Indian retailers to go slow on expansion, Fitch report

Retailers will expand their store space at a lower pace in 2014-15 compared to 2013-14. Companies such as Future Retail, Shoppers Stop and Trent will “continue space optimization”, says India Ratings and Research. According to a Fitch Group report, average space addition in 2014-15

will be 10-11 percent, slower than the 13 percent estimated for 2013-14.

Slow

growth pace to continue

This, combined with a modest growth in business in existing stores will result in revenues growing 8-10 percent in 2014-15, down from an estimated 14 percent in 2012-13 and 18.6 percent in the first half of the current fiscal year, on the back of very poor sales in the corresponding period a year ago. India’s economy grew at 4.8 percent, the lowest in a decade, in the three months ended September and prices have gone up by an average 10 percent a year for the past five years hurting private final consumption expenditure (PFCE), an indicator of consumer spending in the economy. Consumer spending grew at 1.6 percent in the June quarter and at 2.2 percent in the September quarter, says the India Ratings.

The protracted slowdown has also hit consumer sentiment. Consumer confidence in India, which until 2012 was the highest among the countries included in Nielsen’s quarterly Consumer Confidence Index, has been steadily slipping. In the September quarter of 2013, it plunged six points, pushing India to the third spot, behind Indonesia and the Philippines. India Ratings expects consumer sentiment to remain subdued in 2014-15.

For retailers, this would mean a rethink on their expansion plans, which have already been significantly downscaled. For instance, Shoppers Stop saw 18.4 percent increase in space addition in 2012-13, compared with the 48.5 percent jump seen in 2011-12 and the 41.1 percent increase seen in 2010-11, said the India Ratings report. At Trent, which runs departmental store Westside and hyper market chain Star Bazaar, the consolidated footprint grew 2.5 percent in 2012-13, less than the 7.5 percent growth seen in 2011-12. Kishore Biyani-led Future Retail, which operates retail chains Big Bazaar and Food Bazaar, closed more stores than it opened leading to a drop in the overall operational space. India’s largest listed retailer by revenue shut 16 Food Bazaar stores and reduced its operational area by 0.15 million square feet between July and September, according to a September investor update by the company.

The slower pace of expansion is unlikely to affect demand for retail real estate. Fashion and food brands such as Starbucks, Krispy Kreme, Dunkin’ Donuts, Forever 21, Zara and Superdry will drive the demand for retail real estate, said real estate consultant CBRE in a report released last week, adding, luxury brands such as Brooks Brothers, Missoni, Michael Kors and Emilio Pucci will also make inroads into the country’s marketplace.