India's retail sales growth fell sharply to 11 per cent in December 2008 from 34 per cent in the like period of 2007, according to a study by global consultancy firm KPMG. The report added that the slowdown was likely to last 12-18 months, depending on the government's measures to boost the economy.
"Falling footfalls and poor conversion ratio have led to a decline in sales growth to 11 per cent in December 2008 compared to 34 per cent in December 2007," said the KPMG report, 'Indian Retail: Time to change lanes', released on Tuesday.
Factors like store rationalisation, working capital management, regionalisation, cost optimisation and manpower resizing are some of the key "top of mind" issues for the retailers in the current context, KPMG said.
It said a demand contraction following a slowdown in the domestic economy has impacted the sales of retailers; and urged the government to increase spending on infrastructure and other development initiatives.
In the KPMG survey, 70 per cent of the respondents said lower sales have adversely affected footfalls, prompting them into better cost management including renegotiation of rentals, store rationalisation and manpower resizing.
"We believe that players which take immediate strategic measures will be the dark horses. Be it store rationalisation, change of supply chain, consolidation of operations, improvement in IT infrastructure, retailers need to think quickly to protect their margins,'' KPMG global head of markets Neil Austin said.
The retail sector is also bearing the brunt of the liquidity crunch, the study said. "Slowing sales resulting in lower inventory turnover and increasing working capital requirements to fuel growth have resulted in liquidity pressures for many domestic retailers,'' KPMG (consumer markets) national industry director Ramesh Srinivas said.
According to industry estimates, October-December sales constitute nearly 40 per cent of the total sales in segments such as apparels and consumer durables.
To combat the current slowdown, the consultancy expects the retailers to focus more on food retailing and consumer goods and shift away from lifestyle goods. It also expects the retailers to tap Tier II and Tier III cities to help boost profits on back of lower rentals and operating costs.
On a positive note, the consulting firm believes that the long-term outlook is still attractive. "The demographic and economic environment will add momentum to the slowing growth rate," the report said.
The Indian economy is expected to grow about seven per cent in fiscal 2008/09, against the nine per cent or above in the previous three years. But some analysts say growth in the fiscal year to March 2010 could be lower, as the impact of the global slowdown hits deeper.