Value retail suffers as inflation hits demand

The value retail format, which caters to consumers at the bottom of the pyramid, has been hit hard by inflation, even as other retail formats flourish. The impact on the sub-segment was seen in the results posted by companies that operate in the segment such as apparel store chain V-Mart Retail and Aditya Birla Fashion and Retail Ltd (ABRFL)-run clothing chain Pantaloons.

“The market at the lower end is probably more affected by overall inflation that consumers are experiencing. Therefore, that part of the market is more affected,” Ashish Dikshit, managing director, ABFRL, said during the company’s investor call.

“Also, Pantaloons is more widely distributed. The urban markets are less affected than the next-tier town. So all that is probably resulting into this differential outcome,” he added.

Analysts said Pantaloons reported muted recovery in the second quarter and its revenue growth was flat on a per-store basis.

V-Mart Retail chairman and MD Lalit Agarwal, too, flagged concerns over inflation while addressing the investors on November 14. He said that retailers operating in the mass segment feel the pressure of inflation. A rain deficit in the early part of the monsoon and floods later in October in some parts of the country, he said, worsened the situation in the July-September quarter.

V-Mart Retail runs stores under its brand V-Mart, which has a major presence in North India, and Unlimited, with a wide presence in South India. The company posted a //loss// of Rs 11 crore in Q2 owing to inflationary pressure.

Value retailers typically address customers with a monthly income of Rs 10,000-25,000. The average bill size of these players ranges from Rs 500-750 and most stores run by value retailers are in smaller towns.

Retail booms

The overall retail segment, however, witnessed robust demand during the quarter gone by, with some companies reporting growth over the pre-COVID figures.

“For the last six quarters, we have been growing consistently. Customer sentiment was strong in the quarter and continues to be so in the Q3 of this year,” said Venu Nair, MD and CEO, Shoppers Stop. The department store network reported customer traffic (both online and offline) of 40.8 million in the quarter compared to 25.3 million in the corresponding quarter last year.

Other listed retailers such as Titan and Trent, too, reported a similar trend. Titan reported 18 percent year-on-year (YoY) growth in its jewellery business, and sales of its wearables segment almost tripled during the quarter over the corresponding period last year. Trent, which runs the Westside multi-brand outlets, registered a standalone revenue of Rs 193 crore, a 78 percent jump YoY and 222 percent over the pre-pandemic period.

Festive sales and the way ahead

The peak festive season period, which fell in October, said analysts and market experts, may have mitigated the effects of inflation to some extent in tier II and beyond towns.

“We expect value retailers such as V-Mart to gain a boost from H2FY23 onwards in line with premium retailers on account of normal monsoon, higher MSP (minimum support price for crops), increased wages, and greater shift from unorganized to organized players in smaller towns,” brokerage Axis Securities said in a note on V-Mart Retail.

According to a recent survey by the Retailers Association of India (RAI), sales in October 2022 showed a growth of 15 percent compared to October 2021, and 19 percent compared to pre-pandemic sales level (October 2019).

Retail businesses across regions have indicated growth in sales compared to pre-pandemic levels with West India signalling a growth of 25 percent, while South and East India indicate a growth of 18 percent each, followed by North India at 14 percent compared to sales levels in October 2019, said RAI.