2013 to see weak consumer spending

India Ratings retains negative outlook on retail sector.

According to India Rating the negative outlook on retail sector is going to continue in 2013, driven by continuing weakness in consumer spending due to rising inflation, marginal real wage growth and a weak macroeconomic environment.

The retail companies in India are already seeing revenue declines and margin pressures.

The ratings also show muted revenue growth for industries dependent on consumer spending including retail. The trend in Private Final Consumption Expenditure (PFCE) is even more worrisome since out of the last six quarters, four quarters had the lowest PFCE growth rate in the last 34 quarters. PFCE was at an eight-year low at 3.68% at end-Q213. India Ratings does not expect a meaningful improvement in PFCE in 2013.

Median EBITDA margins for the sector are likely to contract by 50bps-75bps in 2013, while overall revenue is likely to grow at 3-8 per cent year on year across large retailers.

The study also suggests that sales in 2013 will also be driven by discount offers as the case in 2012. For retailers focussing on luxury will be worst hit as compared to other segments.