After a steady recovery during the festive season, the retail industry continued to witness positive trends in the March quarter as well. The impact of the second COVID-19 wave also remained in a preliminary stage during the quarter. As a result, the retail industry is expected to report a recovering trend in Q4.

Within the retail industry, QSR and Consumer Durables segments witnessed the maximum recovery in Q4. Apparel companies, on the other hand, continued to remain the worst hit with a 15-20 percent revenue decline against the last year.

Apparel Industry Remained the Worst Impacted

During the March quarter, the operational performance of the apparel industry witnessed the limited impact of the second COVID-19 wave. However, footfall remained low in comparison to the festival months. High-street stores and tier 2/3 city stores performed better than large-format stores and metro/tier 1 stores.

The sector is also likely to derive the benefit of the favorable low base in the corresponding quarter, a year ago. Subsequently, ABFRL/Trent/V-Mart to post 3 percent/12 percent/8 percent YoY revenue growth in Q4FY21.

Grocery retailers such as DMart have recovered fully from the lockdown impact and are expected to report over 20 percent growth over the same period last year.

Focus on Improving Balance Sheet

Large retailers are operating with lower inventory and payable days. They have also focused on lowering debt and working capital requirements. The companies have also worked on cost optimization. It is expected to help larger retailers to improve their balance sheet and liquidity position.

Escalating Raw Material Prices

In midst of the sluggish demand, surging raw material (RM) prices came as an added dampener for the apparel industry. Cotton yarn and crude-based fabric prices have rallied nearly 30 percent in the last two quarters. Companies have tried to nullify its impact with aggressive cost-cutting measures. However, it is still likely to eat into their margins.

Store Expansion at a Moderate Pace

Reduced real estate prices and lower rental yields have allowed retailers to renegotiate deals and acquire properties at prime locations at a relatively lower cost. Store addition activity has continued at a moderate pace. Westside is expected to add 6, Zudio to add 14, and V-Mart to add 7 stores in the March quarter.

Furthermore, managements have indicated to resume store expansion at a pre-COVID rate of 15–20 percent from FY22 onwards.

The author, Vaibhav Agrawal, is Chief Investment Officer at Teji Mandi. The views expressed are personal

First Published:Mar 27, 2021 5:04 PM IST