As customers cut back, inventory is mounting at Kishore Biyani?s debt-ridden Pantaloon Retail, where unsold items worth R3,585 crore now sit on the shelves for as long as 120 days.
At the end of the company?s fiscal year in June, inventory had already ballooned by almost 50% from R2,403 crore a year earlier. Analysts say inventory at the end of the December quarter was even higher. The company may have cleared some inventory in January during its annual discount sales, but that would get booked only in the March quarter.
The inventory is now sitting idle for 120 days an average compared with 75-80 days at the Tata Group-owned Trent, while Shoppers Stop, which has almost 58% of its merchandise on sell-or-return basis from various companies, has a low inventory level. Globally, it takes 30-40 days to sell any item.
?In Pantaloon?s case, it is lack of efficiency in the supply chain,? said an analyst from a Mumbai brokerage who asked not to be named. ?It is difficult to sustain businesses at that kind of level,? he added.
Of late, the company has been investing substantially in its logistics unit Future Supply Chain Solutions, which has received funds from the Hong Kong-based Li & Fung Group. Future Supply Chain recently commissioned a 4,20,000-sq ft central distribution centre in Nagpur to handle 100,000 pieces in various categories to ship across the country.
At an investor update last month, Pantaloon had claimed robust January discount sales, adding it achieved turnover of 40% of what was achieved in the entire quarter ended December.
Pantaloon, which doubled income in the last three years to about R12,000 crore, has been aggressively adding space, fuelled by heavy debt. Its total standalone debt now stands at about R5,000 crore, up by about R800 crore in one year. Kishore Biyani, Pantaloon?s founder and managing director, could not be contacted for this report.
A slowdown in consumer spending is adding to Pantaloon?s woes. Same-store sales, a retail yardstick to gauge sales at outlets that existed for a year or more, for Pantaloon has been slowest in the last two years as like-to-like sales grew marginally by 3.2% for value retailing such as foodstuff and 5.3% for the lifestyle segment, whereas the parameter contracted 3.2% for home and furnishing businesses.
Analysts say retailers are facing the impact of consumer belt-tightening. The country?s largest department-store chain operator Shoppers Stop reported same-store sales dropped 1.3% in the December quarter.
Even though the quarter is considered the peak shopping season in India as Diwali falls during this period, Shoppers Stop profits dropped 44% to Rs 9.3 crore for the quarter compared to the same months last year while high interest outgo and slowing sales dampened Pantaloon profits by 68% to Rs 4.47 crore from a year ago.
Analysts expect a further decline in cotton prices that would make apparels cheaper, adding consumer spending would stay muted, posing a challenge for the coming quarters.