DownSizing + Cost Control in Action

High Inflation, unrealistic Realty Prices and slowing down of economy has led retailers to get into the slowdown mode and bring costs under control.

The first signs of it were visible when retailers started moving out of malls due to unaffordable rents – ETAM, French Lingerie Giant has closed its outlets in all the malls across India. The Saga of downsizing continues,
  • Indiabulls Retail (erstwhile known as Pyramid Retail) also closed two stores in Ahmedabad – one lifestyle and one hypermarket store. As per news reports, Nike has also closed some stores in the city.
  • Reliance Retail has also reportedly downsized its RelianceMart store in Ahmedabad (largest store in India across 1.7m sf) to 1m sf. It is planning to open stores /shop-in-shops of its other formats.
  • Closure of stores is not confined just to the city of Ahmedabad. While Koutons closed over 30 stores (out of over 1300) in 1QFY09, Spencer’s is also planning to close 30-50 stores out of their 350+ stores.
  • Next – the consumer durables format of Videocon Industries, has also closed 10 stores
  • Recently Pantaloon closed 2 Big Bazaar stores in Ahmedabad. As per the management, the closure of stores was inline with the strategy to consolidate their position in the city as it plans to open larger size stores in the city.
And the cost control measure adopted by retailers include,
  • Pantaloon, Reliance Retail and Shopper’s Stop are looking to “right-size” their staff strength.
  • Variable Pay will be the order of the day for Sr. Executives in Retail and for others compentation will be directly linked to the performance of the business
  • Shopper’s Stop has also indicated that they will need to prune costs, especially staff costs, due to slowdown in sales as well as delay in expansion.
  • Indian retailers are evaluating measures to cut cost – advertising and marketing costs will likely be the first casualty along with slowdown in recruitment and slower wage increases
Given the slowdown in discretionary consumption expenditure and high cost of operation for retailers- rent, salaries and interest- we believe that retailers will continue to close unprofitable stores.

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