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)

(The Hindu Businessline – cat.a.lyst got marketing experts from diverse industries to analyse consumer behaviour during the last one month and pick out valuable nuggets on how this could impact marketing and brands in the years to come. This piece was a contribution to this Deepavali special supplement.)

Two trends that stand out in my mind, having examined over two-and-a-half decades in the Indian consumer market, are the stretching or flattening out of the demand curve, or the emergence of multiple demand peaks during the year, and discount-led buying.

Secular demand

Once, sales of some products in 3-6 weeks of the year could exceed the demand for the rest of the year. However, as the number of higher income consumers has grown since the 1990s, consumers have started buying more round the year. While wardrobes may have been refreshed once a year around a significant festival earlier, now the consumer buys new clothing any time he or she feels the specific need for an upcoming social or professional occasion. Eating out or ordering in has a far greater share of meals than ever before. Gadgets are being launched and lapped up throughout the year. Alongside, expanding retail businesses are creating demand at off-peak times, whether it is by inventing new shopping occasions such as Republic Day and Independence Day sales, or by creating promotions linked to entertainment events such as movie launches.

While demand is being created more “secularly” through the year, over the last few years intensified competition has also led to discounting emerging as a primary competitive strategy. The Indian consumer is understood by marketers to be a “value seeker”, and the lazy ones translate this into a strategy to deliver the “lowest price”. This has been stretched to the extent that, for some brands, merchandise sold under discount one way or the other can account for as much as 70-80 per cent of their annual sales.

Hyper-opportunity

This Diwali has brought the fusion of these two trends. Traditional retailers on one side, venture-steroid funded e-tailers on the other, brands looking at maximising the sales opportunity in an otherwise slow market, and in the centre stands created the new consumer who is driven by hyper-opportunism rather than by need or by festive spirit. A consumer who is learning that there is always a better deal available, whether you need to negotiate or simply wait awhile.

This Diwali, this hyper-opportunistic customer did not just walk into the neighbourhood durables store to haggle and buy the flat-screen TV, but compared costs with the online marketplaces that were splashing zillions worth of advertising everywhere. And then bought the TV from the “lowest bidder”. Or didn’t – and is still waiting for a better offer. The hyper-opportunistic customer was not shy in negotiating discounts with the retailer when buying fashion – so what if the store had “fixed” prices displayed!

This Diwali’s hyper-opportunism may well have scarred the Indian consumer market now for the near future. A discount-driven race to the bottom in which there is no winner, eventually not even the consumer. It is driven only by one factor – who has the most money to sacrifice on discounts. It is destroys choice – true choice – that should be based on product and service attributes that offer a variety of customers an even larger variety of benefits. It remains to be seen whether there will be marketers who can take the less trodden, less opportunistic path. I hope there will be marketers who will dare to look beyond discounts, and help to create a truly vibrant marketplace that is not defined by opportunistic deals alone.