Business Standard

Consumer spend to drive retail

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Nayantara Rai New Delhi
Most retailers are expected to report healthy sales growth in the current quarter and financial year, since consumer spending is expected to remain high. Buoyed by the growing economy, most retailers say there is nothing to dampen consumer interest.
 
"As the interest rates increase, buyers are deferring the decision to purchase property. Therefore we are expecting the consumers to have a surplus of cash," said Arvind Singhal, the chairman of retail consultancy Technopak.
 
According to the consultancy, approximately Rs 8,000-10,000 crore will be invested by retailers in the next nine to 12 months on acquisition of space, doing up store interiors and on logistics such as transport and warehousing.
 
Industry experts add that domestic retailers will continue to rule the roost this financial year. The joint venture between Bharti and Wal-Mart is the only development that could make a dent in the domestic retailers' market share.
 
However, as the retailers continue with their expansion, their operating margins are likely to come under pressure and profitability may be affected. "The gestation period in retail is long. As retailers invest in new stores and back-end operations, they will have to wait for the revenues to internalise. Added to that, the cost of the rupee is going up which will obviously impact margins," said Rajan Chibba, head of the retail consultancy Intrim Business Associates.
 
"While this is true, a good retailer will have a strategy to counter the pressure on margins. For example, our emphasis on the home category will provide us with good returns," said Kishore Biyani, chief executive officer, Future Group. 
 
(Rs crore)Quarter Ended Mar 2007TTM EPSPE As on
Net Profit% chgMar 07Apr 07
Pantaloon Retail18.7215.278.3347.87
Shopper's Stop-2.27

-

7.5989.65
 
The retail expansion is being complemented by a price-war of sorts, such as that between Pantaloon Retail and Subhiksha. Every other player today seems to be offering the "lowest prices".
 
In addition, Reliance Retail rolling out its hypermarkets and new entrant Aditya Birla Group opening its stores this financial year will pressure the margins and market share of established retailers.
 
"As existing retailers expand and new players enter the market, everybody will be looking to increase their market share. The next few quarters will see retailers spending a large amount of money on advertising and promotions. That will diminish the operating margins," said Singhal.
 
Real estate is expected to remain a bottleneck during this financial year. Many mall projects have already been postponed and now that borrowing has become more expensive for the builders, some more delays are on the anvil. Given the high demand and limited supply, retailers' occupancy costs are too high. "The unviable occupancy costs make the difference between breaking even and not breaking even," said Chibba. Industry experts said the forthcoming quarters would see many mom-and-pop stores upgrading to enter into franchises with large retailers.

 

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First Published: May 03 2007 | 12:00 AM IST

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