Retailers such as V-Mart Retail, V2 Retail, and 1-India Family Mart, which operate in the value segment, are struggling with tepid demand and a fall in sales on the back of unrelenting inflation in the economy.
Akash Agarwal, director, V2 Retail, said the company witnessed a 25 percent fall in volumes in the quarter gone by (compared to the pre-pandemic period) even as its average selling price jumped by 70-80 percent due to price hikes. V2 Retail operates 110 stores across the country but only 10 of its stores are in tier 1 cities and the rest are in tier II and beyond towns.
1-India Family Mart also reported a similar trend. According to it's co-founder and CEO JP Shukla, the company witnessed a 35 percent fall in first quarter (Q1) footfall over the same quarter in FY20. The company operates over 100 stores across the country but the majority of its stores are in lower-tier towns.
“Q4 of FY22 was impacted due to the third wave of the Covid-19 pandemic but we were expecting a reversal of the trend in the June quarter given the wedding season and festivals in the period. However, the quarter also proved to be disappointing,” said Shukla.
“We cater to a target group whose monthly income is in the range of Rs 15,000 up to Rs 35,000 and this customer segment lost jobs during Covid and is yet to recover from the impact of the pandemic,” he added.
Value retailers ideally cater to the customer at the bottom of the pyramid with a monthly income of Rs 10,000 to Rs 25,000. The average bill size of these players ranges from Rs 500-750. As indicated above, most of the stores run by value retailers are in smaller towns.
Clothes become expensive
Apparel retail like most other consumer segments is grappling with the high price of commodities. The surge in cotton yarn prices has particularly worried retailers.
“In 2020, the price of cotton yarn used to be Rs 170 per kg and now it has jumped almost 80 percent to Rs 300 per kg,” said Agarwal of V2 Retail.
Most retailers have passed on the rise to the consumers.
V-Mart Retail, said its COO Vineet Jain, has increased prices by 17-18 percent in the past few quarters. 1-India Family Mart has raised prices by 15 percent.
Companies are looking at alternatives to tide over the tough times. V2 Retail, for instance, has started in-house manufacturing to save costs. “Commencing manufacturing was a big step because we were able to save 10 percent margins that we have to give to vendors,” said Agarwal.
Value fashion retailers now have their hopes pinned on the festive season in October-November for a pick-up in demand.
“We feel the revival will take almost two quarters. However, festivals can help in bringing back the consumption story,” said Shukla.
Revenge buying
While the country is witnessing price rise across categories backed by inflation in fuel and commodities, retail as a category so far has remained untouched. Even as fast moving consumer goods have been reporting a fall in volumes for several quarters now, overall retail, which includes discretionary segments such as fashion and jewellery, has been seeing a jump in sales.
According to a survey conducted by the Retailers Association of India in May, retail businesses across the country reported a 23 percent climb in sales in April compared to the pre-pandemic period. While some of this growth came on account of inflation (value growth), the overall trend has been positive for retailers due to revenge buying by customers with the return of normalcy after two years of the pandemic.
A dip in value retail sales, however, means there could be trouble brewing. That’s borne out by the unpredictable nature of demand other companies are facing.
Ajoy Chawla, CEO, jewellery division, Titan, indicated that the demand remained volatile in the quarter gone by. “Some weeks our footfall would be up and other weeks it would fall so the situation is uncertain,” he added.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
