Next time you fret about the rising cost of your favourite brand of shoes or lipstick, spare a thought for the retailers, too. Everything, from illuminating the shop-floor and displaying wares to logistics costs, are eating into margins, say retailers.
Almost all major listed retailers are seeing a dip in profits from 15-70 per cent on a quarter-on-quarter basis. This apart, consumers are putting off purchases for several reasons, including rising prices.
Retailers say that everything from the weakening rupee to high lease rentals could build up in the next few quarters as well. This could be marked by rise in prices and sluggish growth.
“…Primarily, new store opening is impacting operating costs. Not only that, we are seeing two big increases in cost this year. Service tax has shot up; at the same time, power costs are going up because of rate changes across energy companies. In terms of finance charge and depreciation also, we have seen a big increase that has impacted profit after tax,” Mr Govind Shrikhande, Managing Director, Shopper's Stop, said in a recent analysts call.
Shoppers Stop's Q4 consolidated net profit plunged 87.6 per cent to Rs 96 lakh in the three months ended March 31, 2012 from Rs 7.72 crore the year earlier.
He said Shoppers Stop was focusing on four-five big cities as demand was still growing there. It is also cutting down its exposure to consumer non-durables.
“Prices definitely had some impact on the overall pick-up….but my expectation is that, over the next eight months, the economy would definitely perform better,” he added.
Rentals up
Similarly, Aditya Birla Nuvo posted a 42 per cent decline in consolidated net profit for the fourth quarter ended March 31, 2012 at Rs 170.27 crore, compared with Rs 294 crore in the same period last year while Pantaloon Retail (India) Ltd's core retail business fell by 76 per cent in the quarter ended March 2012 to Rs 12.03 crore, compared with Rs 50.54 crore a year ago. This is largely attributed to high interest costs, lease rents and higher depreciation expenses.
Pantaloon saw a 58 per cent increase in its interest costs at Rs 172 crore in the March quarter, compared with Rs 109.58 crore a year earlier. There was a 17 per cent rise in lease rents it paid in the quarter, at Rs 217.71 crore.
A recent Cushman and Wakefield India report says that rentals in malls were stable but in such cities as Ahmedabad, Bangalore and Hyderabad, rentals have seen a growth of 15-30 per cent over the previous quarter.
Most high streets in major cities recorded a significant rise in rental values against malls. Select locations across Hyderabad and Bangalore recorded rental increments upwards of 20 per cent over the previous quarter. Kolkata, Chennai and NCR also saw rents rise by 9-14 per cent.