Malls and shopping districts are crowded not just with window shoppers, but with those actually buying.
To the delight of retailing companies, people are opening up their wallets, seemingly generously too, after the penny-pinching of last year.
No wonder, retailing companies did well in the April-June 2013 quarter, with their sales growing a good 23 per cent over the year-ago period. Besides the low base of the June 2012 quarter, when sales were down, the other reason was the outstanding performance of a few players.
Operating profits too, were robust, expanding 34 per cent in the June 2013 quarter compared with the year-ago period. The numbers are for nine companies that sell a variety of products. The results of Future Retail (erstwhile Pantaloon Retail) have been excluded from this study as the demerger of its fashion business coupled with the consolidation of its other activities make comparison to the year-ago period difficult.
A number of companies posted stellar numbers this quarter. Page Industries — makers of Jockey brand of innerwear, leisurewear and sportswear for men and women — clocked 39 per cent sales growth on the back of a strong 17 per cent jump in volumes. Retailing innerwear, a less-competitive segment, besides diversification into lounge wear and timely price hikes have kept the company’s sales numbers robust for several quarters now.
For Kewal Kiran, which owns brands, such as Killer and Integriti, however, the 31 per cent sales growth was because of the base effect; June 2012 quarter had been slow and sales had shrunk 18 per cent. Rapid store openings by Trent and Shoppers Stop gave them a leg up. Shoppers Stop, for instance, added 300,000 square feet of retail space in just three months while Trent added four stores of its flagship Westside format.
Margins maintained
Many retailers benefited from lower costs too, such as on rentals and for fabric.
This helped boost their profits. Input costs as a proportion to sales have been correcting the past three quarters; it was 44 per cent for the June 2013 quarter against 46 per cent a year ago.
Operating margins, which improved a percentage point to 12.2 per cent in the June 2013 quarter, may improve with the Budget nixing the excise duty on branded apparel. Companies had hiked prices in the wake of the duty levy two years ago.
Though customers have been spending, they may be turning more cautious as the slowdown begins to bite. Companies such as Speciality Restaurants (which owns Mainland China among others) and Jubilant FoodWorks (Dominos and Dunkin’ Donuts) are seeing first signs of spending cuts. Sales growth in stores open for a year or more (same stores sales growth) indicates how well a company attracts and retains customers. It also shows how much the store depends on new outlets to drive growth. This figure has been slowing for many companies. The double-digit same-store sales growth for Jubilant FoodWorks, for instance, has dipped steadily over the past year to just 6 per cent now.
Barring its value format, same-store sales growth has slipped for Future Retail too, over the quarters. Trent’s Star Bazaar reported single-digit numbers in the latest quarter.
This portends slowing sales growth in the coming quarters. But companies with broader product baskets and good product mix, such as Shoppers Stop, or those with niche presence, such as Page Industries, may weather this coming storm better than the others.