India Ratings has unveiled its mid-year outlook for retail in 2013 and they say its negative. The report says, “India Ratings & Research (Ind-Ra) has maintained a negative outlook on the retail sector for H213. Higher inflation and marginal nominal wage growth are expected to act as major deterrents for consumer spending. In addition, margins pressures will continue to impact credit profile of retailers.”
The report suggests, the FY13 private final consumption expenditure (PFCE) growth rate was at an eight year low. The agency does not expect any significant improvement in PFCE for H213. Moreover, with no chances of considerable hike in wages, the inflation rates are going to be high for consumers.
iGrow thinks: “Its funny but we see malls and markets flooded. I was at the Pacific Mall yesterday and I could see shoppers carrying heavy shopping bags and while I exited the mall at 10 pm, people were dropping in to watch movies or have their dinner at some fine dine and casual dine restaurants (obviously no one comes to a mall to shop at 10 pm).”
So in order to ensure decent sales, the retailers have to rely on extended discount-driven sales to boost volume growth. However, over the past nine quarters, discounts have not benefited volume growth meaningfully.
iGrow says: “Ohh its the sale season that has flooded the malls. Yeah, I could see banners including upto 70 per cent off and gifts and what not. The malls themselves are running contests, applauding and rewarding shoppers who spend the most. Now people are competing on who will spend more.”
Whereas for retailers, the reports says, “Retailers are looking at profitable and moderate pace of additions under 10% in FY14 as against the range of 15%-30%, seen in the last two-three years. The agency expects this pace of additions to be maintained which would help reduce major capex outgo. In recent times, companies are closing, relocating or rationalising unprofitable stores. On a trailing 12 months (TTM) basis, Future Retail Limited’s (‘IND A–’/Stable/‘IND A1’) net space addition was negative 7.5% to 14.1 million sq ft in. In FY13, Trent Ltd closed down four Westside stores in India. Shoppers Stop Limited’s (‘IND A1’) (standalone) space addition was 9.7% yoy to 3.4 million sq ft in FY13 compared with 29.2% in FY12.”
iGrow says: “this has been visible for quite some time now, retailers are either closing or down-sizing their not so profitable stores. Infact, this restructuring trend has been seen in the largest of retailers including Future Group, Shoppers Stop, Westside and others. It’s been visible that consumers have suddenly moved to international premium brands who are priced a little high than products available at Indian brand stores, but like Indians are, we love ‘foreign’ brands (recently seen with Zara surpassing Shoppers Stop with annual sales of Rs 405 crore). They forget that half of these brands import the products from India and then sell it internationally and are now bringing it back to India.”
- HyperCity and Crossword open stores at Viviana Mall (igrowcommunity.wordpress.com)
- E-retail grabs Eyeballs with Pop Up Stores (igrowcommunity.wordpress.com)
- Zara cracks India code; posts annual sales of Rs 405 crore (igrowcommunity.wordpress.com)
- Provogue goes online; end of season sale now a click away (igrowcommunity.wordpress.com)