Retail Dude

There are somethings money cant buy, for everything else there is the “Great Recession”.

After noticing tremendous spurt in retail rentals over the years, finally the recession period has brought a smile to the retailers. Retailers are going bullish over expansion plans, as they are getting prime coveted retail space at prices 35 per cent lesser than the last year. Infact a news headline todays says, Benetton will open a store every 3 days this month. Beat that…Phewwww.

Whatever the retailers are booking now, will be delivered a year down the line, and therefore will reduce their rental cost substantially. Despite the slowdown and high inflation, compainies remain attracted by the growth opportunity in organised retail. 

The much needed correction finally has happened to the retail rentals. For the record, lease rentals for a specialty/small store should be around 12-15 per cent of the revenue. However, retailers were paying over 20 per cent making their business. Grocery and Apparel retailers were paying 10 to 20 per cent of their sales as rent against an ideal payout of 6 to 12 per cent respectively. Meanwhile, even as they expand, retailers are also closing or shifting unviable stores. RPG group’s Spencer’s Retail has shifted 30 stores in the last year in West Bengal, Kerala and Karnataka to other locations due to high rentals and lower footfalls. Industry sources say initially most malls in the same micromarket had similar rental rates. But as they became operational, the rentals started to get aligned with revenues and footfalls. Further according to me, due to increased interest rates and fluctuations in the industry market has negated growth of demand for residential space. The realtor has definately been hit for sure. But nevertheless, its a green go for growth in retail.

Cheers!

Sudip

Excerpts from BS, ET and DNA

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Yes! Many big retailers like Reliance Retail, Future Group etc. have substituted their expansion spree with contraction because of slowdown. The most recent addition in the list is that of RadhaKrishna Group’s Foodland Fresh and Wadhwan’s Spinach. Foodland Fresh has shut down many stores in last few months whereas Spinach has decided to currently hold their expansion plan.

There are several factors behind such a scenario in retail environment. Whereas increased MSP for cotton, higher raw material cost, higher real estate prices, bleeding Sensex, postponement of purchases are the root cause, another factor affecting retailers is falling rupee.  

As dollar grew from Rs. 39 in January to Rs. 47 in October, forward bookings by retailers are getting impacted. Resorting to higher prices in also not an option for retailers as due to inflation, disposable income has already decreased for common man, so they will switch to cheaper local alternative. Moreover majority discounters follow the practice of forward booking and they cannot sell increase the prices of their product due to their format.

But this will certainly increase market for local make products in India as they will be very cheaper comparatively.  

- Rajeev Damani

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Is it the kind of correction we need in the retail segment? In Kolkata, retail sector seems to be in problem. With inflated real estate prices which are not matching to returns in retail sector, and all round protest against organized retail in Bengal, developers are converting their commercial retail space into office space.

Park Street tower that was meant to be Calcutta’s first exclusive mall for women, turned it into an office address. The Gariahaat Mall, which flopped as a retail destination, is reinventing itself as an office. The latest high-profile conversion from retail to office space is DLF’s proposed Grand Mall in New Town, Rajarhat. These are some of the many cases of conversion in Kolkata.

“There is no denying the fatigue factor in retail at the moment. A lot of retailers may have ramped up their businesses too fast. On the other hand, the demand for premium office space has grown manifold,” said Ajay Khanna, the managing director of DLF Retail Developers Ltd.

- Rajeev Damani

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It’s true that every one learn from their mistakes only. Indian Retail biggies have initiated much awaited corrections as well as consolidation in their current business. Though these are first round of changes in their strategies but at least it has started.

1.       Indian organized retail players have realized that it’s really tough to compete with cost-efficient and customer-focused kirana stores (mom-n-pop). This is why convenience store formats like Reliance Fresh, More, Spencer’s & Subhiksha are shutting down stores which are not viable and at the same time are going slow with their expansion plans. This is taking place because of the low margins in this business and high real estate costs. Hypercity has also exited this space.

Industry Speak:

“What kind of conveniences can modern retailers now offer with an inevitable high-cost structure? It makes no sense to be in this space” says Andrew Levermore of HyperCity Retail. 

“Although we had a lead entry into the space, we knew that the neighbourhood formats will never be viable. Even if consumers have the money why will they spend extra in air-conditioned formats to make daily purchases. The local kiranas are already far too efficient in the space” said Future Group CEO Kishore Biyani.

“The current crop of neighbourhood formats are merely air-conditioned kiranas. It makes no sense to compete with the supremely customer-friendly kiranas, which offer credit and a great service system. The merchandising will have to be different to bring back the consumers,” says Gibson Vedhamani, president of the Retailer’s Association of India. 

2.       As the Retail bubble burst, every one jumped into it registering their presence everywhere possible. Retailers should learn from what is happening in Ahmadabad. Once it was favorite of all retailers but now stores are shutting there. City malls are experiencing vacant spaces and Big Bazaar recently closed two of its big outlet there.  These are result of wrong analysis of Gujrati Consumers who look for functional benefits from the retail experience. The result: closure of ambitious retail projects across the city. Brands like Nike, Tea Centre, Conizza, etc, have already closed shop (ET). According to Retail Analysts these are nothing but sign of consolidation. So, this shows that how Indian Retailers just jumped into the market without proper market research.

3.       Bharti Retail seems to have learnt from the mistakes of other and so they have taken strategy of going slow. Compared to Reliance’s one-store-a-day approach, Bharti’s pace has been almost one-store-a-month. It has opened seven stores in six months, as against around 700 stores of Reliance in two years. “We plan to have pan India presence, but are in no hurry to roll out stores everywhere. Our aim is to understand the dynamics of retail and evolve the right model. We are not here to prove anything in a year or two, but looking at 5-10-year period,” says Bharti Retail president and COO Vinod Sawhny to ET.

(Ref: http://economictimes.indiatimes.com )

-          Rajeev Damani

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