort of delivering about high-teen CAGR growth. Even this 6% CAGR growth that we have reported is a combination of about 8% growth in ATV. So I presume there is some sort of impact on the footfall or maybe the conversion side. So can you help me understand what is leading to lower traction in the apparel space versus other categories?
So I think the -- I mean, when you say the last 3 years, I presume that there is an impact of COVID as well, you saw some of it. So -- and the comparisons obviously may not necessarily be completely like-for-like because of the fact that there would -- I mean, a, we are more heavily skewed into the metros and Tier 1s where -- which had a larger impact during COVID. In terms of the other factor, which also had an impact, was the expansion or what didn't happen for the period 2015 to 2018, and that definitely had an impact on our growth in the subsequent years. And that is something as a part of our strategy, which we have corrected and something which [Technical Difficulty] very aggressively on.
Coming back to the categories and within apparel, since you specifically touched upon that, what I would like to highlight is that the 2 largest categories, men's apparel and western womenswear, these were the 2 categories which had the highest growth that we have seen, not just in the last quarter but the quarter before that as well. So the franchise for these large categories of ours is very strong, and that's something which we expect to continue to grow.
Right. And can you sort of give us some breakup across regions? So is this growth of about 6% secular across regions or some of the regions are sort of lagging behind and some are sort of seeing higher growth trends?
Devanshu, I'm not sure about the 6% that you are referring to, where that comes from. So I'm not sure I would be able to.
Topline CAGR on a 3-year basis.
Topline CAGR on a 3 year basis -- I mean, see, what we can [Technical Difficulty] for this quarter and the last quarter. Beyond that, I think again -- and the fact that ever since we've come out of COVID, 6 to 7 quarters now, we have seen significant growth every quarter, both sequential and total. However, for the period, I mean, almost 1 year, 1.5 years before that, was the COVID-impacted years, and I think we can't, because that had multiple variables in there in terms of lockdowns, stores being shut and so on and so forth. And hence the degrowth effectively that had happened during that period.
Sir, I just wanted to understand as in that other categories have picked up relatively faster, so because of the pent-up demand, et cetera, or maybe the occasion wear defining the sort of happened. So -- but the space where we are in has been a bit lagging behind just will be other category. So my question was from that perspective, so that pent-up element has still not been visible? Or do you see there are chances that wardrobe refreshment, et cetera, can sort of give us that sort of a demand going ahead?
For the last -- I mean, pretty much from Q4 of last year, definitely since then, we have seen very strong demand across all our major categories, across apparel, Beauty, watches, sunglasses. And all of them, we are seeing extremely strong demand. Consumer sentiment is strong and driven by the wardrobe reboot that started out post-COVID and then transitioned and expanded into an offers reboot, as we would call it internally. Customer sentiment is -- there is premiumization that is happening, also simply, postponed weddings, [indiscernible], and that's causing that, again, driving demand up. Also as we enter into this -- I mean when we enter is not the right word, we are right in the middle of the festive season, this is the first Diwali after 2 years where people are able to come out and celebrate freely, mingle freely, meet up with friends and family and all of that is driving demand.
Ladies and gentlemen, this would be the last question for today, which is from the line of [ Shivaji Mehta ], an Individual Investor.
Sir, I have 2 questions regarding the value fashion that you've just briefly spoken about. Number 1, will entry to value fashion, will this be organic? Or could that be through an acquisition? And #2, would you look at for stabilizing the Beauty and the private label segment first before really entering into value fashion? Or can that happen in the near term also?
So Shivaji, if I can just clarify myself. What I had said was that value fashion is a large market, and it is something that we would evaluate. We are not entering into value fashion at this point, and that's not -- I mean, I have not indicated that at any point. So that's pretty much, I think, negate the -- makes the second question redundant.
Thank you. As that was the last question for today, with that, we conclude today's conference call. On behalf of Shoppers Stop Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.
Thank you, and I wish everybody a very happy Diwali.