Retail 2018: It’s gonna be bigger & better

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2017 would go down in history as a watershed year for the Indian economy as the twin bold measures of demonetization and GST impacted the economy. Despite the apparent absence of currency and heralding of a new uniform tax regime, the retail sector grew impressively at about XX per cent. Mind you, the whole nation was experimenting with a brave new economic exercise but the economy weathered the uncertainties well as we enter a new year.

The Year that will be…Life Post-Demonetisation, Post GST

So what does my crystal ball forecast for the Indian Retail Industry this year? Actually five predictions that shall sum up the trend in the industry.

1. I think that the organised retail market will grow at a compound annual growth rate (CAGR) of at least 20 per cent in the coming year. There are reports which are pegging the CAGR at 12 per cent but I beg to disagree and feel that the growth will be close to 20 per cent

2. My confidence emanates from the fact that 2018 will be a disruptive year where more existing players would be speeding up their growth after having seen the dust settle on the economy last year

3. The retail players will be gunning for more aggressive growth that would include opening more store in coming times. As we have seen those who are running stores averaging a size of 8,000-9,000 sq.ft. are generating higher profitability. Hence, we would be witnessing higher growth in mid and smaller sizes of stores. Simultaneously, we will be witnessing a higher penetration of stores in Tier III and IV cities by major players

4. With the retail sector in India coming of age, I foresee some major consolidation via M&A happening in 2018 where key player s will merge together, or bigger player will acquire smaller players helping the retail experience get wider and deeper.

5. Earlier in June 2017, there were speculations of mid-rung global retailers planning to invest about US $300-500 million and opening roughly 3,000 stores in India. My prediction is that the liberal FDI regime in Retail will ensure many international players coming to India and setting shop in this year making an Indian’s retail experience as competitive as that of the developed economies.

2018, thus, will be the year for the retail sector to watch out for as it shall see market players compete with each other in absolutely new economic paradigm.

The Year that the times of GST

2017 started in the backdrop of a bold experiment of demonetization. The experiment per say benefited the savvy organised retailers.

The usage of plastic card increased exponentially which helped in the growth of sales volumes. The supply chain was well handled by the organise retailers not only in the fourth/ last quarter of the previous year but also in the first quarter of this year,

The year per se started on a good note on account of a great marriage season. There were good turnover and incomes in this segment for the organised retailers.

The anxiety about GST created a lot of buzz during the first quarter of the current financial year keeping most of the retailers busy making sense of and complying with, the new GST regime. The retailers organised a lot of workshops with small manufacturers and service providers to update and train them for the post GST scenarios. Lots of software, processes and policies have been implemented in the retails organisations

Despite all the hype and hoopla, the launch of GST itself was a big fiasco. Many of the retailers tried to generate the first GST bill the prescribed way but the celebrations were a bit premature as the GST exposed some serious flaws. Yet, most of the retailers took these initial hiccups in their stride and did not inconvenience their sales chain which is good news for India.

Those retailers who were ready did not face any problem and immediately started benefitting from the GST. The GST also led to the retailers reaping good benefits in terms of the tax saving.

Primarily, retailers started getting benefits on service tax paid on the rentals. They started getting the credits on the GST and other things. Most of the retailers started getting the benefits to the tune of 1-1½ per cent of their turnover. Beyond that, the CST (Central Sales Tax) got abolished and the GST was introduced. This led to higher savings in costs which lead to the reduction in MRP for the consumers. The benefits which came from the GST was passed to the consumers. The Govt brought in GST as an anti-profit law and that was the spirit that the retailers showed and passed on to the customers.

There were certain product lines which became costlier because the GST rate got increased from 12 per cent to 18 per cent or 28 per cent. In some cases, it increased from 5 per cent to 12 per cent especially for the premium products like apparels worth Rs 1,000. Those consumers who bought premium products had to pay a higher amount for the same product vis-à-vis the common man. The later got benefited by the GST of 5 per cent on apparel products that were below Rs 1,000.

It was a great movement and the entire manufacturers and retail chains backed it spiritedly. The notion we developed from there was that this was the way forward to bridge the gap between organised and unorganised retail sectors. The differences between both these sectors got done away with just the implementation of GST that brought both the unorganised and organised vendor at par. Organised industry celebrated the implementation of GST. It was an opportunity for the organised retail industry to generate more business for themselves. The change was not just notional and economic but also process based.

Apart from this, there were two game changers that happened in retail.

First, was the listing of D Mart. Their performance was a great fillip to the retail industry. The entire industry was re-rated and retail got a fresh dose of acknowledgement and respect.

Second, the Investor Fraternity also sat up and took note of the New Kid on the Investment Block. Retail ended up becoming the Darling of the market in sharp contrast to its earlier image of a volatile, untrustworthy industry.

The valuation of all retail stocks pumped up and everybody benefited. It was time for the people to cheer up and raised some funds and equity. We could see some deals happening in smaller players too.

As we saw in 2017, retail sector adapted well to the changing times reminding me of the famous Chinese proverb, “When the winds of change blow, some people build walls and others build windmill”. In 2017 you saw the retail sector harnessing the winds of change to organise themselves, in 2018 they shall be catapulted forward with the power of those windmills.

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