R-Day discounts see shoppers flock to malls

31 Jan,2012

By Sarah Jacob & Ratna Bhushan

 

Indian shoppers are back in malls, buying everything from food and furnishings to crockery and winter wear to make the most of the Republic Day discounts and end-of-season sales, raising hopes among retailers that demand will pick up over the next six months.

 

India’s largest retailer Future Group posted its highest weekly sales last week while others such as department store chain Lifestyle and footwear maker Woodland reported high sales growth as heavy discounts helped retailers bounce back after a sales slump in the past two months.

 

“This has been the biggest week ever,” Future Group Chairman Mr Kishore Biyani said. “It has set the pace for the rest of the year and we are changing our outlook for the year to positive,” he added.

 

Future Group reported national combined retail sales of Rs 650 crore between Monday and Sunday (January 23-29), 25-30% higher than last year, as its 210 Big Bazaar and Food Bazaar outlets ran the ‘Sabse Saste 5 Din’ promotion offer and apparel and home products chain Central offered a flat 50% discount on 100 brands. Mr Kabir Lumba, MD of Lifestyle International, which operates Lifestyle and Max department chains, said sales have grown both year-on-year and sequentially.

 

“A large chunk of sales in the second half (of the financial year) has come from discounted merchandise because of the depressed trading conditions in November,” he said. Lifestyle increased discounts to 50% on the Republic Day weekend from 40% end-of-season sales.

 

But analysts warn the jump in sales does not necessarily indicate a revival in consumer sentiment because it is driven by discounts. “The increase in sales is not yet an indicator of whether consumer sentiment is back. The right picture would emerge after the Budget and state elections,” Mr Purnendu Kumar, senior VP (retail) at management consultancy Technopak Advisors, said.

 

He, however, added that retailers can continue to offer discounts as long as there is high demand. “Markdowns in margins are budgeted by retailers as they expect to balance it out with higher volumes,” Mr Kumar said. Retailers such as Future Group, Reliance Retail and Shoppers Stop have seen a slump of up to 30% in November and December.

 

Retailers Ride on Discounts

 

Slowing economic growth, high inflation of more than 9% until December and consistent increase in interest rates for almost two years have affected consumer sentiment.

 

Republic Day sales are part of the end-of-season sales, and usually extend across four weekends starting from mid-January. This year, several retailers, including Lifestyle and Spencer’s Retail, advanced the sale to liquidate stocks.

 

Food Bazaar and Big Bazaar stores contributed the largest chunk of 65% to the record sales of Future Group during the Republic Day week, whose clothing store Pantaloon and furniture and home furnishings chain Home Town too ran regular price-off schemes during the week. “Food sales exceeded our expectations; followed by sales of crockery, furnishings and luggage. Sales of durables were marginally lower than our expectations,” Mr Biyani said.

 

He attributed the sales to aggressive prices and promotional offers by the retailer. While Big Bazaar and Food Bazaar did not extend the discount period compared to the previous years, Central, Home Town and Pantaloon have been running promotions for a week extra compared to last year. Footwear and adventure gear maker Woodland posted 22-25% growth in the end-of-season sales period.

 

“Although winter started later, the cold got more severe this year, resulting in even high-value jackets and sweaters flying off shelves in the discount period,” Woodland VP (strategy & planning) Mr Amol Dhillon said. The company intends to derisk from seasonal changes next fiscal by breaking down its autumn winter range with lighter sweaters in November and heavy-duty jackets in January, he said. Organised retail accounts for close to 5% of the overall $450-billion market.

 

Tough times

 

Mr Thomas Varghese, MD and CEO of Aditya Birla Retail and chairman of the CII National Committee on Retail, last week told reporters that the retail sector was facing challenging times and the past two months had been very bad for the industry.

 

He attributed the slowdown to inadequate funding, lack of sufficient space for expansion and talent crunch. The sector grew 25-30% last year. “If we are to look at the current trend, we are in a challenging situation and 2012-13 also does not look like a great period as of now. It is going to be a period of cautious optimism,” he had said. With the economy slowing down, several companies are expected to temper hiring and lower increment handouts, which could add to the caution.

 

While sales of packaged consumer goods have not been hit, food and grocery retailers said sales had slowed around 5-10% since November. One such retailer, who did not wish to be named, said consumers had even started substituting pulses with vegetables, which have become cheaper. Also, several food and grocery chains broke off ties with meal coupon companies such as Sodexo, which hit sales as several companies offer their employees meal coupons as part of salaries.

 

Better days ahead?

 

The sector is banking on foreign investment in multi-brand retail and private equity funding to fuel growth. Ratings agency Fitch, meanwhile, has assigned a stable outlook to the retail sector for this year, riding on sales growth-driven expansion and efficient working capital management.

 

“Retailers could be exposed to economic headwinds, leading to a decline in consumers’ discretionary spending because of higher inflation and interest rates… However, sales growth, stable margins, efficient working capital management and flexibility to defer or tone down expansion plans are expected to result in a stable credit profile for Fitchrated retail companies,” it said.

 

Fitch said margin pressures created by extended discounting periods to push volumes growth could be mitigated by price hikes and lower prices of raw materials such as cotton.

 

Source:The Economic Times

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

 

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