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Wednesday, 29 December 2010 |
 Building upon the recovery that started in 2009, the retail sector is back in its element in the year 2010. The rebound was led by the value-for-money category, and moved up to the premium level. The three quarters ending September 2010
saw a 23 per cent growth in revenues and a near-trebling of net profits for listed Indian retailers, helped in part by a lower base. Rebounding consumer confidence, a step-up in corporate hiring together with salary hikes indicate increased disposable income in the hands of the consumer. This points towards a bright 2011 for retailers, armed as they are with healthier balance-sheets to fund expansion.
 Premium and value retail will both see demand pick-up, as consumer spends rise. With Tier I cities fairly saturated, retailers will move to small towns and cities where growth may be higher. Mall activity, previously beset by delays, is also set to improve. Hypermarkets will see higher activity next year with players such as Pantaloons, Shoppers Stop and Trent stepping up focus on this format, given the high footfalls they bring in and their position as anchor tenants in malls allowing for lower rents.
Retailers have, in fact, charted robust expansion plans, against their previous cautious stance. For instance, Shoppers Stop and Pantaloon plan to add about 60 to 70 lakh sq ft space in the next year. They are also fairly well-placed to bankroll this expansion. As they sought to reduce debt pressures, collective debt equity went down from one time in FY ’09 to a comfortable 0.7 times in FY ’10. Interest costs so far in 2010 have reduced by five per cent, after a 78 per cent increase in FY ’09. Retailers have also been able to raise funds through Qualified Institutional Placements.
The retail segment, while holding promise in revenues, may slip up on the margin front. However, cotton and yarn prices and even synthetic fibre prices are northward bound and could reverse this saving for apparel retailers. Retailers with backward integration may manage better margins. The outcome of the much-debated FDI in single brand and multi-brand retail is likely to emerge in 2011. Floundering retailers such as Koutons or Vishal Retail could receive a boost from foreign investments, whether by private equity players or foreign retailers looking for benefit from these retailers’ massive store chains. Valuations of these stocks may thus see some improvement.
If consolidation was the buzzword for the retail sector in 2010, the coming year is expected to see some big-bang entries of global retail majors as the sector looks forward to a positive outcome on the relaxation of FDI norms in retail. This should facilitate the much-awaited entry of French retail giant Carrefour and Wal Mart. It is only a matter of time before the retail sector is fully liberalized. FDI will ensure necessary capital inflows to steer the retail industry ahead. Since growth is the result of high footfalls in stores, enhancing the consumer’s shopping experience will continue to be an important factor. The revival, though, had to overcome hurdles such as high rentals, attrition, higher cost of compliance and low investments flowing into the sector. 2010 can rightly be called a revival year, total retail sales are likely to grow from $353 billion in 2010 to $543 billion by 2014. Of this, only five to eight per cent will come from the organised sector. Besides, the increasing middle and upper class consumer base will increase the potential of the retail sector in Tier II and II cities.
With expansion plans lined up by many retail majors, firms are on a hiring spree. Between July and December 2010, the consumer and retail services sector generated an additional employment to the tune of 13,200. Registering a growth of about 28.6 percent y-o-y in the first five months of FY ’11, the retail sector is surely poised for growth. With more hiring expected in the next year, the sector is also set to see foreign direct investment flowing in multi-brand retail. If that happens, the industry is set to witness a spurt in hiring and salaries across the board. |
