The world economy has been under tremendous pressure in the last 12 months, many countries going through negative growth, with serious implications on the retail and consumer goods companies. Our country has also its own share of concerns, but overall we have been able to maintain a much better GDP growth rate of 6.5% in 2008-09, and maintain the momentum going forward.
Business in cautious mode
The current sentiment prevailing in the Indian retail market is of cautious optimism. Retailers last year experienced a sharp downturn in overall customer footfalls and this coupled with aggressive plans of most of the retailers resulted in large impact on the bottom-line of the retailers. However, improvement in the overall economic scenario in the recent months has a positive effect on the retail scenario. Most of the retailers are witnessing increasing footfalls and the same store sales growth. The start of festive season would also see an increase in retailer’s revenue in the coming months.
A very high impact of recession was particularly felt in metro cities where consumers were affected by slowdown. A large part of the service sector employees who were major contributor to organised retail growth were impacted by it. The effect of recession was not very severe in the smaller towns as most of the consumers had stable income and were not much impacted by slowdown.
Last year with increase in inflation, interest rates and fuel prices, the overall disposable income in the hands of consumer reduced significantly and hence resulted in low spend on categories like furniture, high end consumer durables etc. All this led to consumer becoming more cautious with the finances and hence affected retail revenues.
Retail rise once again
The situation is expected to improve gradually and we believe that it is here to last. The downslide can happen in case there are further issues in the global financial markets. The impact of modest monsoon is likely to impact sales particularly in tier II and III cities.
We strongly feel that the Indian modern retail story is still intact and will continue to witness evolutionary growth and opportunities in the years to follow albeit with some short- term hiccups.
The main cautionary measures that retailers should take:
• Plan Expansion Carefully: Retailers should plan their expansion plans very carefully and look at profitability of stores before opening them
• Focus on Inventory Management: Most of the retailers have large inventories with them and as a result this not only impact profitability but also working capital management leading to lower returns on capital. Retailers would need to plan their inventories going ahead in order to generate returns to the shareholders
• Understand Customer Requirements: Most of the organised retail was built on the premise of providing better shopping experience and prices however most of the retailers are grappling with merchandising issues whether it is availability or lack of differentiation. Going ahead retailers would need to understand the need gaps of the consumers and align their value proposition accordingly in order to be successful.