Spencer's closed 22 loss-making stores in South India as Q2 loss widened 30%

In the quarter ended September 30, 2023, Spencer's Retail — the grocery chain of India's RP Sanjiv Goenka Group — closed 22 high loss-making stores at non-strategic locations in South India. Chairman Shashwat Goenka framed it plainly in the quarterly performance update: 'We took some hard decisions to improve profitability through closure of loss making stores in Q2.' Including its Nature's Basket gourmet chain, the group was left with 167 stores nationwide.

The quarter's own numbers show why the pruning started. Consolidated net loss widened 30% year on year to Rs 70.12 crore in Q2 FY24, from Rs 53.78 crore a year earlier, per the company's regulatory filing, while total income fell to Rs 577.10 crore from Rs 654.35 crore. Total expenses were cut to Rs 647.31 crore from Rs 708.24 crore, and gross margin still improved 65 basis points despite what the company called a hyper-competitive operating environment.

The shrink-to-profitability bet leaned on the parts of the business that were working. The 'Out-of-Store' business delivered positive EBITDA for the quarter at a GMV of Rs 76 crore, with a sustainable business mix of about 13%. In the latter half of the quarter the chain launched 'Express Delivery' in Kolkata — one-hour delivery from a choice of over 50,000 SKUs — which Goenka called encouraging in initial response.

Nature's Basket grew 8% on a standalone basis with gross margin up 241 bps quarter on quarter, and the gifting business 'The Gift Studio' kept delivering high growth with healthy margins. Goenka said the company would stay committed to driving both top line and profitability in the balance of the fiscal, scaling Express Delivery 'whilst maintaining positive unit economics' — a turnaround still to be proven, with the store closures as its first hard step.

Gross margin improved 65 bps in Q2 FY24; Out-of-Store turned positive-EBITDA at Rs 76 crore GMV (~13% of mix); Nature's Basket grew 8% standalone.

South India was 'non-strategic' geography: the 22 closed stores were the high loss-makers in a region where the chain lacked scale.

The quarter forced the pruning: net loss up 30% year on year and income down about 12% in a hyper-competitive grocery market.

The chain kept and showcased what worked — Out-of-Store at positive EBITDA, Nature's Basket up 8% — to argue the portfolio was fixable.

Margin evidence (+65 bps gross margin in the closure quarter) was the chairman's proof point that shrinkage buys profitability, not just a smaller loss.

When a retail footprint outruns demand, closing stores in non-strategic geographies is the price of admission for a profitability story — margins move before net loss does.

As of the November 2023 update, Spencer's including Nature's Basket operated 167 stores across India. Goenka committed to driving both top line and profitability through the balance of FY24, with Express Delivery to be scaled in Kolkata while maintaining positive unit economics. Whether the 22-store closure turned the loss around was not yet shown in the reporting.