Retail players had a rough December '11 quarter, with even the traditional festival season shopping frenzy missing. A quick look at the numbers shows that retailers with a heavy reliance on apparel fared the worst.
Slowing sales
Retail companies together clocked a sales growth of 19 per cent. Players with a wide footprint and presence across several price points such as Shoppers Stop and Pantaloon Retail further reported a low sales growth figure for stores operational for a year or more (same-store sales growth).
For example, value retail for Pantaloon, which includes flagship Big Bazaar, clocked a same-store growth of just 3 per cent. Premium Shoppers Stop department stores reported a decline of 1 per cent in same store sales.
Input costs for retailers have not increased compared to the year-ago period, hovering at 73 per cent as a proportion to sales. Retailers have also not splurged on promotional exercises with the result that overall operating profits grew 14 per cent.
But interest costs spiked 47 per cent, on account of a few retail companies such as Indian Terrain and Pantaloon. As a result, collective net profits growth came in at just 5 per cent for the December '11 quarter.
Apparel casts a shadow
Breaking down the segments in which retail players mainly operate – such as jewellery, fitness, apparel, food and so on – reveals that those with a heavy play in apparel have fared badly.
While retail players in niche segments collectively posted a sales growth of 30 per cent in the quarter, the apparel retailers' space could muster only a 6 per cent sales growth.
Kewal Kiran Clothing, which owns brands such as Killer and Lawman, saw a drastic slowing of its double-digit growth rates to just 2 per cent in the quarter. On the other hand, pizza maker Jubilant FoodWorks recorded a robust quarter, with a strong 30 per cent same-store sales growth.
A couple of factors could explain the consumer aversion to apparel. One, a levy of excise duty on branded apparel led to rise in end-prices. Two, with prices of virtually every item from food to white goods going up, consumers had to rejig spending patterns. Since there is a huge parallel unbranded apparel economy operating out there, consumers could have migrated their sales there, and as a result, branded apparel might have taken the biggest hit in discretionary spending.
Further, brands may hold more importance in categories such as personal care, food and jewellery where authenticity comes into question. This benefits national jewellers such as Titan Industries and Gitanjali Gems. Still, volume growth for both these companies has been in the low single digits. It was the high prices of gold and diamonds for the past two quarters that boosted sales.