Top retailers, who have been struggling with sluggish demand and high inventory, are expecting stronger same-store sales growth in the third and fourth quarters of this fiscal on the back of the festive and wedding seasons.
Same-store sales or sales at stores open at least a year, have remained muted since the beginning of the year as consumer sentiment remained weak.
For example, two years ago, for the quarter ended December 2010, Pantaloon and Shoppers Stop?s sales grew 20.9% and 22%, respectively. However, for the quarter ended September 2012, their sales languished at 10.8% and 5% each. But this could change.
Kishore Biyani?s Pantaloon Retail India is seeing some revival in demand in its high-margin fashion business, as opposed to its foods and home retail business that saw some weakness. The September quarter growth, though meek, was already the company?s strongest lifestyle same-store sales growth in the last five quarters. ?We will only focus on profitable growth,? said Biyani while launching his new fashion business Future Lifestyle Fashion. ?
?Second, we will have free cash flows and third, our Ebitda-to-debt ratio should not be more than three times.? The lifestyle business has a potential of delivering an ebitda margin of 12-13% going ahead, as the fashion business in India is at ?its tipping point?, he said.
?The sector has bottomed out,? said analyst Abneesh Roy of Edelweiss Securities. ?The industry saw a low single-digit growth, but the rest of this quarter and the next should bring in same-store sales growth in double digits.?
?After a lull in sales, deferred buying is taking place during November and December. And now, there is a general optimism among people.?
Retail companies resorted to extended discount season this year to raise sales. But that just led to a marginal increase in sales due to the slowdown of the economy. Added to slowing sales growth, companies? costs rose primarily due to higher rentals. In India, rentals comprise about 40% of a retailer?s operating costs, whereas they should ideally hover around 15-20%. Over the last two quarters, companies have been cutting down on store space to save on higher rentals. This year, the festival season has shifted by some weeks and the full impact of the season will be seen in the December quarter.
K Raheja Group company Shoppers Stop expects a like-to-like (LTL) growth of 8-10% in the current quarter and the next. ?Even if we beat the 7% LTL growth, we will be happy, despite adding new stores,? said Govind Shrikhande, managing director of Shoppers Stop. The company?s LTL sales grew a tepid 5% during the September quarter. In the June quarter, LTL sales grew just 1%.
The company has been taking a massive hit due to its loss-making subsidiary HyperCity. HyperCity is expected to be a drag on the company?s finances for at least two-three years.
Department store operator Lifestyle International, which is owned by Dubai?s Landmark Group, is expecting an increase in same-store sales in the low single digits for the rest of the financial year, said Kabir Lumba, Lifestyle?s managing director. Landmark is now betting on Max Hypermarket India chain to drive demand in the country, investing R500 crore into it, over the next three years.
A company official at Central, owned by Pantaloon Retail India, said same-store sales are growing by 15-16% this fiscal year as the company?s festival season sales were ?up to expectations?.