Here is an update of the performance of Organized / Modern Retail for the 9 months between April-08 and Dec-08.
During the first 9 months of 2008-09, organised retail sales growth for a sample of four retailers [Pantaloon, Trent, Shoppers stop and Provogue] slowed down significantly to 27 per cent on a year-on-year (y-o-y) basis compared to 56 per cent in the same period of the previous year. Similarly, these retailers recorded a sales growth of 17 per cent in the quarter (December 2008) as compared to 49 per cent recorded during the same period in the previous year. This can be mainly attributed to declining same store sales and slower new store rollouts.
Despite a dip in product costs and wages, higher capital charges (interest payments and depreciation provisions) have impacted the net margins of organized retailers. Retail lease rentals have gone down by an average 30-35 per cent in cities like Mumbai, Delhi, and Hyderabad from the peak levels of the first half of 2008 for vanilla retailers.
In a scenario of declining consumer spends, retailers in a bid to clear off their inventories and drive revenue growth are offering discounts and promotions. This trend of discounts and promotions is likely to continue. Retailers will resort to borrowed funds for expansion as internal accruals in retail industry are low and access to equity financing in the current market environment seems to be a major constraint.