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Retail in 2019: Sluggish consumption cramps growth

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Consumer spends took a major hit in 2019, both in terms of purchase volumes and ticket sizes. Inevitably, overall retail leasing activity reduced drastically by as much as 35 percent in the top 7 cities alone. Seasonal discount shopping gained prominence over brand loyalty. The struggling automobiles, fashion and telecom industries derailed both consumer spending and space absorption and only F&B, family entertainment centres, cinemas and beauty/wellness boutiques saw appreciable growth.

Retail in 2019: Sluggish consumption cramps growth

Retailers had to seriously re-vision their strategies in 2019. More players started to harness technology to compensate for reduced manpower. Analytics-driven decision making aided by expert retail leasing consultancies proved to be immensely important during the year. Strengthening customer loyalty was the watchword throughout 2019.

The government’s further relaxation of FDI norms for single-brand retail and the widened definition of mandatory 30 percent domestic sourcing norms benefited players like , , etc.

– The top 7 cities saw retail leasing activity drop by 35 percent in 2019 over 2018 – from 5.5 mn sq. ft. in 2018 to 3.6 mn sq. ft. in 2019.
– The share of organised retail gained ground in 2019. While it currently still accounts for only a 8 percent share of the overall Indian retail market, it is set to reach 13 percent by 2020 end on the back of government interventions.
– Average vacancy levels have come down to almost 14 percent in 2019 as against nearly 15 percent a year ago.
– Total PE inflows in retail touched nearly US$ 260 mn between January to September 2019, compared to US$ 355 mn in 2018 – an annual reduction of 27 percent.
– Retail leasing in the top 7 cities dropped by 35 percent in 2019 over 2018 – from 5.5 mn sq. ft. in 2018 to 3.6 mn sq. ft. in 2019. The peak year (2011) saw three times more leasing activity than 2019.
– Average vacancy levels have come down to almost 14 percent in 2019 as against nearly 15 percent a year ago.
– With ample new retail supply (of approx. ~7mn sq. ft.) projected to enter the top cities in 2020, average vacancy levels may increase marginally.Retail in 2019: Sluggish consumption cramps growth

Warehousing supply & absorption:

As per ANAROCK research, the top 8 cities – Bangalore, Chennai, NCR, MMR, Hyderabad, Pune, Ahmedabad and Kolkata – together saw new supply of nearly 28 mn sq. ft. of Grade A & B logistics and warehousing space in 2019.
Of this, nearly 20 mn sq. ft. have already been leased by various players.

Other Sunshine sectors

After a fairly scintillating performance in 2018, the logistics & warehousing sector failed to show much growth in 2019. In fact, it witnessed a 27 percent decline in total PE inflows in the first three quarters of 2019, equalling nearly US$ 200 mn as against US$ 275 mn in 2018.

However, the majority of available space in this sector is still unorganized and can, therefore, be tapped for future ROI growth potential. Initiatives like ‘Make in India’ will boost activity in manufacturing, e-commerce and retail – which will call for quality warehousing spaces. Its lower growth in 2019 does not really reflect future trends.