Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Retail: Outlook for 2008 - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Jan 7, 2008

    Retail: Outlook for 2008

    For the vibrant retail sector, the year 2007 was mixed as the booming sector witnessed tribulations in the middle of the year due to unanticipated cost pressures such as service tax on rentals and high power costs apart form the usual problems of delays in store opening and high manpower attrition.

    However, the sector has not yet lost its glimmer. The retail sector is growing at a hasty pace, fuelled by a strong economy, favourable demographics, rising disposable income level and rapidly changing lifestyles and consumer aspirations of an ever-burgeoning middle class. Retailers are taking benefit of this growth and accordingly are aiming to expand. This fast-paced growth is aided by mall development, fuelled by the government bodies' initiative of releasing real estate space for retail development in prime areas.

    As per estimates made by ASSOCHAM, US$ 300 bn retail sector, which has been notching YoY growth of almost 35% to 40%, is expected to surpass US$ 365 bn in CY08. Growth prospects are likely to face hurdles owing to factors such as restrictions on FDI (foreign direct investment), the lack of a uniform tax structure across states and increasing pressure on infrastructure in key consumer markets (logistics issue).

    Execution risk: Earlier there was a shortage of quality real estate, however, with the mall mania catching up and recent initiatives by the government that has released land for development is likely to aid the growth of the retail sector. In 2008, 150 new malls are likely to be added taking total operational space from 40 m sq ft in 2007 to over 60 m sq ft in 2008 and in turn fuelling growth of the retail sector.

    However, considering the delay in land acquisitions and clearances, timely delivery of the agreed retail space by builders and the roll out of the retail space to maximize efficiencies on a per sq feet basis will be the most important factor to watch out for.

    Regulatory issues: Despite the regulatory reforms improving the economy's trade prospects -some major barriers still exist, with tariff rates being the highest in the world. The issue of FDI (51% FDI is allowed in single brand retailing) has been debated time and again and the policy makers are exploring areas where FDI can be invited without hurting the interest of local retail community. If this happens it will not only bring the required capital but also better technology and industry best practices, which will help retailers to further scale up their business, while extending benefits to consumers.

    New entrants: The Indian retail industry is highly competitive. The untapped scope of retailing has attracted new entrants (business houses and international players if foreign participation is further liberalised), which are expected to intensify the competition.

    Pricier growth: The costs of operation are rising on account of increasing competition and sky rocketing rentals and property prices, rising freight and fuel expenses resulting into increased selling and distribution expenses. Employee costs have also been moving upwards, attributed not only to the expansion of outlets, but also due to pay hikes and high attrition rates. In order to curtail the high attrition rates, players have to review salaries/wages on a time-to-time basis. The scenario is likely to continue in the current calendar year exerting pressure on margins. Sky rocketing rentals are forcing retailers to come up with a multi-pronged strategy that includes trying out new formats, opting for a revenue-sharing model with developers and venturing into Tier II and Tier III cities.

    Basically retail is a volume game. With the competition intensifying and the costs scaling up, the players who are able to cater to the needs of the consumers and grow volumes by ensuring footfalls, while being able to reduce costs as well as withstand a downturn or face competition.

    To conclude...
    As far as modern retail trade is concerned, the customer is far more ready than what the companies and industry has to offer, with signals emerging from both metros and non-metros. There is immense opportunity, as consumption levels are extremely low and aspiration levels high. The year 2008 may witness lot of activities such as acquisitions, joint ventures, expansion and capital raising to fund expansion plans. Further, the players will try to strengthen their back-end activity to ensure smooth functioning and to support the growth of the business.

    The rising electricity charges, newly imposed service tax on rentals and attrition levels are bound to exert pressure on operating margins. However, considering the low penetration levels, changing lifestyle, rising disposal income levels and changing consumer mindset regarding credit, retail sector is expected to continue to grow at 35% to 40% per annum over next three to four years.



    Equitymaster requests your view! Post a comment on "Retail: Outlook for 2008". Click here!


    More Views on News

    Titan: Jewellery Business Lights up the Quarter (Quarterly Results Update - Detailed)

    Aug 10, 2017

    However, growth at these levels are unlikely to be sustainable.

    Avenue Supermarts Ltd. (IPO)

    Mar 7, 2017

    Equitymaster analyses Initial Public Offering (IPO) of Avenue Supermarts Limited.

    Titan: Beating the Demonetisation Blues (Quarterly Results Update - Detailed)

    Feb 14, 2017

    Titan Industries declared its results for the third quarter of financial year 2017 (3QFY17). While topline growth was 14.7% YoY, net profit grew by 13.1% YoY during the quarter. Here is our analysis of the results.

    Titan: Margin Improvement Saves the Day (Quarterly Results Update - Detailed)

    Nov 16, 2016

    Titan Industries declared its results for the second quarter of financial year 2017 (2QFY17). While topline growth was flat, net profit grew by 23.5% YoY during the quarter. Here is our analysis of the results.

    Titan: High Gold Prices Spoil the Show (Quarterly Results Update - Detailed)

    Aug 9, 2016

    Titan Industries declared its results for the first quarter of financial year 2017 (1QFY17). The company reported 3.3% YoY increase in sales, while net profit fell by 16.3% YoY during the quarter.

    More Views on News

    Most Popular

    This Small Cap Can Drive Chinese Players Out of India (and Make a Fortune in the Process)(The 5 Minute Wrapup)

    Aug 17, 2017

    A small-cap Indian company with high-return potential and blue-chip-like stability is set to supplant the Chinese players in this niche segment.

    The Most Important Innovation in Finance Since Gold Coins(Vivek Kaul's Diary)

    Aug 10, 2017

    Bill connects the dots...between money and growth, real money and real resources, gold and cryptocurrencies...and between gold, cryptocurrencies, and time.

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    Bitcoin Continues Stellar Rise(Chart Of The Day)

    Aug 10, 2017

    Bitcoin hits an all-time high, is there more upside left?

    5 Steps To Become Financially Independent(Outside View)

    Aug 16, 2017

    Ensure your financial Independence, and pledge to start the journey towards financial freedom today!

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms