Ladies and gentlemen, good day. Welcome to the Q3 FY23 earnings conference call of V-Mart Retail Limited, hosted by ICICI Securities. As a reminder, all participant lines will be in the listen only mode. There will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then 0 on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Varun Singh from ICICI Securities. Thank you. Over to you, sir.
Thank you, Michelle. On behalf of ICICI Securities, I welcome everyone on the call to discuss third quarter results for V-Mart. We feel thankful to the top management of V-Mart for having provided us this opportunity to host the conference. On the call, we have Lalit sir, MD and CEO of V-Mart, and Anand sir, the CFO. With that, I request Lalit sir to please take over the call and proceed with the conference.
Hi. Good morning. Good morning, everyone. Once again, thank you so much for coming to this call early in the morning. I hope everything is fine. Right now, I'm speaking from India. I'm getting it here from some executive management course, and I'm doing that in some university. Anyway, good. I think this is good times are being seen. Sunshine is coming back. We are now able to see inflation coming down. We are able to see consumer confidence inching back once again to the positive side. We are able to see the mass consumer also somewhere coming out of that shell a little bit.
Still, there are concerns. Still there are areas where this mass consumer is still worried about. Still the whole confidence level or the confidence index is still lower. The jobs have started coming back. People who have migrated are once again back to their cities and towns where they originally used to work. They're back in employment. All of those, I think there is some positive respite sign that we are able to see, which shows the path that, you know, things will get improved over the next quarters. That's what we expect and that's what we hope.
Yeah, definitely, things have not been as good as we thought could have become, both from the consumer perspective, inflationary perspective, as well as the confidence index perspective or the seasonality perspective also. We have seen all kinds of situations coming in. This complete year, this calendar year is going to be a little more dramatic year that we are able, we will witness because of the elections coming in the next year. There will be politics hovering around lot of areas, lot of things. Stuffs, I mean, areas can get disturbed at times.
We could see some political activities getting heightened up in certain states, which happens right just before election years because of the, you know, the regional or the, what we call the religious led, you know, things which happens or maybe something related to farmer. We are watching. We are watching very closely on all of those. We believe India story is really doing good. Lot of move that India has brought in is bringing in lot of confidence on India. Indians, the Indian industry, Indian consumers, we are able to see their criminality getting changed. I think all of those looks good from the future perspective, from the long-term perspective.
Definitely at this moment in the short-term perspective, we are seeing some still, if you compare with pre-COVID, we still seeing some kind of low sightedness on the actual recovery rather growth over those recoveries. Yeah, we are waiting for all of those. Now I think most of the industry in retail, most of the people in retail are, I mean, their upswing on numbers has now almost getting flattened. The rush at malls and rush at those brand stores, I think somewhere that is also got toned down a little bit.
Still, we are seeing a good swing, still there in the tier ones and the metros. We are still seeing the tier ones and the metros consumers consuming, still better than the tier two, tier threes. On the competition side, I think most of the competitors have been positive on store openings, have been very aggressive on their schemes and promotions in the market. The market has been quite charged up, I would say. We are able to see lot of new good things. We are able to see some special schemes in the market.
Things are actively on, which is making things interesting, both from the value retail perspective as well as the brand retail perspective. At the value retail perspective, I think good signs are being seen on the recovery from most of the retailers. Both, I mean, people have tried multiple things. Certain retailers have tried bringing down the prices. To attract customers. Yeah, I think people who have been able to focus on processes, who have been able to focus on the customer pain, are able to really get the benefits more out of it.
At V-Mart, we definitely continued with our thought process on our endeavor on integrating the all the two businesses that we have got into. We are really very bullish about the LimeRoad business. Still, I mean, only in the last quarter, we got maybe somewhere from there around 50 days of our operations, and within that some, we are still on the integration mode. There are a lot of, you know, change management that is coming up in terms of the main change that has happened in the company. A lot of those teething issues are still on.
Uh, say there are, uh, areas or there are, there are partners where we, where those, you know, uh, those agreements, main change agreements are still to happen. Uh, so like, like Facebooks and Googles and then the AWS's. So, so there are, there are those issues which are still continuing. But, but we are, we are, uh, the, the biggest thing, uh, biggest positive news that we have seen is, uh, the team is very intact. Uh, they are really motivated, charged up. Uh, business, uh, uh, and the business confidence index has improved. The confidence index among, amongst the vendors has improved. Uh, we are able to see, uh, good traction and once again, lot of, lot of vendors who are on the, on the marketplace, they're coming back on, on, on those marketplaces. The lost vendors are also coming back.
We are able to see lot of new development happening on the technology. Definitely still lot and lot of work to be done. Still nothing, we haven't focused highly on the footfall creations and all of those. We still want to work on those. We are trying to sub-stabilize all those stuff. Yeah, integration between the V-Mart technology and the LimeRoad technology, the work is on. Some part of that has been completed. We have started doing pilot on the omnichannel pieces as well. Delivering from the stores, we have started doing pilots on those. I think a lot of those areas are still active, yeah.
There are some areas of improvement that we need to do. There will be lot of continuous improvement that we need to do because we really want to create an experience, a digital experience for the customer, who is still coming down to our store and then shopping. How do we make them seamless towards digital as well? Because that's the area that we are working on. Our on the other side, our infrastructure development, our warehouse development is also on full swing. We are almost 70% done with our warehouse development. We will be watching them again, we will have another 2-3 months more so that we can shift to the premises.
That's coming up very well. Definitely we are, we have invested a little heavy on those. We have done it for looking at the next five to seven years of view. That should really give us a real capability, but at a better, an addition in terms of speeding up the turnaround time from the warehouse to the stores and the logistic facilities. All of those are really happening good. Digitalization even at V-Mart, a lot of analytics, base reports, reporting, work on those, the work with the consultant that was going on, is happening really very well.
The team is getting realigned at the supply side, at the merchandising, design, sourcing. All of those new developments have now started coming on place. We are able to see some, I mean, initial hiccups and whenever there are regrouping and there are hierarchization or organizing structure that will change, the new departments have been created. There are good degree of issues which starts happening. We will but have to bear with all of those. We will have those issues coming in from the new team. Yeah, I think the best part is the plan that we have, we are coming out on those, on the same plan.
We have started implementing most of the areas, like right from the sourcing of fabrics directly from the mill, nominating them to the vendors, and then designing most of the designs internally by our design team. Great collections are being expected in this spring-summer period. We are really working on with some real low prices product where we were trying to provide quality to the customer, which is never seen on.
We have done a lot of work on those, you know, customer, the mass customer segment, which got lost somewhere in the initial part of the year, which we try to regain back both growth in the last quarter as well as in the future quarters. We are trying to bring them back into the mainstream by lowering our ASPs, by really focusing very highly on those consumers who have really got impacted because of inflation and the interest in the fashion. We have really done that because we will watch that very nicely. You know, our ASPs in this quarter was also very almost flat. All of this, I think, is working positive.
The margins will definitely be at a little pressure that we will see because we really want to, first of all, provide that real value to our customers and work on that. Our Southern India integration, I think is happening good. A lot of better developments are happening. Last quarter, we saw A growth over the previous year. Still, I'm still clearly not too satisfied with the kind of work that we can do versus what we are doing. Still that understanding that we developed for the seven -year market, we need to polish that up.
We are working on all of those, that market is definitely demanding. We will definitely upgrade and upkeep our quality of inventory, our patterns, our fits, our sizes. All of those are definitely going to, I mean, all of those additions into the company is definitely going to overall upgrade the merchandise quality of our product offering completely. I think a lot of these are happening. The customer loyalty is another area that we are focusing very heavily on. How do we create, how do we have extra frequency of customers who come to. We are seeing some positive responses coming in out from all of those efforts that we have taken up.
Digital advertisement has been, you know, ingrained in our team. We are focusing very highly on those. We are able to see some youngsters walking back. We are able to see some lot of youngsters now coming into our stores because the colleges have opened up. We are there in the digital space. A lot of videos and a lot of personalization videos are being prepared. I think lot of those activities are both from the physical store perspective as well as the omnichannel perspective and the LimeRoad perspective. We are right now, you know, running both the channels, which is the vmart.co.in as well as the LimeRoad. All of those are collaborating into the business.
We still need to really settle, let the things settle down, and we will want to coordinate and co-op, create those synergies of digitalization of technology systems of products of the strength that V-Mart has, how do we use that in multiple other areas. We are very positive. Definitely, a lot of new things are happening in the company. People are very busy. I really give kudos to the teams that they have been able to manage such a complex environment very nicely. We are able to see swings in the seasonality because of the climate change. Winter somewhere has been, I mean, fairly okay.
We've still not been able to have the best winter that we could have expected this time. There are those external environments which will definitely make us more agile, and we will have to really make our systems and our processes a little more ready for these kind of smaller disturbance which would come in. Definitely we still are have a little higher inventory. We are working very hard to bring down the inventory levels. All of those, I think Anand will give you inputs, and then, let's wait to hear from Anand, and then we can answer your questions and answers. Thank you.
Thank you, Lalit. Good morning, everybody. Let me take you through some of the key highlights from the quarter. We can open the session for questions. It's been a very big and very hectic quarter with an acquisition, big festive season and winters and marriage season. Traditionally, quarter three is also our biggest quarter. YTD quarter three, we also tracked our highest ever sales and look forward now to closing this financial year on a new high. For the quarter, sales grew by 12% year-on-year, with like-to-like growing by 1%. Both V-Mart core business and Unlimited had positive like-to-like on a stable base of no COVID overhang in previous years.
ASP remained flat, as a result of significant corrective measures taken to bring back economy pricing and tweak the product mix to attract low-income customers which have shied away from buying, at least at what we have seen in the last one year or so. Tier one markets continued their growth journey and outperformed tier two, tier three, tier four markets, reaffirming the K-shaped recovery that we have all been seeing in the sectors where the rich have remained largely unaffected post-COVID, while the poor have been forced to compromise on consumption with inflationary impacts in all parts of life. Unseasonal heavy rains in October resulted in one of the wettest October on record, and high average temperatures resulted in one of the warmest Decembers in last 122 years. Winter merchandise sales, as a result, got pushed out to January, denting December numbers.
The shift of sales from December was realized in January, though, improving growth for January. We opened 15 new stores in the quarter, 1 in South India under Unlimited and 14 in rest of India, and also closed 6 non-performing stores all under V-Mart in north, taking the tally, net tally to 414 stores pan-India, out of which, 80 are in South. All the new stores, especially in South, have been performing steadily and in line with the established V-Mart business model at similar margins as that of a normal V-Mart store, and, in fact, 20%-25% higher SPSF than the legacy Unlimited stores.
While we still wait for these new stores to complete at least one year before passing the judgment on the successful rollout for South in terms of new store throughput, yes, definitely the team remains very bullish on continuing the expansion plan in South under the Unlimited brand. There was a strong push on increasing online sales contribution with the acquisition of LimeRoad. Although it's been integrated only for less than two months now, and still going through a stabilization phase, some teething issues, the business does look very promising as we prep it up for higher growth once the basics are back in place. The revenue from marketplace is only the commission that we earn from sellers on the platform and not the full, you know, the net merchandise value. Coming on to the gross margins.
The gross margin at 35.4% were 40 basis points lower than last year, and also one of the lowest in the last four to five years as a result of a conscious effort to improve price offering for the value customers. We had talked about this in our last quarter call as well, we have made that change or tweak. We reduced some price points to make the customers' offering more attractive. This strategy has worked well as it helped pull in sales growth, at slightly lower margins. There has been a significant impact of increasing cotton prices in the last 1 year, although yarn prices have come down from their peak by 30% since September, they are still 30%-40% above pre-COVID levels.
The winter stocks did not get the benefit of any lower yarn prices as purchases are booked at least two to three months in advance. Going forward, there may be a marginal relief available in summer 2023, but as is the practice, it will be passed on to the customers in entirety, as we would want to remain very competitive in the value retail pricing segment. Coming to the expenses. The expenses for the quarter include an amount around INR 36 crores towards the spend on online business, which include the complete OpEx for both vmartretail.com and limeroad.com. The INR 36 crore expense also includes INR 12 crore one-time expense towards integration and other manpower-related costs for the LimeRoad business as it starts to get integrated into the main business.
Excluding the online business, the expenses for the quarter grew by roughly around 9.5%. Historically, online only constituted vmartretail.com and marketplace offerings, with expenses averaging around INR 4-5 crores per quarter. Now with a more focused effort to make the online business grow and induction of LimeRoad, this will slightly be bigger. On a go-forward basis, we are very confident of establishing both, the acquisitions in South as well as LimeRoad business as the biggest growth drivers, for the organization and remain committed to invest in the journey to reach the sustainable and profitable destination. South has already begun well, we will need to give some more time and resources for LimeRoad to start delivering. Coming to EBITDA.
For the V-Mart core business, EBITDA for the quarter came in at 17% plus, with Unlimited also in very close vicinity. LimeRoad only had a little less than two months in the quarter, as planned, is still in the stabilization and revival phase. As I mentioned, the business revenue in LimeRoad consists only of the commission earned from sales facilitated for sellers in the marketplace, while the expenses largely consist of marketing, logistics, and technology costs. Once the business has started to stabilize, we will be sharing more details around its operations. For V-Mart, considering the initial OpEx plans, you know, around the integration, the EBITDA came in at around 13.3% for the quarter. Coming to inventory.
The quarter closed at INR 767 crores, which was at 106 days of inventory, slightly higher than our target, due to a bit of late winters. Winters had been delayed, winters were slightly shifted into January, leading to slightly higher closing inventory than planned, that has been recovered in January. As stated in the past, we are carrying slightly higher inventory per store in South to explore newer categories and higher sales. On the CapEx side, we've spent around INR 125 crores so far, largely comprising of spends on the new warehouse, which is on schedule to start operations by end of March in this financial year itself. Other CapEx included spends on new stores and refurbishment of old stores, apart from some IT-related expenditure.
There's been some marginal utilization of working capital limits because of this higher inventory buildup and other operating costs. I think the working capital utilization would be the tune of around INR 40-50 INR crores. On the go-forward basis, I think on the outlook, we remain fairly bullish on how the market has to, you know, perform. We are still going on the new store opening plan as, you know, as originally planned. We've opened I think 40-41 stores so far this year, and I think we should be looking at closing the year by around 55-60 stores with some stores also getting opened in South. The growth plan for Unlimited also remain fairly strong.
There are, as Lalit mentioned, there are some, you know, more improvements which are lined up for Unlimited, but the team remains very buoyant on and very bullish on expanding that business as well. That's all from my side, and I'll request the moderator now to open the house for questions. Thank you.
Thank you very much, sir. We will now begin the question and answer session. Anyone who wishes to ask a question may press star 1 on their touchtone phone. If you wish to remove yourself from the question queue, you may press star 2. Participants are requested to use handsets while asking a question. Ladies and gentlemen, please wait for a moment while the questions are sampled. Ladies and gentlemen, in order to ensure that the management will be able to answer questions from all participants in the conference, please limit your questions to two per participant. Should you have a follow-up question, please rejoin the queue. Thank you. We have the first question from the line of Nihal Mahesh Jham from Nuvama Wealth Management. Please go ahead.
Yes. Good morning to the management. The first question was on the Unlimited part. You mentioned about the sales per square feet being 25% higher. Just to clarify, this is for a like-for-like store or the like-for-like stores that are in existence and versus the pre-COVID number. That's the right understanding?
Nihal, the 20%-25% higher is only for the new stores. The point that I was trying to make was that the new stores that we have opened in South are performing very well in line with the original V-Mart format, which is to open stores in tier two, tier three towns, 8,000 sq ft with low, you know, rentals, low OpEx, and thereby delivering higher throughput. The sales per square feet in South is very comparable to a new store opening in North, and that gives us the hope and promise that we can expand more there.
Possible to share for the legacy stores what is the kind of performance versus before the acquisition?
It is lower than main V-Mart business. It is it should be at around INR 520 per sq ft there.
That is helpful. The second question was, you alluded to the margin for the core V-Mart business being around 17%. I am assuming that when you're looking at the business, the INR 36 crores is something you're counting separately and not aggregating to any other businesses, right?
Yeah, that's correct.
Just a related question was if you could share the LimeRoad GMV for this quarter, if it's possible, the run rate, I mean, not for the quarter? What is the kind of EBITDA impact while you highlighted the 15%-20% number earlier, if there is any update to the same after you've integrated and looked at the business in more detail?
Nihal, on the operational aspects of LimeRoad, we will start sharing some more color around that once that business is stabilized. We are still ourselves in a learning mode and trying to understand how this business shapes up. It will be slightly be premature to, you know, start sharing, you know, current data because it is still getting stabilized. On the EBITDA percentage share for the spend or in the investment that we will do on the digital side, including LimeRoad, we still remain similar as around 20% of the EBITDA that we had stated in the past.
That is helpful. I'll come back in the queue for further questions. Thank you so much.
Thank you. The next question is from the line of Pankaj Tibrewal from Kotak Mutual Fund. Please go ahead.
Yeah. Good morning, Lalit, and good morning, Anand. Am I audible?
Yes. Please proceed.
Yes. My question is that, you know, in the last one and a half years, we have taken few capital allocation calls. One is Unlimited LimeRoad and the distribution warehouses. Something which we wanted to get more clarity was on the return on capital. We have seen as, you know, V-Mart very closely watching the return on capital for a very long period of time in the history, and that separated us from the rest of the retailers. Over the last couple of years, that number has been diluted meaningfully. Can you give us some sense on the roadmap for that recovery to happen? When you look back on all the capital allocation decisions, how do you know, make sure that most of them were in core with what V-Mart used to operate at?
When do we go back to that 15%-16%, which used to be our forte, for a very long period of time? That's more, one question on the strategic, which will over a period of return time determine our shareholders' return. Thank you.
Yeah. Pankaj, thank you so much for asking this question. Definitely, in the last two years or one and a half years, we have gone out to spend more money, which is unlikely of what V-Mart does. We are, because we are able to see lot of future capabilities and lot of abilities in the market and potential in the market, as you all understand the kind of risks that we are taking in terms of two acquisitions and allocating capital on those. UL especially, very clearly as the store addition in the South, which went down to that.
Suddenly, I mean, as the UL business is, it's taking time to come closer to what V-Mart business was. The capital, the return on the capital from that business will take a little more time to come back. If you go to the LimeRoad investment, certainly this is something very long-term, and this is futuristic. This will require still more capital as we speak and as we go ahead.
Making it very clear that, you know, expecting very good capital return or a positive capital return from this business is going to be difficult because this is definitely creating capabilities for us to cater to those millennial customers and the digital customers. We will have to invest more in this business, and this is a need for the future of seven. We will definitely want to keep investing in this particular business to acquire our competencies on the digital side. And as far as the new infrastructure capital allocation is concerned, which is the warehouse capital allocation, we are aware that we are building because after 8 years, we are building more efficiency on the infrastructure development.
There also we have gone ahead with building our own infrastructure, which is something that we have never done in the past. We will definitely find out a way to try and see how do we use that infra more, and then how widely can we use this capital allocated so that our overall return capital deployed doesn't go down. As of now, we will see a little more stressed ROCE for the next 6 quarters. Continuously we will see improvement in those return capital employed coming up.
We need to also have, they will actively and then wisely manage our inventory where another piece of capital allocation is happening, which is also not something which is still in the numbers that we do change. We will need to, we are, we are working and the markets are also coming back and things are, things will come up positively. Most of our bets that we have taken for our future growth, should bring in more results and should bring us, wider scope of market, both from the physical as well as digital perspective.
Okay. Thank you. We just hope that V-Mart retains back its module on the return on capital, which was there for a long period of time. Thank you.
Thank you. The next question is from the line of Percy Panthaki from IIFL Securities. Please go ahead.
Hi sir. My first question is on the sales per sq ft. Last quarter, that is Q2, we were about 8%... Sorry, 10%-11% below the three years before that 2Q. 2Q 2019 basically. Sorry, 2Q 2020 versus 2Q 2023, we were 10%-11% below. We were expecting that there would be a gradual sort of recovery on this front. Q2 did see a good recovery over Q1, and we are expecting Q3 also to see a recovery over Q2. Instead of coming down from a -11 to a -7, -8, et cetera, now we have gone to a -22.
Clearly now, I cannot see the direction of the recovery, I don't know how to really look at sales per square feet going ahead. Given that we are in a completely normal situation, COVID has been passed since almost 1 year or so, I understand there is some demand weakness. Barring that, we are in completely normal situation, and we are still 22% below pre-COVID. No company is lagging in such a huge way. Can you give some idea on how do we look at sales per square feet going ahead?
I mean, Percy, we I think it will be nice for you to have a separate call with Anand to understand, because we have also opened up a lot of new stores which has just added the square feet, but has not given us the complete area, number one. Number two, the sales per square feet of the seven business or Unlimited business still at a lower level. You will whenever you see that comparison, you will see it different. Number three, the Q3 this time as we have seen one festival shifting from October to September. Some numbers went into the last quarter. Some numbers are coming up in this quarter. There is some shift that we will see.
We should see a YQB, SPSF recovery. Yeah, I mean, definitely, we have also experimented on certain big size store in the eastern part of the country. That also, I mean, that's definitely then bringing up the sales per square feet, but it is constant. Some of these areas I think are definitely the LimeRoad addition or the Unlimited addition itself will put a pressure on that sales per square feet number that we see from this perspective. Otherwise, I think, we are, we will be able to see the like-for-like sales is flat from the last year.
But still from the pre-COVID levels, if you are still comparing, there is a pressure which is still there from the pre-COVID numbers and which we hope to see positive side. If you are comparing with those bigger Metros and Tier Ones kind of store mix, sales per square feet, definitely, the percentage growth there versus the percentage growth in our company, you will be still seeing some pressure there. Things are coming up into the positive direction. We should be able to see them getting normalized even in the next quarter.
Yeah. Exactly, sir. The last line is what I wanted to focus on, the direction. When you are saying things are going in the positive direction, the numbers are actually telling a different story, and things are actually going in the opposite direction. Instead of a minus 11.2, 0.3 year kind of growth that we saw in 2Q, we are today at a - 22. I can understand if the pace of the recovery is slow. I can understand that small towns are there, they are under pressure. UPBR is under more pressure than the rest of the country. I understand all that. Why is the direction actually reversing? That is my question.
Percy, as I said, there's a seasonal shift also. Please don't compare quarter on quarter. Durga Puja this time, the whole festival of Durga Puja Navaratri was in September. Most of the consumption shifted into September. That is why those averages you will be able to see little lesser there and little higher here, maybe more steep here. Please try to see both the quarters combined, it will be good. Quarter on quarter at times these quarters are very typical quarter, delicate quarter, where even a slight five days calendar shift from the this particular festival from this month to this month makes it difficult for you to understand. It is just a calculation, understanding issue, not a actual low performance.
Understood. Secondly, if you can give some idea in terms of the differential between the Unlimited and the organic business in terms of sales per square feet? I believe, one or two quarters back, you had mentioned that at the time of acquisition the differential was 20% and then it came down to 15%. What does it stand at, currently?
Percy, Anand this side. I think that number still remains very similar. While both the markets have been growing and both the markets have seen positive like-for-like, but the differential in the sales per square feet still is at around 15%, 20%. There are, you know, the silver lining although is that the new stores that we are opening in South are delivering much higher sales per square feet than the legacy Unlimited stores and that is a very good positive sign.
Okay. Lastly going ahead, if you can give some idea on what internal targets you have for FY24 in terms of EBITDA margins and in terms of sales per square feet.
Percy, it will be difficult to share. All I can say is, there are two statements that we have said in the past. One is the total growth should be in line with our historical seven, eight, 10 years rigor, which is around 20%. EBITDA traditionally, whatever we have been, I think there's around 15%, 20% investment that we will do on the online business. We'll have to work around those two statements here.
Okay. That's it from me. Thank you.
Thank you. The next question is from the line of Shirish Pardeshi from Centrum Broking. Please go ahead.
Yeah. Hi, good morning, Lalit-ji and Anand-ji. Thanks for the opportunity. If I look back nine months, we started year with lot of hopes, COVID settled down, somewhere in the June, July, we realized that the prices needs to be dropped because there is a slowdown in rural economy. Come October, we had floods and situation, and now we had delayed winter. Two data points what you have shared that our footfall growth is 13% up while the conversion rate has fallen to 55%. Maybe, I'm looking at this number for a little longer time, and that's why a bit surprised or rather worried. Is there more thing to do with the escalation in the competition profile?
Generally there is a structural shift that the mass consumption is still not picking up, and we will face this pain another two or three quarter. Your comments on this.
You are right, Shirish. I mean, definitely there is a pressure which continues and we will, we are putting our efforts and we are also not trying to work too much on the shorter term approach by giving a lot of incentive to the customer by calling them and converting them at a very, very low incentives. We are trying to build that standard because we want to walk the competitive path. there may be, there may be. What we are seeing is a reduction in the conversion rate, what we are seeing from 2019 to now. I think or maybe last year to now.
Last year to now, I think the reduction in conversion we will see, because there was a behavior, consumer behavior that we watched during those periods. There the footfalls were very low. The people who came in used to buy, and most of the customers used to buy because of the COVID fear, if you remember. Which, which I think is coming back to the normalcy. People have now increased their bill sizes. The number of, or the conversion, is at a fair level, I think. 58% conversion rate, is a very fair number to look at.
Because of the, because of the south, in south we have seen that the conversion rate has been really lower, but the bill sizes have been really high. All of those I think, that's a behavioral shift that we are watching just after COVID till now. I think, from the consumer perspective, definitely, things are improving and we are seeing pressure not only in our industry but in our also other industry. We still compared to pre-COVID, which I said in my opening remarks as well, which is improving day by day.
I think, this consumer segment, this rural customer or this unorganized customer that we are focusing on, we should see more respite coming in the future quarters.
Lalit-ji, I agree your comments. I know you always remain hopeful for the recovery. When we look at the competition angle, is that which is worrying you? If that is true, what are we trying to take measures to improve this? The other thought is that if the things are not in our control and there are external factors, why not to consolidate the stores and keep a pause of store opening.
No, I think, see, I mean, definitely the markets, which are new markets, we are taking the decision to develop the new markets for the long term perspective. These store openings are not for the shorter term time. We will continue providing work to a particular team. If those new stores' performance would have taken a hit, we would have thought about it. I think, it's just looking at from the previous two years' numbers, and we are comparing those 180 stores with 200 stores from a like-for-like perspective. I think we'll have to now come up and then and look this new scenario and now start comparing with the last year and then see how does it.
How do we grow from here. Definitely, the market has densified more. We are seeing more competition. There are more outlets to visit for a consumer. There is some market share which has been occupied by them, that which is there, but I don't see a great heightened strategic move from them in terms of the customer acquisition and in terms of the customer moving because of the fundamental offerings which is provided by the retailer. There will be some tactical move which the retailers will do, and we'll try to get some consumer into the store which is going to happen.
I think these newness effect will certainly die down over a period. We will be able to establish our relationship with this customer. The value customers are going to come back to us.
Thank you, Lalit . My second and last question to Anand ji. I think some quarters back we were saying-
Mr. Pardeshi, I'm sorry to interrupt, sir. There are many other participants who are waiting for their turn.
I'll just spell out the question. Later on, they can answer whenever they get time.
Okay.
My question was to Anand' s comment in the past that we were trying to get the inventory normalized. Obviously, understandably, this quarter we had winter, which is prolonged, and the inventory were on 106. Maybe in next four to five quarter, where do you would like to settle, given the context that our warehouse will be operational by March end? Maybe any quantitative comment you can offer later on. Thank you, Lalit ji and Anand ji.
Thank you.
Thank you, Shirish. Let me just quickly answer that. The long-term trajectory for inventory days will over around 90 days that we have maintained in the past, and we will work towards that. Thank you.
Thank you. The next question is from the line of Resham Jain from DSP Investment Managers. Please go ahead.
Yeah. Hi. Good morning. I've just one query on the inventory. If you look at the modern retail stores, all these stores have I mean, a lot of competition has moved to the display mechanism, which is hanger model, where the piece per or the piece per sq ft has been much lower compared to our swale model, where we used to stack clothes on the top of each other. That has also led to a much lower kind of employee kind of cost as well. Is there any change in our display mechanism also in our old stores? How are the new stores being built? If you can just help with this.
Yeah, Resham, definitely, we are not trying to look at the competitor and trying to learn, but we definitely will learn from them as well. There are some changes that we have already initiated, if you remember the FDU concept that we had launched. Still, you know, the kind of customer segment that we target to, because these are masters and these are a little lower segment customer, compared to the competitors that you are speaking of. We believe that these customer segments still are not too organized and still are not easy to handle. They need a little extra variety and little higher inventory.
that we have built, that also, that also ropes in these things. But yeah, I hear you, what you're saying, and we are working on reducing this inventory per square foot, both from the display perspective as well as inventory perspective, and giving a little more clearer display to the consumer. A lot of work has happened in the in the in the, you know, in that area, in trying to improve upon the density, which is what you are trying to talk about, the density of clothes per or units per square foot. That's what we are watching and good observation. Thank you. We will take care of.
Are new stores being built with this concept or they are also being at the similar model which we used to have earlier?
I mean, the new store, definitely as we said, is FDU concept. A large part of that has shifted into hanger-based, product line. Still in the smaller part of India, a product which has been opened up and hanged, not all products is being appreciated by the consumer. They feel that may have people do and get a view to stock. There is still that cultural piece or the expectation from the consumer that we are, we have to manage in terms of certain product lines where they don't accept those opened up pieces.
Okay. Understood, sir. Thank you. All the best.
Thank you. The next question is from the line of Mandar Pawar from Kotak Mahindra AMC. Please go ahead.
Hi. Good morning, Lalit ji, Anand ji. My question is on the price corrections that we have taken for our merchandise. If you can help us, you know, give us a data point as to how much price correction that we have already taken in percentage terms, and you know, compared to pre-COVID levels, where this selling price will be, you know, compared to pre-COVID?
We've not really just taken a price correction. There have been a variety of measures that have been implemented. One is improving the product availability at lower price points, which had got thinned out because of margin pressures in the past. Second is some amount of improvement in the product profile, coupled with price correction at, you know, some strategic price points. Third is more around price lagging, where we have also, you know, ensured better availability of product at strategic and key price points. A mix of all of these is working to ensure that our ASC, if you look back versus last year, has remained flat. It's a variety of measures, and the team is continuously working to improve on it further.
Okay. You know, with your possible reduction that may happen on the yarn prices and, you know, garment prices there, do we expect our gross margins to settle and how much do we retain, how much do we pass on to the customer?
That remains a very clear strategy for us. We've always been an honest price shop, when the price go up, we pass on the price to the customer. When the price come down, we again pass on the benefit back to the customer. As I had stated in my opening remarks, we are expecting some amount of marginal price relief in yarn prices, which, if get affected in summer, we will pass on that back to the customers, keeping the gross margins at the similar range for the core V-Mart business at around 32%-33% and for the Unlimited business at around 37%-38%. Weighted average should be at around 34% in the medium to long term.
Got it. Got it. Just one final question. you mentioned in your opening remark about, you know, the postponement of winter sales into January. also want to check if along with that, was there any discounting on the winter wear which happened during December, and whether that had any impact on the gross margins? That's my final question.
Not really. Not really. We are not very heavy into discounting or promotions. Because there was a shift in climatic conditions, the customer came and bought that product in January. If at all there is more liquidation time, it will happen subsequently.
Got it. All right. Thank you very much.
Thank you. The next question is from the line of Tejash Shah from Spark Capital. Please go ahead.
Hi. Thanks for the opportunity. Lalit, in your opening remarks, you sounded cautiously optimistic on demand environment. Just wanted to know, because we have been having this tone for a while. Let's say if we have to see near term only, what are you optimistic about and what are you cautious about, let's say, for coming six months of the calendar year 2023?
Currently, the optimism I said, the business is coming back in the consumer pulse, the consumer pulse we are able to see some respite as if we compare quarter-on-quarter. We are seeing quarter-on-quarter there are improvements that is coming up and that's what we are seeing. I'm indicating more towards, you know, the consumer confidence index, and that's what is important to me. How does that confidence grow up for the consumer? If the confidence comes up, the feel good factor becomes better, then they start investing on these discretionary, so-called discretionary products. That's what drives the future sales of our consumerism in India and in Bharat.
I think we see some hope that is built here. Still not exactly similar, but quarter on quarter we are seeing improvement. Then inflation has come down, but still not to that level that by consumers have come out of that budgetary pressures that they had. It is still going to take another one or two quarters, which will make it happen. The challenges, yeah, definitely as I said, the challenges are also there. This is what we see the challenges.
The hope that, you know, our pricing that we increased, our offerings that was available, how do we have tweaked all of those, hope that consumer will have got some benefit in this last quarter, and consumers will get future benefits also in the next quarter. They once again relate back and they start consuming at our stores and then that's how, that's what we feel, we are optimistic about.
Sure. Lalit, if I compare our commentary, post-COVID versus pre-COVID, there always used to be an element of hustling or growth mindset irrespective of the macro environment that we used to face. Now of late since COVID, we are attributing most of our slowdown or challenges to macro issues only. Should we think that the bottom-up initiatives which we are doing are not responding anymore and we are at mercy of macros only? Or you believe that there's lot can be done at our level also irrespective of the macro environment to revive growth?
Look, Tejash, you are absolutely right. definitely by speaking we will talk about some of our, some part about our macro, but definitely we have lot to do internally. This is what I said, both from the inventory management perspective, the new things that we are trying to offer, the new designs that we are trying to offer, the themes that we are creating, the differentiating processes that we have brought in, the digitalizing that we are trying to do. A lot of, lot of work is happening at the company and we definitely internally talk and believe that, you know, if we are pointing one finger outwards because there are four fingers coming back to us.
There are a lot of those that we have to work because these are not the similar environment when the competitive pressure was very low and the competition and the market was also very low. There is a complete friction in the market. There are more stores in the market which are offering unique capabilities, unique potential and unique themes who are definitely seen more with more doors in the market. There are changes in the market. There is a higher opportunity for the consumer to visit both from the online as well as offline perspective. There is even a small shift in that will definitely affect us, could affect us.
When there are growth concerns at the macro level, that is where those smaller things, it's all about the 5% or 7% or 10% up, down is what brings in benefit and what takes away benefit.
Sure. Maybe the last one on this. As an outsider, if I have to, let's say, evaluate after a year on that all these initiatives that you spoke about are working, it will reflect in which all top three parameters? Will it be inventory at store level or sales per square feet or SSC? How should I actually monitor as an outsider that the initiatives that you spoke about are actually delivering results or not?
Yeah, definitely, the sales per square feet is a key indicator, or even the like-for-like growth is a key indicator. I think we should be able to do that. While we are doing some of the experiments, reorganizing the teams, restructuring the teams, there may be some pressure that we will see on the inventory side a little bit, which could prevail. But our labor and our endeavor is to try and manage these pieces also. That's what is also a part of the project in trying to bring down the inventory management, have a better digitalized forecasting, have a better consumer understanding so as to the assignment, so the allocation pieces can turn out well. These are all work in progress. These are all something which is rolling out.
We should be able to, I mean, that's the whole, entire, the effect is on the 360-degree that we should be able to create, which finally boils down to the ultimate like-for-like sales.
Great point. That's all from my side. Thanks, and all the best.
Thank you. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to the management for closing comments. Thank you, over to you, sir.
Yeah. Thank you so much. I understand the kind of questions which are coming in. People are a little concerned about our performance. People are, people are able to see a little body and tonality change from our side. I, we definitely believe and we understand there's no hiding away. This is definitely a tough situation which continuously has been prevailing, and we have been regularly talking about it. We still want to maintain those positive notes because we are motivated looking at the market. There are situations, there are challenges which will come in. We, we will not take the same or similar or pleasant weather every time. There will be bounces, and we will have those a little longer stretch of those, and that's what we are here to fight for.
Fundamentally, we are becoming stronger. This is what I just want to restate the belief. Fundamentally, we are working. We are working on those key parameters where things has to be strengthened in a longer term perspective. At a shorter term perspective, there could be some tactical approach by a competitor or by us or not effective to us, which may deviate us slightly on those. The investments that we are doing on the new initiatives will definitely the bottom line may not seem similar that we used to have. The ROCE will not seem similar. Have patience on those. You have shown enough trust with us continuously for a period of time.
We will definitely hold it up. We will want your trust not to be diluted. We will keep it up. Thank you so much. We'll put our best efforts to prove whatever we do. Thank you. Thank you. Have a great day.
Thank you, sir. On behalf of ICICI Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.