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July 28, 2024
Writankar Mukherjee, Economic Times
Kolkata, 28 July 2024
Top retail chains such as Reliance Retail, Shoppers Stop and Spencer’s Retail are facing a prolonged slowdown in consumption, pushing them to exit unprofitable markets, raise debt and control costs.
India’s largest retailer Reliance Retail shuttered 249 stores in the three months ended June. The company is also going slow on expansion, opening 331 new stores in the quarter compared to 470-800 stores opened every quarter in FY22, FY23 and FY24. The closures mean the retail business of Reliance Industries made 82 net new store additions last quarter–the lowest in 15 quarters.
Spencer’s Retail has decided to completely exit North and South India markets by closing 49 stores in the National Capital Region (NCR), Andhra Pradesh and Telangana. The step will erase Rs 490 crore of annual revenue, but the company is hopeful it will improve profitability.
Shoppers Stop chief executive officer Kavindra Mishra told investors last week that it may have to defer a few store openings this fiscal due to regulatory and other issues. The company will also borrow Rs 100 crore for expansion with demand remaining soft.
Meanwhile, V-Mart Retail has closed 22 stores in the first six months of 2024, as per its latest investor presentation.
“Pruning underperforming locations is a natural reaction during times of demand stress,” said Devangshu Dutta, CEO of retail sector consulting firm Third Eyesight.
Pure Economics
“Demand forecasting can never be perfect due to a lag between demand assessment and supply. Retailers now try to do away with underperforming stores at the bottom of the pile quickly. Earlier there were prestige issues in shutting down stores, but now it’s acceptable industry practice and pure economics,” said Third Eyesight’s Dutta.
Analysts say most retailers expanded rapidly after the pandemic, banking on pent-up demand and revenge shopping at the time. With demand turning sluggish, the industry is now being forced to take various steps to sustain operations. At Reliance Retail, net profit rose by a modest 4.6% from a year earlier in the June quarter to Rs 2,549 crore while revenue grew 6.6% to Rs 66,260 crore. It was the slowest pace of revenue growth and came after a 9.8% increase in Q4FY24. Net profit and revenue from operations fell sequentially in the June quarter.
Spencer’s Retail CEO Anuj Singh told analysts on Thursday the 49 stores it is closing make up nearly 22% of revenue, but also Rs 56 crore of losses at the regional Ebitda level in North and South India. “They were a drag on the balance sheet. We will now focus on Uttar Pradesh and the East where there is a sizable consumption opportunity with a 250 million population,” he added.
Singh said the store rationalisation exercise and about 35% headcount reduction at corporate offices will reduce overheads from 8% operating cost to 6.3% of total sales. “We now expect to achieve Ebitda breakeven by March 2025 which will give us the option to raise capital,” he said.
Mishra at Shoppers Stop said demand remained subdued last quarter due to fewer wedding dates, long election season with polling dates on weekend, heatwaves, and high level of cumulative inflation. All these factors combined hit growth and volume recovery, except in value fashion and beauty.
More stores shut than opened
In fact, the sustained demand slowdown saw chains like Pantaloons, Spencer’s Retail and Nature’s Basket close more stores than they opened last fiscal. Retailers like V-Mart Retail, W, Aurelia and Titan Eye+ had a higher rate of store closures than openings in the March quarter.
(Published in Economic Times)
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October 26, 2023
Sagar Malviya, Economic Times
26 October 2023
Surging demand for fitness wear and sports equipment for disciplines other than cricket and football helped Decathlon’s India unit expand sales 37% to Rs 3,955 crore in FY23. With more than 100 large, warehouse-like stores selling products catering to 85 sporting disciplines, the French company is bigger than Adidas, Nike and Asics all put together in India.
In FY22, sales were Rs 2,936 crore, according to its latest filings with the Registrar of Companies. The retailer, however, posted a net loss of Rs 18.6 crore during the year ended March 2023 compared to a net profit of Rs 36 crore a year ago.
Experts said a host of factors – from pricing products about 30-40% lower than competing products to selling everything from running shoes, athleisure wear to mountaineering equipment under its own brands – has worked in its favour. “They have an extremely powerful format across different sporting activities and have something for both active and casual wear shoppers. For them, the market is still under penetrated with the kind of comprehensive product range they sell for outdoor sports beyond shoes and clothing,” said Devangshu Dutta, founder of retail consulting firm Third Eyesight. “Even their front end staff seem to have a strong domain knowledge about products compared to rival brands.”
By selling only private labels, Decathlon, the world’s biggest sporting goods firm, controls almost every bit of operations, from pricing and design to distribution, and keeps costs and selling prices low.
Decathlon uses a combination of in-house manufacturing and outsourcing to stock its shelves. In fact, it sources nearly 15% of its global requirement from India across sporting goods. And nearly all of its cricket merchandise sold globally is designed and made in India.
(Published in Economic Times)
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August 28, 2023
Bindu D. Menon, Financial Express
August 28, 2023
Calvin Klein, Levi’s, Adidas and Lacoste are among the several players who are looking to tap the potential of Outlet malls, which are generally located on the peripheries of cities and major highways. These malls are fast replacing the old factory outlets of major brands, which were located in the cities in crowded places.
Real estate developers are also strategically choosing such locations to attract a wider customer base. Value-driven customers are thronging to such malls as it offers branded products at a discounted price ranging from 30-70%.
A few companies FE spoke to said Outlet malls are refined version of factory outlets and companies are able to generate revenue by liquidating stocks at a lower price.
Outlet Malls are a concept popular in the international market and are a huge hit among travellers. They are typically large group of shops outside city periphery that sell apparel, shoes and luggage at a discounted price. In the last decade, Outlet malls have sprung all over the country especially adjoining highways.
In New Delhi’s Jasola district, Pacific Premium, real estate firm has opened premium shopping space. Pacific Group operates around six malls spread across Delhi and Dehradun. Its new premium outlet mall is its largest to date and has four storeys and sizeable parking area.
The mall houses aspirational brands such as Birkenstock, Tommy Hilfiger, CalvinKlein, Levi’s, Adidas, Madame, Lacoste, Vero Moda and American Eagle among others. Other leading brands such as Nykaa and CaratLane, too have signed lease for occupying mall space.
Players like Village Groupe are developing mixed use development space in off location like Khapoli on Mumbai-Pune highway, Ludhiana and even Jaipur highway. A company disclosure says that it is developing over 500,000 sq feet mixed use space off-city limits.
“Outlet malls are a great opportunity for consumers who want to get the touch and feel experience. To that they offer brands at a discounted price is huge attraction for consumers,” said Susil S Dungarwal, promoter, Beyond Squarefeet Advisory, a mall management advisory firm.
Asked if online companies will pose a challenge to Outlet malls, Dungarwal says that there is no competition. “Outlet malls are an impulse destination. A consumer may be travelling along a highway, a good mall with discounted brands will be sure shot attraction,” he said adding growth in private vehicles has given a shot in the arm to Outlet malls.
“Till mid 1990s only 20% of vehicles on highways were private vehicles (cars and buses) and the rest were commercial vehicles (trucks and lorries). However, in 2023, almost 60% of the vehicles on highways are private vehicles,” he said.
Devangshu Dutta, Founder, Third Eyesight, said, “Outlet (discount) stores sit at the confluence of a mutual need. Branded chains with excess inventory to liquidate which they don’t want to carry at their primary stores, and consumers who want lower prices for their purchases”.
He points that outlet malls can offer brands some of the same advantages as regular malls, in terms of acting as footfall magnets, and offer shared services, but at lower costs due to a cheaper location.
“Rather than creating their own standalone outlet stores, brands can take up spaces in an outlet mall. The challenge of maintaining and managing footfall is shifted to the mall. However, as with regular malls, outlet malls need to be located well and need to be also managed well,” he added.
According to consultancy firm Anarock, top cities have over 51 million sq feet of mall stocks across the country with Delhi-NCR, Mumbai Metropolitan Region and Bengaluru accounting for 62% of the total stock.
(Published in Financial Express)
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May 25, 2023
Rochelle Britto & Shabori Das, The Economic Times
May 25, 2023
“Taiyaar Hoke Aaiye”. It seems the tagline has worked for the company which has been able to attract investors who came prepared for its offer for sale (OFS).
In a bid to reduce promoters’ shareholding down to 75% as per SEBI norms, Vedant Fashions, known for its ethnic wear brand Manyavar, floated the OFS on May 19 which saw huge participation — oversubscribed 1.4 times with bids for 34 million shares as compared to 24 million shares on the offer. The non-retail segment was oversubscribed 2.24 times.
The shares were offered at a price of INR1,161. While the stock initially fell 1.5% on May 19 to INR1,230, it was trading at INR1,268 on May 24, up 4.59% in five days.
The promoters have offloaded 16.9 million shares, which works out to 7% of the total equity shares with an option to sell additional 6.9 million (2.88%) shares, taking the total to 9.88%.
Manyavar represents the premium wedding market of the country and boasts of some big names as its brand ambassador — Virat Kohli, Amitabh Bachchan, Ranveer Singh, and Kartik Aaryan. With strong fundamentals, the company has grown at 30% CAGR over the last one year and investors feel this is one classic growth stock with high valuations that cannot be ignored. Vedant Fashions trades at a PE multiple of 73x while Trent, a competitor, has a PE of 119x.
The great Indian wedding
The sales of Vedant Fashion are highly correlated to the wedding season. The Indian wedding market is massive at USD50 billion with around 3 million weddings or events taking place every year. According to news reports, the spending is growing and is likely to be around INR3.75 lakh crore this year.
According to Crisil, weddings are getting bigger, grander, and longer, fuelled by higher disposable incomes and a surge in discretionary spending. It expects the ethnic-apparel market to grow between 15% and 17% to nearly INR1.38 trillion by 2025, supported by a growing desire among Indians to wear traditional attire instead of western wear for big celebrations.
While a lavish spending is done on everything, from venue to food to even flower arrangement, clothes hog the limelight. The business has become high-margin, elite, and high-fashion. And the organised market is growing at a very fast pace.
In the organised market, Vedant Fashion has a 40% market share which might be difficult to maintain as competition increases. “In the upcoming quarter, while April experiences a slight lull in wedding dates, May and June present an abundance of excellent opportunities. Moreover, as we analyse the entire year ahead, we are highly confident in the favourable wedding dates during Q3 and Q4. These trends align closely with our historical data, reinforcing our optimism for the current new financial year,”says Vedant Modi, chief marketing officer, Vedant Fashions.
“Vedant Fashions has successfully tapped into and emerged as the market leader, head and shoulders above competitors, in a segment that has been extremely fragmented. Festive wear and occasion wear is not immune to downturns, but is better placed to ride them out, and this makes it a very attractive product segment. However, Vedant have exploited this opportunity and scaled up much more successfully than other companies, beginning with menswear and then in womenswear,” says Devangshu Dutta, CEO, Third Eyesight.
Expansion spree
Vedant Fashions is expanding its retail footprint by adding around 75,000 sq ft retail area in Q4FY23. It has a total retail presence of 1.47 million square feet as of March FY23, spanning across 649 stores in 257 cities. There is a direct correlation between the addition of stores and the growth in sales, but the full potential of a new store takes some time. Almost 40% of the expansion has happened in the fourth quarter, so the full revenue (of the expansion) would come in the following year. Thus, many times the store growth doesn’t match the revenue growth.
The company is also expanding in US, UAE, London, and Canada to cater to the growing Indian community in these markets. For FY23, it has had sales growth of 30% at INR1,355 crore with Ebitda margins at 50%.
However, the growth witnessed by the company in FY23 has slowed down despite an upswing in events and weddings.
Vedant Fashions reported revenue growth of 76% in FY22 over FY21 and profit growth of 136% during the same period. While the slowdown in the growth rate can be attributed to settling down of revenge shopping post-pandemic, the number of social events has definitely increased to not take notice.
“Market valuations are an indicator of not only present value of a business but also perceived future value, and market leaders usually are rewarded with richer valuations(Page Industries is another such example),” adds Dutta.
The company’s latest presentation states that it has achieved 95% ROCE for FY23. The company is still in an investment stage and its cash flow statement says that INR249 crore is blocked in investments for FY23.
Market outlook
In a market that is lacking growth, the wedding season almost looks like recession-proof. The market has returned to growth mode even at a time when inflation is high and the overall economy is subdued. But then, the Indian wedding market — especially the part that Vedant Fashion tracks — is on a high and the growth will continue for a long time.
While the number of players is increasing, not many have a picture-perfect balance sheet with high ROEs and even higher Ebitda margins. Vedant Fashions has become the classic growth stock with very high valuations. It has a price/book value of 28x but investors feel that for a company that generates a high ROE and a high growth, the valuation is not extreme.
Mutual funds and institutional investors are making a beeline for the stock because of the growth rate and the overall size of the market. According to BSE filings, mutual funds account for 8.90% of the total holding where SBI Mutual Fund has the biggest share at 3.80%. On the other hand, retail holds 1.43%. Post the OFS, these numbers will go up.
The company successfully launched its initial public offering (IPO) last year. The stock debuted at an 8.08% premium over the issue price of INR866. The share slipped more than 4% on May 18 as the promoters announced plans to sell stake in the company.
Since listing, the company has gained 36% and has had a great run with its stock being up by a significant 27% over the last one year as compared to its peer Aditya Birla, which is down by 30.95%, and Nifty 50, up by just 12%.
The Indian apparel market is amongst the top three consumer categories. The pandemic made a lot of consumers switch to the online channel — which was also enabled by easy returns. However, while western apparel in India is a lot more frequently purchased when it comes to the online channel, the offline channel continues to be the primary source of consumers and footfall for ethnic-wear brands. The organised ethnic wear market in India is still relatively small, as the unorganised apparel category, ethnic and otherwise, continues to dominate.
The primary market for the unorganised ethnic wear is mostly women, driven by everyday and wedding wear categories.
According to Euromonitor International, a UK-based market research firm, the Indian apparel market is expected to be at USD58,773.8 million by the end CY23 (excluding the footwear market). The market is expected to grow at a CAGR of 8.6% during CY2023-CY2027.
“The apparel and footwear market experienced significant recovery in 2022 with the easing of Covid-19 restrictions. The industry also benefited from the return of festivals and weddings to their pre-pandemic fervour, as these are periods when the demand for categories such as ethnic apparel and other occasion-based apparel spiked,” says Euromonitor International.
The peer play
Prominent players like Aditya Birla Fashion, Reliance Retail, and Tata-owned Trent are making strategic investments in the country’s thriving ethnic wear market, estimated at INR1.84 trillion.
The recent acquisition of TCNS Clothing by Aditya Birla Fashion further solidifies this ongoing trend. With a transaction value of INR1,650 crore for a controlling stake of 51%, this acquisition highlights the company’s commitment to capitalising on the prevailing market dynamics.
According to Ashish Dikshit, managing director of Aditya Birla Fashion, ethnic wear commands the largest market share in India’s apparel industry, comprising 30% (equivalent to INR1.84 trillion) of the total domestic apparel market valued at INR6.15 trillion, while 80%-85% of the ethnic wear market, according to experts, is dominated by the unorganised segment. The branded or organised end of the market at 15%-20% (around INR28,000 crore – INR37,000 crore in size) is growing at around 20% per annum.
Trent, owned by Tata, has launched a new ethnic wear brand Samoh to increase its market share, as consumers splurge on fresh attire for every event. The new brand will help Trent to compete with Manyavar, and Aditya Birla in the ethnic wear space. The company also has two other fashion retail formats. Its flagship concept, Westside, caters to discerning customers who are aspirational and yet seek value for money. The other format, Zudio, with much smaller stores, operates in a more mass-priced segment. Besides, Trent runs a relatively new concept store, Utsa, which sells its own ethnic and indie wear private labels like Utsa, Zuba, Vark, and Diza.
A growth stock?
The management’s disciplined approach to growth, exemplified by the gradual scale-up of brands like Mohey and Twamev, has been instrumental in mitigating the risks associated with inflated working capital and excessive write-downs. This prudent strategy has safeguarded Vedant Fashions’ profitability and allowed it to maintain sustainable growth without compromising on scalability.
The company’s strong design capabilities with data-driven decision making (leading to no discounted sales), tech-driven supply chain, and auto replenishment model, exclusive vendor ecosystem, and franchise-based EBO expansion have helped scale up its business and achieve superior margins. Most brokerage houses give the stock a “buy” rating.
Manyavar’s decision to team up with some of the country’s top names like Virat Kohli, Ranveer Singh, and Kiara Advani (for Mohey) demonstrates its ambition to capture new markets and connect with a diverse customer base. Continuing the brand’s vision to associate with the best, it reinforced #DulhanWaliFeeling by looping in actress Kiara Advani in January 2023 as the new brand ambassador. With all of them on board, Vedant Fashions hopes to have a joyful journey in style!
By capitalising on their influence, Manyavar solidifies its position as a leading ethnic wear brand in India. But will the company live up to the investors’ expectations? For a growth investor, the answer is yes.
(Published in Economic Times)
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March 29, 2022
Writankar Mukherjee & Sagar Malviya, Economic Times
Kolkata / Mumbai, March 28, 2022
The war for instant grocery delivery is going to intensify with Reliance Retail entering the segment with its JioMart platform. The company will start the trial in next 2-4 days in Navi Mumbai for ‘JioMart Express’ which will sell and deliver around 2,000 stock keeping units (SKUs) in a few hours, two senior industry executives aware of the plans said.
Reliance has plans to take instant grocery sales to over 200 cities and towns where JioMart is currently operational by end of next quarter and double the reach in next few months to make it India’s largest instant grocer. The company will also tap its network of kirana stores for such fulfillment, apart from its own chain of grocery stores, the executives said. It is testing a separate app for express grocery deliveries as well as integrating it into the JioMart platform.
The plans of India’s largest brick-and-mortar retailer to enter quick commerce is to further grow its e-grocery business and Reliance will compete against Tata-owned Big Basket which will launch it in April, Zomato-funded Blinkit, Swiggy’s Instamart, Walmart-owned Flipkart Quick and Zepto. Earlier this year, Reliance had led a $240 million funding round in quick commerce hyperlocal firm Dunzo owning the largest 26% stake.
“JioMart Express will utilize Dunzo in the markets where it is strong like the metros as well as its own delivery fleet. JioMart Express can be quickly scaled up since Reliance has onboarded lakhs of kiranas under its B2B programme ‘JioMart Partner’ who buys the merchandise from Reliance and sells through the JioMart platform,” an executive said.
An email sent to Reliance Retail remained unanswered till Sunday press time.
Devangshu Dutta, chief executive of consulting firm Third Eyesight, said Reliance needs to ensure that it is in the right catchment which has a high concentration of demand, low competition and keep supply centres close to it to make instant grocery service profitable. “Margin contribution is low in grocery and hence apart from these there could be a higher focus on high margin products in the assortment,” he said.
To be sure, quick commerce is not new for Reliance Retail. It has been delivering orders in less than three hours placed through Reliance Digital online or app for smaller consumer electronics such as mobile phones and laptops. “However, order volumes are going to be much more frequent in grocery, and hence it would need a robust backend and delivery fleet,” an executive said.
While the pilot in Navi Mumbai will start with 1-3 hours delivery time, Reliance will progressively reduce the delivery time to match the industry standard of 45 minutes to an hour and will also expand the range. According to researcher RedSeer, India’s quick commerce market is all set to grow 15 times by 2025 reaching a market size of close to $5.5 billion. Online shoppers in the metros have been using quick commerce for their unplanned and top-up purchases.
(Published in Economic Times)
