Under a complete lockdown with no business for
almost three months since the end of March, the organised retail sector,
brought down on its knees, has been struggling to get back on its feet. The
deal between two giants, Reliance Retail and Future Group, which came about
because of the latter’s massive debt burden, is expected to shake things up in
the sector.
Experts expect to see some level of consolidation
in the sector as the difficult economic environment forces players to take a
hard look at their survival options. In the good times, the retail industry
contributed about 10 percent of the country’s GDP. Now, with shops shut and
people watching their spends amid layoffs and pay cuts, the sector is staring at
a contraction.
Even after the various Unlock phases, business
hasn’t really picked up for brick and mortar retail outfits. In places such as
Maharashtra, while malls have opened, footfalls remain low due to fears over
infection and purse strings tightening amid pay cuts.
An analysis by ICICI Securities in March, well before the true extent of
the pandemic in India was known, estimated that mall operators would lose 20-25
percent of their annual revenue, assuming that a rent-free period was given to
retailers.
According to the Retailers Association of India,
non-essential retail sales plunged 80 percent in May after falling 50 percent
in March. Essential retail was down 40 percent in April and may slide further
given its current run rate, RAI said.
Consolidation
on the anvil?
Given this reality, most retail experts believe
that there will be a lot of consolidation in the retail space in the medium
term, with many smaller and mid-size retailers succumbing to the tough
operating environment.
Kumar Rajagopalan, CEO, Retailers Association of
India (RAI) said: “Consolidation and new creation keeps an industry interesting
and healthy. COVID has also got retailers focussed on collaborations and
omni-channel retail play. Various category retailers find ability to grow
thanks to collaborations and mergers.”
“We are in the process of evolution as far as
organised retail is concerned. So there is enough and more opportunity and
headroom for new organisations and new enterprises. At the same time, organised
retail has been here for 10-15 years and even more, so that allows for some bit
of consolidation. We can see a bit of both in the near future,” said Sanjay
Vakharia, CEO of Spykar.
However, some retail industry bigwigs are of the
view that such mergers will create a monopolistic market.
“Such deals [Reliance Retail-Future Enterprises]
will also create a monopolistic market, which may not be healthy for the
industry in the long term,” Lalit Agarwal, Chairman and Managing Director of
VMart Retail said.
According to a CLSA report, the Future Enterprises
deal strengthens Reliance’s position as India’s largest retailer by expanding
its retail outlets by 15 percent and retail footprint and warehousing area by
over 80 percent. This will also increase Reliance’s market share in the
organised retail sector to 17.8 percent.
“With this deal, Reliance will grow by leaps and bounds and will definitely gain an edge over other retailers in the country as it has now become the largest retailer in India,” said Susil Dungarwal – Chief Mall Mechanic Beyond Squarefeet Advisory Pvt. Ltd. and Beyond Squarefeet Mall Management Pvt. Ltd.
Sandip Ginodia , CEO
ALTIUS INVESTECH PVT LTD
We deal in over 60 unlisted companies with 15 years of experience
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