Mumbai: Retailers, already facing pressure on their margins because of rising rental and salary costs, may now also see retail sales getting dented as rising inflation leaves less money in consumers’ pockets to shop, analysts say.
The rise in food and oil prices has sent the inflation rate soaring above 7% in the past few weeks. International data show consumer spending slowing down as they spend more on fuel and food, and analysts say they will not be surprised if this may also lead to a subdued retail sales in India.
Results for retail companies come amid uncertainty on whether consumers will continue to spend the way they had in the past few quarters.
Stock taking: A Vishal Megamart outlet in east Delhi. Vishal Retail Ltd is expected to announce results for the fourth quarter today. (Photo: Ramesh Pathania/Mint)
Shoppers Stop Ltd and Vishal Retail Ltd will announce results for the fourth quarter on Friday and Pantaloon Retail India Ltd, India’s largest listed retailer, on Saturday.
Shoppers Stop runs a 24-store department store chain, a book store chain, and a hypermarket chain among others. Vishal Retail runs several discount stores.
“There will be some slowdown because people do not have surplus money to spend now,” says Hitesh Kuvelkar, associate director for research at First Global Securities, a Mumbai-based brokerage.
While consumer durables and electronics sales could be worst-affected as consumers may hold back on big-ticket purchases, even food and grocery sales could be affected due to the increase in prices, says Alok Dalal, a retail analyst at Religare Securities Ltd, a domestic brokerage.
Analysts say apparel and lifestyle purchases could be less affected by the slowdown.
Pantaloon, Shoppers Stop, Vishal Retail, Trent Ltd and Koutons Retail India Ltd are the nation’s listed retailers.
Pantaloon is the most valued retail company, with a market capitalization of Rs6,958.66 crore, followed by Koutons (Rs2,374.61 crore), Vishal Retail (Rs1,835.59 crore) and Shoppers Stop (Rs1,414.71 crore).
Shoppers Stop had reported sales of Rs 340.9 crore, up 30%, for the quarter ended in December 2007. But this quarter may be different, analysts say.
US retail sales data showed that retail sales had dropped 0.4% in February because of the slowing in the economy and rose only 0.2% in March. This is because consumers spent more on fuel.
In March, American consumers bought less appliances, electronics and furniture as they held back on big purchases. But some analysts say the actual impact of the price rise will be felt only later because retailers usually have an inventory of two-five months.
“I do not expect any negative surprises from the retailers this quarter,” said Lalit Thakkar, head of research at Angel Broking Ltd, a Mumbai-based brokerage firm.
“We will not feel the impact of this immediately. Also, the growth rate for retailers is so humongous that they will be able to take this in their stride for a while,” he added.
Dalal says he expects Vishal Retail, which runs around 100 stores in non-metro cities, to report sales of around Rs399 crore, or a jump a 30% from the previous quarter.
But, net profit may be Rs13 crore, a decline of 16% from the previous quarter due to costs on expanding its store network.
Vishal, like most other retailers, is spending on expansion very quickly, but these stores will add to profits only after a few quarters.
Retailers are expanding rapidly as organized retail is expected to grow at 42% until 2011, according to a report by Mumbai-based brokerage Edelweiss Securities Ltd. But the growth has dented profitability because of the rising real estate costs and salary costs.