Tier 2 Markets And Beyond Are Taking Longer To Recover: Cantabil Retail

Higher demand in urban markets compensating for the losses in small towns.

<div class="paragraphs"><p>Inside a store. (Source: BQ Prime)</p></div>
Inside a store. (Source: BQ Prime)

Apparel and lifestyle retailer Cantabil Retail India Ltd. is seeing a slow recovery in demand, especially beyond tier 2 markets, as inflation weighs on spending.

The value retail segment, which caters to consumers at the bottom of the pyramid, is more affected by inflation that consumers have been experiencing for quite some time now, said Deepak Bansal, director, Cantabil Retail Ltd. "It is in the tier 2, 3 towns we are seeing a slump in demand, and it is likely to take at least six months to rebound materially unless inflation stabilises."

Higher demand in urban markets, however, is holding steady and has been compensating for the losses in small towns. Cantabil's revenue rose 24% over a year earlier to Rs 163 crore in the third quarter ended December.

The trend of slowing discretionary demand is clearly reflected in the latest earnings disclosure of value-fashion retailers. Aditya Birla Fashion and Retail Ltd.-owned Pantaloons grew just about 8.7% year-on-year.

The management cited sluggish growth in smaller towns, “transient” inflationary pressures in the value segment and a slip in sales after the festival of Diwali mid-November as reasons.

The pace of growth slowed for listed retailers like Reliance Retail and V-Mart as well, due to a slowdown in mass consumption and partly because of delayed winters. Yet, retail formats other than value-retail ones continued to flourish.

The management of Shoppers Stop Ltd. highlighted that consumer sentiment has remained positive after a prolonged festive and wedding season.

The retail chain saw a 19% year-on-year jump in revenue during the October-December period, with sales recovering at 114% from Q3 of pre-Covid FY20.

Titan Co., among other players, also reported a similar trend.

Most of Titan's business is driven by consumers who sit in the top part of the income class pyramid, and they have been relatively insulated from the slowdown. "Therefore, from a near-term and FY24 point of view... that is an advantage that Titan has," it said in a post-earnings conference call.

Yet, the exceptional growth momentum in urban consumption that was seen just after Covid-19 reopened has come to an end. Cantabil's Bansal, too, expressed concern over a possible slowdown in urban consumption hereon.

"The tightness in the consumer’s budget will linger on and may hurt even urban consumption once the Reserve Bank of India raises its lending rates in the next policy as widely expected," he said, adding Cantabil will monitor both urban and mass-market demand as the situation develops.

"We need to ramp up efforts in terms of marketing, advertising, and promotions to bring back the lost demand from small towns," he told BQ Prime.

The company also plans to pass on the fall in the price of yarn. "Cotton prices have come down by about 50% from peak levels, but they are still higher than pre-pandemic levels," he said. "When cotton prices come down, garment prices also become cheaper. But new merchandise will start coming in from March."

Till then, the company is offering up to 60% discounts in its ongoing end-of-season sales. "The peak winter sales that typically start in December got pushed to January this year because of delayed winters. Sales of heavy winter merchandise were impacted in December but picked up this month. Compared to pre-pandemic levels of 2019-20, we have seen an increase of 7% in same-store sales growth in the last ten months till January," said Bansal. The numbers are not comparable year-over-year, as Omicron hit sales in January last year.

During the third quarter, the New Delhi-based company opened 19 stores with the aim to further diversify its presence across geographies and increase market share in the mid-premium segment. Bansal said the company has plans to open 85–90 stores every year with an investment of Rs 25–30 crore.

"This year, we plan to expand our presence in Madhya Pradesh, Uttar Pradesh, Punjab, and some parts of eastern India." It, however, has no plans to enter the southern markets in the near term.

As of Dec. 31, 2022, the 22-year-old retailer's total store count stood at 439.

Bansal is confident that such initiatives will add strength to the portfolio, helping it achieve its targeted top line of Rs 1,000 crore in two to three years.