Retail Sector likely to see marginal sales growth

April 10, 2009	(Be the first to rate this story!)  Loading ...
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Companies in the organised retail sector, which expect the current rough patch to reflect in the March quarter results, are looking at reorganising their businesses to beat the slowdown. With the current business model failing to ensure profitability, they are exploring revenue-sharing and franchisee models to ensure steady profits in the long run. The sector is likely to see a marginal growth in sales in the fourth-quarter ended March 2009 on a year-on-year (YoY) basis, but low profitability will continue to hurt players.

According to the estimates of five brokerage houses, the top five retail companies are expected to report an 11% y-o-y increase in topline.Pantaloon Retail, the largest retail company is expected to lead the sector with a 25% growth in sales for the quarter, followed by Titan that may see a 23% growth in sales.

On the margins front, EBIDTA margins are expected to improve on account of stringent cost-cutting measures. Apart from Pantaloon Retail and Titan, few others are expected to see a positive profit after tax. The sector, as a whole, is likely to see a devastating triple-digit decline in profits. Interest cost burden continues to trouble most of the players.

Store additions will remain muted coupled and there will be a fall in same-store sales growth. Vishal Retail has kept on hold its expansion plans, whereas larger players such as Reliance and Bharti are far behind their targeted numbers.

“Sustaining operations in this environment would be the key challenge for most retailers. We believe survivors of this slowdown will be able to capitalise on the huge growth opportunity in the long-term,” said a Motilal Oswal’s study.

Categories such as apparels, electronics, furniture and home furnishings face the largest decline in sales. Value retailing is expected to fare better than lifestyle retail as a number of players offer huge discounts to push sales in this category.

Retailers are banking on private labels to help them improve their performance. Margins are much higher in private labels than in branded products. “Margins range between 15-20% in FMCG labels and around 30% in consumer durables. Moreover, investment required to launch a private label is estimated to be 10 times lesser than an FMCG firm launching a brand,” said a report from Angel Broking.

In fact, a number of retailers are shutting down unviable stores and opting for other locations. “Cost savings from cheaper inputs, lower rentals and cheaper procurement are expected to accrue to these retailers,” said an Edelweiss report.

News Published Under:   Real Estate India, Retail Market in India |

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