Buoyant Expectations


September 24, 2011

Vishal Krishna
Businessworld,24 September 2011

Even as participants at the Indian Retail Forum in Mumbai, the industry’s annual jamboree, are being cautiously optimistic about the implications of expanded foreign direct investment (FDI) in retail, preliminary data from the first quarter of 2011-12 (FY12) reinforce the perception of a slowdown.

Compared to the fourth quarter of FY11, growth has been slower in the first quarter of FY12. Shoppers Stop had negative EBITDA (earnings before interest, tax, depreciation and amortisation) growth of 26.3 per cent, while Trent declined 69 per cent; Pantaloon grew by just 6.5 per cent.

“Marking down of products will continue this year and retailers have to plan their purchases to get stable revenues,” says Devangshu Dutta, CEO of Third Eyesight.

Analysts say industry revenues will not grow as much as they did last year, though indicators for the second quarter seem to look better, thanks to summer and end-of-season discount sales. “We have had a good quarter so far,” says Govind Shrikhande, CEO of Shoppers Stop (SSL) in Mumbai.

But here’s the thing: slow growth has not meant no expansion. Store openings continue at a reasonable clip even if merchandise sales don’t. SSL has plans to open eight more stores by 2011 end; Reliance Trends will open five more stores in Bangalore alone this year, and Reliance Footprint is going to add 47 stores by next year. “We are growing by 100 per cent compared to last year,” says Sankar Gopalakrishnan, CEO, Reliance Footprint.

And let’s not forget Kishore Biyani’s Pantaloon Retail, which has over 15 million sq ft of space will add 9 million sq.ft over a couple of years. Its stores will number close to 1,500, up from the current 1,000 stores. Lifestyle will add four more this year to its current 34.

Knight Frank Research forecasts retail space in Delhi to grow 10 times from the existing 1.2 million sq. ft to 11.25 million sq. ft by 2012. Which is probably why the folks at the forum seemed happy to welcome the idea of allowing more FDI in retail.

The entrepreneurial-minded continue to take the risks of entry too. Abhishek Tibrewal, a first-time retail entrepreneur, and founder and chief marketing officer of Crusoe, just opened his first men’s inner wear store in Coimbatore’s Brookfield Mall and is happy enough to think of expanding to 100 stores in a couple of years; he has set aside Rs 15 crore for this. He has spent Rs 40 lakh for his flagship store and is already making Rs 3 lakh a month, which will allow him to break even in a couple of years. “It was nice to see women come in and shop for sons and husbands,” he says. “People are accepting branded stores.”

But will private labels in apparel be quite the success hoped for? A few, maybe. Sources say that Lifestyle’s Max store in Select Citywalk Delhi has revenues of Rs 1 crore (Max is the private label apparel store of Lifestyle).

In most others, there have been markdowns. “When you see a markdown in private labels then the brands are loss making,” says a retail analyst. Apparel retailers have been discounting and will rely on October’s discount sales for a rebound. Perhaps Diwali will light things up.

(This story was published in Businessworld Issue Dated 3 October, 2011)