A demand contraction following a slowdown in the domestic economy has impacted the sales of retailers, with the consulting firm saying sales growth in December 2008 slowed to 11 per cent from 35 per cent a year earlier.
Indian economy is expected to grow about 7 per cent in the fiscal 2008/09, lower than 9 per cent or above in the previous three years.
But some analysts say growth in the fiscal year to March 2010 could be lower as the impact of the global slowdown digs deeper.
In the KPMG survey, 70 per cent of the respondents said lower sales have adversely affected footfalls, prompting them into better cost management including rental renegotiation, store rationalisation and manpower resizing.
"We believe that players which take immediate strategic measures will be the dark horses," the KPMG report said.
"Be it store rationalisation, change of supply chain, consolidation of operations, improvement in IT infrastructure, retailers need to think quick to protect their margins," said Neil Austin, KPMG's Global Head of Markets.
To combat the current slowdown, the consultancy expects the retailers to focus more on food retailing and consumer goods and shift away from lifestyle goods.
KPMG also expects the retailers to tap Tier II and Tier III cities to help boost profits on back of lower rentals and operating costs.