Studying the modern retailers business, data suggests that the modern retail sector in India is maturing – the focus has shifted from aggressive revenue growth to a phase where revenue growth, profitability and cash flow objectives have to be balanced. Retailers are focused on closing unprofitable stores and re-calibrating existing stores, making supply chains more robust (to lower inventory costs) and debt restructuring (in some instances).
The big are getting bigger – Players like Pantaloon / Future Group and Shoppers Stop are expanding, albeit at a slower pace than in the past. In contrast, smaller players like REI 6Ten and Koutons have scaled down operations. Access to capital remains an important differentiator. 6Ten and Koutons are adopting franchisee based models (at least partially), while both Pantaloon and Shoppers Stop have eschewed this model, preferring to maintain control of stores and customer engagement.
Finally, the improvement in consumer sentiment and the consequent uptick in discretionary consumption (apparel, footwear), should result in an improvement in profits, and more important, visibility of profits – essential given the capex intensive nature of the industry. Structural challenges such as – high inventory costs, in-store capex costs and multiple taxes (service tax, octroi, etc.) will continue to affect returns on capital employed. We will next see the way ahead for retailers in India.