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Slowdown in the economy and poor consumer sentiment have hit performance of listed retail companies.
Average sales growth of the top three listed retail companies – Future Retail, Shoppers Stop and Trent -- has come down to 11% in 2012-13 as compared to 29% in financial year 2012, data culled by BS Research Bureau showed.
Even the growth of overall organized retail segment, which accounts for 7% of Rs 25 trillion (Rs 25 lakh crore) worth Indian retail market, has slowed down to 10% in FY13 as compared to 20% growth it had seen in 2009-10 and 2011-12, said a research note from analytics firm Crisil.
Kishore Biyani-led Future Retail , the country’s largest listed retailer, saw sales growth of 10.19% on annualized basis (it published 18 months numbers for the year ending December 31, 2012) in the last financial year as compared to 31.68% in FY12 while Raheja-owned Shoppers Stop saw a growth of 14% in FY 2013 as compared to 28% in FY12.
Analysts say, slow same Store Sales (SSS) growth and lower space additions have led to declining sales growth in organized retailers. SSS growth refers to the growth coming from stores that are in business for a year or more. This metric helps investors understand how the sales growth is coming.
“Same Store Sales growth slowed down, especially in the first half of 2012-13. Net space additions were also lower as many players shut down unprofitable stores,” said Binaifer Jehani, director, CRISIL Research.
Added Sonam H Udasi, head, research, IDBI Capital Markets:”Earlier, all the listed players were focusing on expanding retail footprint and driving topline growth. But now they are focusing on profitable growth and consolidate their operations” he added.
"Modern retail is struggling to drive efficiencies due to nascent and largely unorganised supply chain," said a report released by CII and Boston Consulting Group today
The same store sales growth of Shoppers Stop was under three% in the first half of FY13 versus over 13% in the second half of the year as promotions, weddings propped up retailer’s growth.
Retailers such as Future and Trent have also shut down loss making stores to maintain profitability. Future has shut stores of its electronic chain Ezone in small towns to focus on 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 FY 2013 financial results announcement, Trent said, it had a total 107 stores across its different formats. By the end of 2012, it had 106 stores, meaning the net expansion was just one store.
Future Retail had total retail space of 14.12 million square feet as on March 31, 2013 as compared to 14.19 million sq ft in March 31, 2012, meaning a space reduction of 0.07 million sq ft.
While retailers say there is no problem with consumption, agree that the companies are rationalising their stores.
"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.
Added Bhaskar Bhat, managing director of Titan Industries: "I can not believe the growth is coming down in modern retail" he said.
Even profitability of retailers is also under pressre. For instance, Tata run Trent has made losses of Rs 37 crore and Rs 26.84 crore in F 2012 and FY 2013 respectively, mainly contributed by losses at Star Bazaar, its hypermarket chain.
Shoppers Stop made losses of Rs 11.29 crore in FY 2013 due to losses at Hypercity.
In 2013-14, analysts say the growth to remain subdued.
Jehani of Crisil expects that the growth in the organized retail industry to increase to 12-14% from a 10 percent growth in 2012-13 with a marginal improvement in the macroeconomic environment.
“Growth will be driven by a rise in SSS as well as new store rollouts. However, unlike the period of 2000 to 2008, retailers will cautiously line up expansions, keeping a strong focus on store-level profitability,” Jehani said.
However, according to a recent survey by Boston Consuting group, 68% of respondents expect organised retail to grow more than 20% in the five years and 90% of executives believe there is no change in the composition of top three players in the organised retail.
Added Abneesh Roy, associate director - institutional equities – research, added:” Everything is dependent on GDP growth. I do not think growth will come back in a big way this year. Rupee is also a concern which may prompt RBI not to cut rates,” Roy said.
“Till the time, GDP does not improve, nothing will improve,” he said
