Ever since Amazon.com Inc and others started shipping items ranging from lingerie to iPads, Shoppers Stop Ltd, India's oldest department chain store, has been under pressure to scale up its online sales.

That necessity is felt even more acutely now as it seeks to revive profit growth. Managing Director Govind Shrikhande, 54, is looking at a combination of e-commerce plus physical stores to boost margins as rising land prices drive up rents. Online sales will account for 20 percent of Shoppers Stop's total by 2020, compared with less than 1 percent now, he said in an interview.

"Physical retail space growth is going to be slightly challenged for sure, which really means we will have to drive our online business harder," he said. "Not many are going to get into the mall business because of higher realty costs."

Having faced policy quirks over lipsticks to foreign investment, the old-economy Indian retailer that started in 1991 even before any Web browser became available, is at a crossroads as more buyers in the second-most populous country prefer to shop from the comfort of their homes. Gartner Inc says total online sales will grow 70 percent to $6 billion this year.

Expansion pace

The Mumbai-based company, which doubled the number of stores in the last three years to 72, is slowing the pace of that expansion and will add 20 more in the next three years, Shrikhande said.

Availability of quality retail space in established markets of Delhi and Mumbai is expected to remain tight, with rents in prime malls and high streets set to increase marginally, CBRE Group Inc said in a report distributed in February.

The chain store, which has an exclusive deal to sell Estee Lauder's products in India, expects earnings as a percentage of sales before interest, taxes, depreciation and amortization to rebound to 8 percent in about 12 to 18 months as the older stores turn profitable, he said.

"There are already many entrenched players in the Indian e-commerce scene, and finding their feet will be the challenge," said Abhishek Ranganathan, an analyst at Mumbai-based PhillipCapital India Pvt. "They will have to focus on exclusive, strong brands to create a differential and retain existing customers."

Ranganathan recommended buying the stock on May 6, raising it from a neutral rating, after it had slumped 40 percent from a record reached Oct 21, 2014. The shares, trading at 68 times projected 12-month earnings, slipped 0.9 percent to 380 rupees ($0.016) as of 9:39 am on Tuesday in Mumbai. Trent Ltd, a unit of Tata Group, trades at 22 times.

Online sales will account for 10 percent of total in three years, Shrikhande said, adding the company will become debt free once its Hypercity unit starts reporting profit in about 24 months.

E-commerce companies are well funded, helping subsidize customer acquisition costs, while a physical business may not enjoy the same advantage, said U.R. Bhat, a director at the Indian unit of UK-based Dalton Strategic Partnership LLP, which overseas $2 billion in assets.

(China Daily USA 05/20/2015 page16)