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Eclipsed retail sector growth in 2019, leasing down 35 percent

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India’s sluggish economy is impacting different real estate verticals, including retail leasing. ANAROCK data reveals that in the top 7 cities, retail leasing activity dropped by 35 percent in 2019 as against the previous year – from 5.5 mn sq. ft. in 2018 to 3.6 mn sq. ft. in 2019.

Eclipsed retail sector growth in 2019, leasing down 35 percent

Downward revisions of GDP growth rate are bound to reflect in the consumption-driven retail industry. Demand across multiple sectors continues to fall as Index of Industrial Production (IIP) or factory output in September contracted by 4.3 percent – the lowest in almost eight years.

Discretionary spends remain low and the ticket sizes of purchases have shrunk – with predictable impact on retail leasing activity. Slow sales and sluggish activity across sectors such as automobiles, fashion and telecom are translating into reduced leasing across retail spaces as players shift their operational strategy.

Apparel Sector Down

In the fashion and apparel industry, sales of several brands have been hit by poor consumer spends. Even during the festive season, same-store sales shrunk and retailers are minimising capital-intensive ventures by scaling down expansion plans.

The apparel industry has been hit with a triple whammy- GST, credit squeeze on small and medium enterprises, and increased competition due to slowdown in global demand. According to the Apparel Export Promotion Council, India’s ready-made garments exports display a downward graph. Estimated at US$ 1,107.18 million in October 2019, the country’s apparel exports fell by 2.1 percent from the corresponding period last year.

Macro impact – Demand for fashion products impacted, significant reduction in demand for new fashion-specific mall spaces by small local brands; global brands are staying put but not currently expanding.

Jewellery, electronics, books and music, hypermarkets and men’s formal clothing are other categories that saw reduced leasing activity.

F&B – Still Going Strong

Among the retail verticals that continue to show growth are F&B, family entertainment centres, cinemas and beauty/wellness boutiques. These verticals have seen a decent rise in space leasing and are doing fairly good business depending on factors such as location, accessibility, brands, etc.

Though rising rentals in prime locations hinder the growth plans of many brands, Indians’ affinity to eating out and entertainment remains undiminished.

Consolidation, Innovation and Redemptive Policies

It’s very obviously not business as usual in the Indian , and retailers have had to reduce costs – not least of all by realignment of retail spends.

Many retailers must now consider consolidation and realignment of their operational structure. Long-vision players are taking steps to boost productivity through technological innovations, automation of production and analytics-driven decision making. The retail sector is also renewing its focus on consumer-centric strategies in order to strengthen customer loyalty.

The government is taking steps to push consumption and demand through various economic steps and policy changes. A major step in this direction was the relaxation in the FDI norms in single-brand retail and expansion in the definition of mandatory 30 percent domestic sourcing norms.

This helped foreign retailers like and , who will now find the Indian market more lucrative for business and investments. Many more foreign brands have been in a wait-and-watch mode because of the difficulties imposed by sourcing norms. Now, many such players can now foray into India to tap into the country’s long-term consumption potential.

Retail Revival on the Cards?

India’s retail sector is projected to grow to US$ 1.3 trillion by 2020 from the level of US$ 672 billion in 2017, and many retail players feel that the current slowdown is a short-term phenomenon. Optimistic about the future growth prospects of retail, they maintain that the size of the Indian population, consumption and demand will drive organised retail growth in the future.

However, it will take more than optimism to pull the retail sector out of its current tailspin. What the retail industry needs is strong demand dynamics, sizeable funding and consistent policy support from the government to get past the slowdown.

Private equity investors pumped in excess of US$ 2.1 billion funding in India’s retail sector between 2015 to Q3 2019 period with majority inflows originating from US, followed by Singapore. As the economic challenges remain a grim reality, the retail industry is counting on more such avenues for raising funds to keep its prospects alive.