Deloitte study says outlook for Indian retail sector gloomy

17 Jan,2012

By Writankar Mukherjee

 

The outlook for the organised retail sector in India is gloomy as the economy is slowing down following a period in which monetary policy was tightened to fight inflation, according to a global study by Deloitte Touche Tohmatsu.

 

The study, christened 2012 Global Powers of Retailing, says although the monetary tightening resulted in slower economic growth, it did not bring the inflation down. And because of this, policy makers are faced with the conundrum of slow growth with persistent inflation, it says.

 

“Indian retail sector offers significant potential for growth of modern trade but given the recent policy flip flop related to FDI in multi-brand retail, both global retailers as well as existing Indian organised sector retailers appear to have adopted a cautious ‘wait and watch’ approach before committing fresh investments,” says Mr Rajan Divekar, senior director of Deloitte India.

 

Mr Divekar says Indian retailers are also customising and fine tuning their business models across retail formats to ensure there is a balance between store expansion and profitability. “The recent liberalisation permitting 100% in single brand retail is a welcome sign especially for select luxury and niche retailers,” he says.

 

The Deloitte report says retailers have learned to succeed in emerging markets like China and India as they significantly customise both their market models and product offerings to meet local needs and preferences.

 

It says foreign investment in multi brand retail will have a positive impact on India’s economic growth. The move could lead to a rationalisation of the supply chain, greater supply chain efficiency, and greater effective spending power for consumers.

 

The study says some retailers may find some silver linings in this otherwise cloudy environment. One positive effect of slower global growth will be the continued dampening of commodity prices. “For retailers, this means some improvement on the cost side of the ledger while retail price inflation in some economies presents an opportunity for improved profit margins, even in the context of slow top-line growth,” says Mr Divekar.

 

According to the Deloitte report, the world’s 250 largest retailers recorded sales growth in excess of 5% in fiscal 2010 The figures mark a substantial improvement as compared to 2009, when the group of the top global retailers recorded anaemic growth of just 1.2%. The growth took place despite the end of fiscal stimulus in the US, the crisis in the Eurozone, and tighter monetary policy in key emerging markets like India.

 

Source:The Economic Times

Copyright © 2012, Bennett, Coleman & Co. Ltd. All Rights Reserved

 

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