Retail sales continue to remain flat this year, says BCG study

Retailers expect flat sales this year on the back of low consumer sentiment and a tight credit market, says Boston Consulting Group (BCG) in a report titled ‘Winning with Uncertainty’. To win in the face of these challenges, retailers need to build

agility into their business model, the report says.

Low consumer sentiment

Abheek Singhi, Partner at Boston Consulting Group, said in a press statement, the real challenge was not the increase but the volatility in input prices. “Inflation has seen wild swings with the wholesale price based (WPI) index settling at levels as low as 4.89 percent in April after seeing highs of six-seven percent over the last year. Consumer sentiment has been a conundrum. Our global trading-up, trading- down survey indicates that while 38 percent of Indian consumers want to trade up (much higher than US and EU consumers at 13 percent and 16 percent respectively) about 30 percent want to trade down,” Singhi added.

According to the BCG survey covering executives of leading FMCG and retail companies in India, 54 percent of the respondents said the volatility in raw material prices would remain a challenge for the industry, while 50 percent expected challenges due to rising competition over the next five years. The report says organised retail in India is at an inflection point – there is a healthy revenue growth of 25 percent CAGR over the last five years. However, organized retail contributes to less than 10 percent of overall sales across multiple categories.

Uncertainties of organized retail market

Organised retail faces uncertainty and challenges both on the revenue side and the cost side, the report says. On the revenue side, there is demand uncertainty due to inflation-driven consumer reluctance to spend. Cost Price Index (CPI) too has reduced substantially standing at 10.24 percent for the month of April, according to the BCG report. This is a swing from CPI at 12.06 percent and 11.44 percent for February and March respectively.

The report says retailers need to build agility in their offer design through dynamic value proposition, assortment and pricing decisions as well as robust mechanisms to experiment across store formats and channels with minimal loss. “Retailers would also need to build execution agility through flexible sourcing (more direct and local), dynamic supply chain management, lean store operations and efficient working capital management,” the report added.