Slowdown doesn’t slow down growth for retail chains in FY13

12 Sep,2013

By Sagar Malviya


India’s organised retail sector may have turned a corner in the year ended March, having managed to reduce losses while substantially increasing sales with a focus on costs by pruning poorly performing locations and resorting to more efficient supply management.


Big unlisted retail chains such as Reliance Fresh of Reliance Industries, Aditya Birla Group’s More, Bharti Retail’s Easyday and Tata-owned Star Bazaar all posted double-digit sales growth, reflecting their increasing popularity among shoppers despite economic growth slumping to a 10-year low and consumer price inflation not easing appreciably.


According to financial statements for 2012-13 filed with the corporate affairs ministry, the food and grocery retailers listed above saw their combined losses shrink to Rs 1,176 crore from Rs 1,277 crore in the previous year, while combined sales jumped 34 per cent to Rs 8,770 crore. Excluding Bharti Retail, which was in expansion mode, the sector cut the loss figure by about half. While Bharti Retail’s losses swelled 37 per cent to Rs 538 crore, all other conglomerate-owned supermarket chains reduced losses as they shut unviable stores and focused on supply chain efficiencies.


“Our focus has been on profitable growth, which has resulted in reducing the operating losses by more than 30 per cent,” said Pranab Barua, business director, apparel and retail business, Aditya Birla Group. “Performance management at all touch points of the business has been a key driver, giving us a revenue growth as well as improvement in the bottom line.”


In the last two years, most retailers have been closing, relocating or rationalising unprofitable stores after they found themselves saddled with mountains of inventory and gripped by a cash crunch following hasty expansion. “These retailers have reached their maturity with many stores opened during initial expansion, (they) are now six-seven years old. At the same time, there has been more focus on profitability and employee management per square foot apart from better inventory planning unlike the carnage we saw last year when retailers had to sell stocks at a huge discount,” said Kumar Rajagopalan, chief executive of the Retailers Association of India trade lobby.


The numbers bear witness to this shift. Despite not opening a single store last year, Trent Hypermarket recorded a 21 per cent increase in total revenue to Rs 801 crore last fiscal and a loss of Rs 72 crore. Aditya Birla Retail added just three hypermarkets and two supermarkets under the More brand and posted a 10 per cent sales growth with a 5 per cent decline in losses as it shut over a dozen unviable stores. The numbers also indicate that despite, or perhaps because, of the economic gloom, Indian shoppers have embraced the value proposition offered by organised retail.


“Modern trade has surely taken a share from unorganised retail due to a sharper proposition in terms of cost and quality. For a consumer, a full basket at modern trade works out cheaper compared to traditional trade and obviously more savings,” said Abheek Singhi, partner and director, The Boston Consulting Group, India (BCG).


Bharti Retail’s losses widened as it opened more than 30 Easyday supermarkets and hypermarkets in calendar 2012, taking its tally to 210 stores. The sharpest decline in losses was posted by Reliance Retail, down 80 per cent to Rs 55 crore while sales jumped 36 per cent to Rs 5,256 crore.


To be sure, the issues that make organised retail a high-investment, low-return sector are still unresolved, according to experts. These include the high cost of real estate, a paucity of skilled manpower and the lack of infrastructure such as cold storages and efficient supply chains. “Retailers are looking at profitable and moderate pace of additions under 10 per cent in FY14 against the range of 15-30 per cent seen in the last two-three years,” said Janhavi Prabhu, analyst at India Ratings & Research that has maintained a negative outlook on the retail sector for second half of 2013.


Source:The Economic Times

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