Retailers embark on cost-cutting measures amid slowdown in consumption

 29 July 2024, Mumbai

Grappling with a prolonged slowdown in consumption, major retail chains in India like Reliance Retail, Shoppers Stop, and Spencer’s Retailare embarking on cost cutting initiatives including exiting unprofitable markets, and raising debts.

Having persisted for over 18 months, the current slowdown was exacerbated by an extended election season and heatwaves across several regions last quarter. Companies that rapidly expanded their store networks to capitalise on post-pandemic revenge shopping are now rationalising their operations to sustain business, according to executives.

In the last three months ending June 2024, India’s largest retailer, Reliance Retail, closed 249 stores. The company also decelerated its expansion, opening 331 new stores in the quarter compared to 470-800 stores per quarter in FY22, FY23, and FY24. Consequently, Reliance Retail made 82 net new store additions last quarter—the lowest in 15 quarters.

Spencer’s Retail has decided to exit the North and South India markets entirely, closing 49 stores in the National Capital Region (NCR), Andhra Pradesh, and Telangana. This move will eliminate Rs 490 crore in annual revenue, but the company hopes it will enhance profitability.

Kavindra Mishra, CEO, Shoppers Stop, informs, forced by regulatory and other issues, the company aims to defer store openings this fiscal year. Additionally, it also plans to borrow Rs 100 crore for expansion as demand remains weak.

V-Mart Retail closed 22 stores in the first six months of 2024, according to its latest investor presentation. The company is pruning underperforming locations during these times of demand stress, says DevangshuDutta, CEO, Third Eyesight, a retail sector consulting firm

Analysts note, banking on pent-up demand and revenge shopping, most retailers expanded rapidly after the pandemic. However, now with demand being sluggish, the industry has initiated measures to sustain operations.

Led by Dinesh Taluja, CEO, Reliance Retailis streamlining operations to improve margins while Spencer’s Retail is closing 49 stores that account for nearly 22 per cent of its revenue. The company now plans to focus on Uttar Pradesh and the East, notes Anuj Singh, CEO.

The sustained demand slowdown led chains like Pantaloons, Spencer's Retail, and Nature’s Basket to close more stores than they opened last fiscal year. Retailers such as V-Mart Retail, W, Aurelia, and Titan Eye+ experienced a higher rate of store closures than openings in the March quarter.

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