India’s Retail troubles
As a consumer you are now in an enviable position. The last few months have seen sales like never before. At last you can afford those designer shoes and dresses that you have been eying for a long time and as for the Buy One Get One free offers…they are a dime a dozen. At times creating a traffic jam at the supermarket!
But I’m trying to look at the brighter side. The truth is that times are tough. EMIs have gone up, inflation has hit, the stock markets are depressed, companies aren’t giving the promised raises and there is a global financial crises. People are cutting down on non-essential expenses. Footfalls at malls have reduced and sales are down. Organised retail is in trouble. If people go to malls, it’s to pick up stuff at discounts, hang out, catch a movie or a bite.
Whether it’s fast food joints like Bembo’s or a designer brands like W or your next door Tru Mart, they are all shutting down some outlets. Rents are far too high for them to make money at the malls.
- Indiabulls Retail (Pyramid Retail) closed two stores in Ahmedabad
- Koutons closed over 30 stores (out of over 1300) in 1QFY09
- Nike has closed some stores
- RPG Group company Spencer’s Retail has decided to close down at least 40 outlets
- The consumer durables format of Videocon Industries, has also closed 10 stores
- Pantaloon closed 2 Big Bazaar stores in Ahmedabad even though overall Big Bazaar is doing well
- Mumbai-based Akruti City has shelved plans of seven of its planned mall projects
- Reliance Retail has not opened all of its planned stores
- Vikram Birla Group also not going through fully with its expansion plans with its ‘More’ outlets
- Subhiksha also not doing well (Aziz Premji picked up a 10 percent stake in Subhiksha for Rs.230 crore, although the company is not up for sale
- Wal-Mart and Tesco (UK) have postponed plans to start their chain of stores
- Bharti Retail opening fewer stores than planned
- Vacancy (space) rate in Mumbai malls – 30-50 percent in some suburban malls and 13.1 percent overall, the highest since 2005
- Vacancy in Delhi’s prime and suburban markets – 16.2 percent and 10.8 percent today.
- Vendors and companies refusing to supply stock to retailers because of payment delays.
If stores aren’t closing down, they are trying to control costs:
- Pantaloon, Reliance Retail and Shopper’s Stop are looking to “right-size” their staff strength
- Reliance Retail has downsized its hypermarket in Ahmedabad
- Variable/Performance linked pay becoming more common
- Shopper’s Stop cutting down on staff costs
- Advertising and marketing costs coming down
- Slowdown in recruitment, particularly at middle and senior levels.
- Slower wage increases. Barely 15 percent as compared to 25 percent last year,
- Consolidation on the anvil
- All tenants of malls re-negotiating rents downwards as and when lease periods end
Is the retail honeymoon in India is over?
No, it’s not a doomsday scenario. In fact some companies like Landmark Group (Dubai based) is planning to invest Rs 550 crore in India and Max Retail and Max Hypermarkets are continuing to invest. The RPG Group may be closing down around 40 outlets, but it’s opening up another 300!
Organised retail has a future, but the problem is that consumer demand was overestimated…the industry didn’t grow at 38 percent as expected, but at 30 percent. This growth could slow down further…but these are not bad figures at all considering the financial environment today.
Another reason why retail players are downsizing is because of bad business decisions and the inability of small players to sustain themselves because of oversupply. Overstaffing has been a problem. Real estate property developers believe that the big developers will continue to do well as the right placement of a mall can bring big returns. Too many malls close together (bad placement) can mean the end of the less efficient players. Even though Inorbit mall in Malad is one of the success stories, insiders say that the opening of the Oberoi Mall close by has already eaten into Inorbit’s share. There simply isn’t that much business to go around!
The India Retail Report 2009 (by New Delhi-based research group) says that the outlook is “bullish” despite the global market turmoil, partly because the Indian economy is expected to grow at 7-8 percent.
Today organised retail in India only has a share of 5.9 percent (as compared to all retail in India) and this share could easily triple in the next three years.
The good news comes from the ICRIER report. It claims that organised retail and traditional Indian retailing will “co-exist”. 22 percent of organised retail consumers still want unorganised outlets and 34 percent of those who shop at the kirana outlets (similar to mom and pop stores) want more organised retail outlets.
All in all the future looks good. The present quite glum.
(All pictures are taken by me and are copyrighted.)
Related Reading: Advantages of supermarkets
Large format retailers are good for India
The high Mumbai real estate prices
Aggressive advertising by Subhiksha
Do you really need all those consumer durables?