Organised retailers' sales growth fell one-third in FY13

Slow same-store sales growth, low space additions key reasons for lacklustre growth

A slowdown in the economy and poor consumer sentiment have hit India's leading organised retail players, which saw sales growth fall by almost a third last financial year. The average sales growth of the top three listed retailers - Future Retail, Shoppers Stop and Trent - came down to 11 per cent in 2012-13 from 29 per cent the year before, data culled by BS Research Bureau showed.

Growth of the overall organised retail segment, which accounts for seven per cent of the Rs 25 lakh-crore Indian retail market, slowed to 10 per cent in FY2013, compared with 20 per cent seen in 2011-12, said a research note from analytics firm CRISIL.

Kishore Biyani-led Future Retail, the country's largest listed retailer, saw sales growing 10.1 per cent last financial year against 31.6 per cent in FY2012, while Raheja-owned Shoppers Stop saw a growth rate of 14 per cent in FY2013, compared with 28 per cent in the previous year.

Analysts say the slow same-store sales growth and lower space additions have led to a decline in the sales growth of organised retailers. same-store sales growth refers to growth coming from stores which are in the business for a year or more. "Same-store sales growth slowed down, especially in the first half of 2012-13. Net space additions were also lower as many players shut unprofitable stores," said Binaifer Jehani, director, CRISIL Research.

Added Sonam H Udasi, head of research at IDBI Capital Markets: "Earlier, all listed players were focusing on expanding retail footprint and driving top line growth. But now, they are focusing on profitable growth and consolidate their operations."

According to a report by the Confederation of Indian Industry and the Boston Consulting Group: "Modern retail is struggling to drive efficiencies due to nascent and largely unorganised supply chain."

Same-store sales growth of Shoppers Stop was less than three per cent in the first half of FY2013 versus 13 per cent in the second half, as promotions and weddings propped up retailer's growth. Retailers like Future and Tata Group-led Trent have also shut loss-making stores. Future has shut stores of its electronic chain Ezone in small towns to focus on the top six cities and closed unviable stores of its hypermarket chain, Big Bazaar in some cities.

Trent has closed nearly half a dozen stores of its value fashion chain Fashion Yatra, which were not making money. While announcing its FY13 financial results, Trent said it had a total of 107 stores across different formats. By the end of 2012, it had 106 stores, meaning the net expansion was just one store.

Future Retail had a total retail space of 14.12 million sq ft as on March 31, 2013, compared with 14.19 million sq ft on March 31, 2012, meaning a space reduction of 0.07 million sq ft.

"Retailers expanded in the past. Now, everyone is looking at what is working and what is not. I don't think there is any problem with consumption," said a top Trent executive, who did not want to be named. Added Bhaskar Bhat, managing director of Titan Industries, another Tata Group firm: "I cannot believe growth is coming down in modern retail."

Even profitability of retailers is also under pressure. For instance, Trent has made losses of Rs 37 crore and Rs 27 crore in FY12 and FY13, respectively, mainly contributed by losses at Star Bazaar, its hypermarket chain. Shoppers Stop made losses of Rs 11.3 crore in FY13 due to losses at Hypercity. In 2013-14, analysts say, growth will remain subdued.

Jehani of CRISIL expects growth in organised retail to increase to 12-14 per cent from 10 per cent in 2012-13 with a marginal improvement in the macroeconomic environment. "Growth will be driven by a rise in same-store sales, as well as new store roll-outs. However, unlike the period of 2000 to 2008, retailers will cautiously line up expansions, keeping a strong focus on store-level profitability."

However, according to a recent survey by the Boston Consuting Group, 68 per cent of respondents expect organised retail to grow 20 per cent annually in five years and 90 per cent of executives believe there is no change in the composition of the top three players in the segment.

"Everything is dependent on GDP (gross domestic growth) growth. I do not think growth will come back in a big way this year. The rupee is also a concern, which may prompt RBI (Reserve Bank of India) not to cut rates," said Abneesh Roy, associate director, institutional equities, research at Edelweiss. "Till the time, GDP does not improve, nothing will improve."