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)

• Most people want to fit in rather than stand apart from their peers, so pushing sustainable or responsible fashion will need time – just like the typical fashion cycle, the first thrust needs to be on the innovators and early adopters (both consumers and companies), before the majority of the market picks up the trend.
• We typically talk about the “triple-bottom line” – referring to the benefit to the business (profit), benefit to the environment and benefit to the community. However, I think most sustainability initiatives don’t gain enough traction because there is no bottom-line defined for the “individual”. The questions “how am I impacted?” and “what is in it for me?” need to be answered to really push fashion in the direction of sustainability.
• “There is enough on this Earth for everyone’s need, but not for everyone’s greed”. Fashion, by its very nature, lives on obsolescence, so it is pertinent to ask whether “sustainable fashion” is an oxymoron. However, there is some merit in questioning how extreme this sense of forcing obsolescence has become in the industry over the last few decades as companies have sought ever-growing top-lines. The entire industry ecosystem will need to be overhauled for it to become “sustainable”.
• The cause of sustainability may be helped actually by the fragmentation of demand that is going on around the world. This fragmentation may be our inadvertent saviour. Since fashion is about the peaking and the decline of specific trends, with fragmentation there are lower peaks, less forced trending, less forced obsolescence and potentially less waste.
• There was a mention of the concept of “fast fashion”. There are two aspects to it: one is the more visible rapid-change, low-price retail concept and that would certainly seem to be the antithesis of sustainability. However, there is another side to the fast fashion business model: lean management, efficient product development and reduced waste. The traditional fashion business model and supply chain can’t cope effectively with the fragmented demand and short selling-windows. In the fast fashion supply chain model, with shorter lead times, more time is spent on productive activities and successful products, rather than wasting resources and money in developing designs and flying samples back and forth for products that will get sold at a discount. Such waste would be fatal in the aerospace, automotive and high-tech industries – those industries use tools and processes that have also been available to the fashion industry for the last 4 decades. If fashion companies honestly examine how expensive that waste is, we might start moving towards more sustainable fashion.

Here is a summary of the Sustainable Fashion Forum, and some more pictures from the afternoon.

And here is a previous article on sustainability and corporate responsibility.

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