The Hindu Business Line : Manpower costs, rentals drag down retail industry

Mumbai, Nov. 17 Net profits of mainline retail companies for the second quarter this financial year were on a decline as they grappled with high operating costs that squeezed margins. Shoppers’ Stop’s net, for instance, dipped 94 per cent to Rs 0.42 crore from Rs 7.3 crore of the same time last year.

The margins were under pressure due to higher operating expenses incurred while opening new stores, higher rentals, and tripling of power costs, Mr Govind Srikhande, Customer Care Associate & Chief Executive Officer, Shoppers’ Stop, told Business Line, discussing the quarterly performance of the company.

Depreciation impact

The new depreciation methodology adopted recently affected the margins, but Mr Srikhande was positive it would be useful in the long term. “You are able to renovate and reinvest in stores easily later on,” he said.

The company is awaiting the outcome of the issue of high service tax on rentals from the courts. Manpower costs went up by 57 per cent, adding to the burden on margins. The company intends to offset the pressure by expansion in gross margins through increased private label sales, said an analyst.

Diversified company Aditya Birla Nuvo’s Madura Garments and Peter England Fashions constitute its retail arms. A Rs 270-crore turnover in garment business in the second quarter resulted in a surplus of Rs 11.83 crore, giving rise to an operating margin of 4.3 per cent, down from a figure of 10 per cent the same time last year.

The retail sector took a hit due to a 10 per cent, or Rs 45 crore, increase in its manpower costs, Mr Adesh Gupta, Chief Financial Officer, Aditya Birla Nuvo, told Business Line.

“The manpower costs have risen this year and as we expand, we will need to invest more in hiring and retaining people. The costs are expected to rise for the next quarter too,” he said.

Pantaloon Retail (India) Ltd’s net was down 23 per cent to Rs 29.69 crore during the July-September quarter, but Mr Kishore Biyani, Managing Director, said it should be seen in the light of income generated last year.

Mr Rahul Mehta, President, Clothing Manufacturers Association of India, says that the retail employee costs have risen by 15-20 per cent due to a growing economy. “Increasing manpower costs are hitting the small retailer more than the large ones who can recover them through higher volumes. Coupled with high space costs and interest rates, these numbers bring down margins,” he said.

Related Stories:
Shoppers’ Stop Q2 net falls
Retailers hunt for right talent to man stores
Shoppers' Stop to tie up with B-schools to retain staff

More Stories on : Retailing | Performance

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Tower cos line up to offer infrastructure to BSNL

Condition of farmers will be improved, says PM

Commodity boom set to continue: Barclays

Market boom triggers rush for demat a/cs

Banks begin readjusting rates on short and long-term deposits

Manpower costs, rentals drag down retail industry