Retailers, who only two years ago were busy painting rosy pictures, are now licking their wounds and struggling to put their houses in order.
Neighbourhood discount chain Subhiksha could be going bust, though large format chain Vishal Retail has managed not to slip into a financial distress through a substantial reduction in lease rentals which form a good 30 per cent of operational costs.
Shoppers' Stop registered a sluggish 4 per cent same store sales in the nine months ended December 31, 2008.
Pantaloon Retail India Ltd's February 2009 investor update pointed to a modest 5.32 per cent year on year growth for its value retailing business. Its lifestyle retailing grew at 4.44 per cent while the home retailing business fell by 10.17 per cent on a year-on-year basis. Vishal Retail for the moment has put its expansion plans on hold.
Organised retail players are trying every trick in the book, which include closing unviable stores, focusing more on private labels and expanding with great care. At the same time, they are taking advantage of the softening rentals.
The Aditya Birla group which runs the ‘More’ chain of food and grocery stores has also taken a number of steps since the downturn cast its dark spell.
Speaking to Hindustan Times, Thomas Varghese, chief executive of Aditya Birla Retail said, “We are closing unviable stores, focusing more on private labels and taking a slew of cost reduction measures.”
In an email response to Hindustan Times Ambeek Khemka, group president, Vishal Retail said, “We are taking advantage of the slump in property prices and have renegotiated rentals at more than 50 stores.” Real estate accounts for a good 30 per cent of the operational expenditure for Vishal Retail. Vishal Retail has centralised its warehouse in Gurgaon as part of a cost-cutting exercise.
Footfalls for most of the retailers have come down, as per a recent KPMG report titled ‘Indian Retail-time to change lanes’. The report also pointed out that many retailers have borrowed a lot. For instance, Vishal Retail’s interest expenditure is Rs 7 crore per month.