The growth in organised retail sales in India might continue to falter for the next 18 months and might fail to reach its envisaged share for 2012, showed a study by business consultancy KPMG.
Organised retail’s share is expected to grow to 10.4 per cent of the overall retail market by 2012, rather than the 16 per cent estimated earlier, the KPMG report has said. Organised retail currently accounts for around 5 per cent of the estimated $350 billion Indian retail market.
The economic slowdown has impacted retailers as shoppers curb spending and defer costly purchases. Sales growth in organised retail continues, but the rise in the third quarter of the current financial year is only one-third of the rise in the December quarter of the previous financial year, according to the consultancy. The growth was 11 per cent in Q3 of FY 2009, as compared with 35 per cent in the December quarter of FY 2008.
According to the industry estimates, October to December sales are nearly 40 per cent of the total retail sales in a year.
Economic growth has also slowed. The Indian economy is expected to grow about 7 per cent in 2008-09, lower than the 9 per cent or more in the past few years.
“Happy grins are turning into nervous smiles. While the sector is still registering decent growth, the heavy investments during the boom period may weigh retailers down,” KPMG said.
Apart from global majors such as Wal-Mart, Tesco, Carrefour and others, big corporate houses such as Reliance Industries, Aditya Birla, Bharti and others had entered organised retailing to cash in on the boom. But, 53 per cent of retailers say their confidence on expansion targets has been shaken, the report has said.
While Future Group and Reliance Retail have put their cash & carry operations on the back-burner, retailers such as Subhiksha have halted operations. Aditya Birla Retail and Reliance Retail have closed several stores to conserve cash.
For some retailers, the drop in footfalls turned same-store growth negative for the first time in six years, the firm said, adding that 70 per cent of the retailers surveyed said the downturn had impacted footfalls.
“Slowing sales resulting in lower inventory turnover and increasing working capital requirements to fuel growth have resulted in liquidity pressures for many domestic retailers. Companies have been trying to reduce inventory and shorten working capital cycles,” said Ramesh Srinivas, head of consumer markets, KPMG.
Apart from falling sales, aggressive offers and promotions have also eaten into margins. Though cost-cutting measures countered the effect of the falling top line on operating margins, the high interest costs resulting from mounting debt dented their bottom line, it said.
Highlighting the fund crunch faced by retailers, nearly 60 per cent of those surveyed confirmed drying up of credit, with banks turning away retailers in the context of falling demand and low profitability. “We believe that players which take immediate strategic measures will be dark horses. Be it store rationalisation, change of supply chain, consolidation of operations, or improvement in IT infrastructure, retailers need to think quick to protect margins and become tougher for more challenging times,” said Neil Austin, KPMG’s head of markets.
Source: Business Standard