“Club of Knowledge Hunters”

Retail chains gear up to combat slowdown

Posted by retailigence on January 4, 2009

NEW DELHI: Consumers can rejoice. The new year will usher in more value-for-money formats, growth in large hypermarkets, and attractive discounts offered by high street, even as retail biggies, hit by higher costs, look at collaboration, realignment and consolidation within the industry. Says Future group chairman Kishore Biyani, “The retail sector will post a decent double-digit growth this year. The year will see more collaboration – between fellow retailers, retailers and real estate developers, and in sourcing of goods and services”.

Collaboration at various operations and between various stake-holders will hold the key to profitability in the sector. Also, modern retail may grow faster with real estate prices coming down, and growth could be over 25% this year.

Over the past year, there was a correction in the high ‘‘Utopian growth targets” set for the sector. It was a landmark year with huge discounts and sales persisting most of the time in stores. Retailers were able to meet their targets by correcting their model, going slow on expansion and downsizing operations.

The sector will post a growth of 20-25% this year, with a slowdown in sales of furniture and finance (items related with home), analysts say. Pinakiranjan Mishra, industry leader (retail) at Ernst & Young says, “The last year was a defining year for the retail industry. It was marked by a focus on consolidation and cost management rather than high growth that was the focus over the earlier years. Though the growth expectations might not have been met, the industry can use this year as a strong learning ground for the future”.

Experts believe that there will be a change in nature and composition of products and services offered at various formats, with private label taking a bigger share. “We predict an increase in ‘value for money’ category and a decline in lifestyle category. Also we might see lesser aggression in stores expansion and focus on store productivity, shrinkage and loss reduction”, says Narayanan Ramaswamy, executive director KPMG.

This year will see measured and focused growth instead of the rapid growth witnessed in the past. There will be a lot of interest in large format stores in each category. The industry will also see good growth in consumer durables and food & grocery retailing. The year could also see some merger and acquisition (M&A) activity that has been missing of late with the long-term players likely to consolidate and move ahead strongly.

Arvind Singhal chairman of consulting firm Technopak says that trends to watch out for this year include a further growth of large format stores (hypermarkets,large specialty stores in categories like electronics, home (furniture /home decor); start-up and growth of specialty stores (upmarket supermarkets, specialty clothing, health & wellness, jewellery, books, music), with profitability being the focus, against chasing growth in 2007 and 2008. During last year, there was only a slowdown of growth and not a decline of consumption per se. Hence, even if the GDP grows at 6% this year, it will translate to a healthy overall 7-8% growth of private consumption.

Sources:- Economic Times


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