O’Key Counts Cost of Tragedy

O’Key Counts Cost of Tragedy

Published: September 21, 2011 (Issue # 1675)

The hypermarket chain O’Key is scheduled to reopen a store whose roof caved in last winter at the end of this month. The retailer may have lost up to 1.8 billion rubles ($60 million) in earnings because of the temporary closure.

 The hypermarket located at 3 Vyborgskoye Shosse will open by the end of September, O’Key’s press service said. On Jan. 25, 462 square meters of the roof collapsed over the sales floor, killing an employee and injuring 15 customers. According to the press service, the cost of repairs and renovation, modernizing the engineering and communications infrastructure, and the total replacement of sales equipment and technology of the Ozerki hypermarket will comprise 150 million rubles ($4.8 million).

The store closure probably cost O’Key from 6 to 6.5 million rubles ($191,000 to $207,000) per day, said Investkafe analyst Anton Safanov. In the eight months that the store was closed, the retailer could have lost 1 to 1.2 billion rubles ($32 million to $38 million), he estimated.

Ivan Kush, an analyst at VTB Capital, believes the chain lost approximately 2 percent of its forecasted annual revenue, which he estimated at 94 billion rubles ($3 billion) for this year. O’Key’s press service did not comment on the data.

In 2010, the chain’s net revenue totaled 81.69 billion rubles ($2.6 billion), increasing by 11.9 percent in the first half of the year to 42.8 billion rubles ($1.4 billion). After the tragedy, O’Key closed 25 hypermarkets and supermarkets in St. Petersburg for a week while snow was cleared from the roofs as a precautionary measure. Revenue losses could have totaled 90 million rubles ($2.9 million) a day, said Safonov.

The retailer operates 61 stores in Russia, 31 of which are in St. Petersburg.

 According to O’Key’s press service, the company expects turnover of the store to recover in two to three months, after being 20 percent less than other stores in the chain in the first month. Safonov believes that in the first few months after the opening, the turnover of the Ozerki store will be down by 10 to 15 percent.

O’Key is a brand leader on the Russian market, and remains the most effective in turnover per square meter, said Mikhail Burmistrov, director of Infoline Analytics. He said it would probably take five to six months for sales to reach 70 to 80 percent of what they were before the roof caved in, while they would reach 90 percent only after a year, with a complete recovery unlikely to happen. Competition in St. Petersburg is fierce, and part of the customer base has already gotten used to going to other stores during the eight-month break, Burmistrov explained.

One retail chain representative said that the hypermarket should not have problems with recouping sales, as customers will quickly return to a store that is conveniently located for them.

The retailer paid out 6.3 million rubles ($201,000) in victim compensation after the roof collapsed.

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