Mumbai: Consumers have started trickling back to malls and department stores as the economy is stabilizing, say many large retailers, who expect sales to further improve in the months ahead.
This sentiment is spread across segments, from value retailers such as Vishal Retail to specialized chains such as The MobileStore, which sells cellphones and accessories and is part of the conglomerate Essar Group, to Reliance Retail, part of the Reliance-Anil Dhirubhai Ambani Group.
Pantaloon Retail (India) Ltd, the country’s largest retailer by revenue, witnessed around 8% growth in same store sales for the month of May compared with the same period last year. In April, the company said it had an increase of 7% and 5% in March.
Vishal Retail, which shut two apparel manufacturing units and two stores during the downturn, is now seeing sales picking up again. Chief executive officer (CEO) Ambeek Khemka said, “Sales are picking up gradually and the company has seen a surge of around 20% overall sales in the last three months.”
A Reliance Retail official, who did not want to be identified because of company policy, said, “From April, definitely, the consumer sentiment is positive and we have witnessed an increase in sales by around 15% in the last two months and June is looking better than May.”
Rajeev Agarwal, CEO of The MobileStore, said, “In the last three months the sales of the company have increased by around 20% which definitely indicates a positive sentiment.”
The upturn comes at a time when economists around the world have been speaking of so-called “green shoots” of recovery after an unprecedented global slowdown sharply cut consumer spending.
Falling stock indices, declining housing prices, rising inflation and the global economic crisis had led to Indian consumer confidence declining by 26.5 points between January 2008 and March 2009, according to a May report titled Winning Indian Consumers In The Downturn from the Boston Consulting Group.
Analysts, too, feel the worst is over for retailers and the sector, whose market size has been estimated at about $25 billion (Rs1.2 trillion), is likely to witness slow and steady growth.
During the period, most retailers, among them Spencer Retail Ltd, Aditya Birla Retail Ltd, Future Group, Reliance Retail Ltd and The MobileStore, went slow on expansion, closed stores that were no longer viable, and regularly pitched promotional offers and deep discounts to counter the decline in discretionary spending.
In addition, some retailers laid off employees, renegotiated rental agreements signed in a healthier financial climate, and consolidated operations by merging teams, warehouses and back offices.
The MobileStore, for example, shut down at least 70 stores, while opening an equal number of new ones after November. Reliance Retail added 100 stores and shut down at least 20.
However, some retailers such as Subhiksha, Mumbai-based Foodland Fresh, and Indiabull’s Retail Service Ltd were the worst hit. While Foodland Fresh and Indiabulls Retail Services Ltd have only three and four stores operational, respectively. Subhiksha had to shut down operations due to lack of funding.
However, things are looking better for the industry as a whole. Kishore Biyani, founder and CEO of Future Group, said, “We are seeing positive sentiments in consumer behaviour due to the sense of security in terms of job and stable government. With asset prices increasing people have started to feel more secured. Moreover consumption in the country is not going to come down and will continue to grow.”
A New Delhi-based analyst with a domestic brokerage said in the last three months the consumer sentiment is gradually improving, and that almost all retailers are seeing a rise in sales across categories. “Retailers may once again see a double digit growth in the next few months if the consumer sentiment continues to grow at the present level,” he said. He declined to be identified because he is not allowed to speak to the media.
“Fear in the consumer mind has slowed down and with the economy reviving there is higher rate of job creation in the market,” Raghav Sehgal, an analyst from Angel Broking Ltd said.
The Reliance Retail executive quoted earlier said consumers had cut down on discretionary spends and lifestyle retailing was most impacted while value retailing did not witness much of an impact. Now there is an upswing even for lifestyle retailing which is a clear indication of positive sentiment, he said.
“With the market showing signs of revival, a stable government and India realizing their strength in consumption, the growth is back,” said Kumar Rajagopalan, chief executive officer of the Retail Association of India, a lobbying group for the retail industry. “This time the growth is more realistic and not hyper-growth like earlier as retailers have learnt from their mistakes during the economic slowdown.”
He added that the funding crunch that hit retailers after the global financial system froze after the September collapse of US investment bank Lehman Brothers Holdings Inc. has eased now.