This year, Magnit Cosmetics may reach the 1,000 store mark / magnit-info.ru

The Magnit Cosmetic chain has 686 stores at the end of 2013, the company reported. A year ago, there were 692. Last year, the company closed more drogerie stores (for more information on the format, see the inset) than it opened, a company representative confirmed, without naming specific figures. In the first half of the year, the retailer opened eight stores of this format, and another one in the fourth quarter, Magnit reported earlier.

Plans for opening drugstores in 2013 were much larger: in November 2012, Magnit announced its intention to open 500 stores of this format. But already in January 2013, Magnit founder and CEO Sergey Galitsky spoke only about 250 outlets (they planned to spend about $35 million on them). "As for cosmetics stores, when we opened them, we thought that the EBITDA margin would be higher than that of grocery stores. We didn't get that," Galitsky explained then. "We are now raising standards <...> to open only in places where the margin will be higher than in grocery stores. That's why our pace has slowed down," he said. Magnit's overall EBITDA margin in 2013 was 11.16%; the company does not disclose this figure separately for the drugstore format.

Despite the reduction in the number of outlets, Magnit Cosmetic's financial performance improved significantly in 2013: revenue doubled to RUB 11.8 billion, comparable revenue grew by 14.6%, traffic by 10.5%, and the average bill (excluding VAT) by 3.7%, the company said in a statement. In 2013, Magnit Cosmetic finally became an effective format, says Mikhail Burmistrov, CEO of Infoline Analytics: it became profitable in the summer, while before that it was more of an investment project. "I would not like to comment on Magnit's work, but I believe that any store, including ours, should prove itself - many outlets are increasing their performance every year," Dmitry Shcherbakov, co-owner of Sangi Stil (the second-largest player in the drugstore market), told Vedomosti earlier.

The chain has become the largest player in the drugstore market, and the new team has managed to improve operating indicators, says Burmistrov. In terms of efficiency, Magnit has caught up with Sangi Stil - revenue per square meter has reached approximately $2,500, says Burmistrov, but points out that the retailer has room to improve - for example, at Ulybka Raduga, which operates primarily in large cities, this figure reaches $6,000. The main task for Magnit Cosmetic in 2014 will not be the maximum number of openings, but testing the effectiveness of the format with organic growth, warns Burmistrov.

In 2014, the retailer plans to open 300-350 cosmetics stores, Galitsky said yesterday on a conference call. "We are currently comfortable with cosmetics stores, we like the EBITDA [profitability], which has now exceeded that of neighborhood stores. The main problem is to find premises that meet our requirements in terms of area and rental price," he said.

Burmistrov calls the opening plans "conservative." Magnit Cosmetics can open up to 1,000 points a year, but such figures will allow him to check how sustainable the business model that was formed in 2013 is with organic growth, he says. This market is very fragmented, the top ten players account for no more than 10% of sales, and the concentration level remains very low. But this format is usually successful in conjunction with food retail, warns Burmistrov. If the operational efficiency of the format is maintained and the EBITDA profitability indicators remain at the current level (currently it is more than 12%, higher than the company average), then in the next few years Magnit will present a very ambitious program to open a drogerie format, and revenue by 2020 will reach $2 billion, Burmistrov predicts.

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