Sluggishness in like-for-like sales growth will likely remain a key challenge in the near term for many retail companies, even as the long-term view on the sector remains positive, according to Abheek Singhi of the Boston Consulting Group.
The LFL sales, which reflects value growth in the same number of stores from a year-ago period. is influenced by several major factors, the chair of practices at BCG in India told NDTV Profit.
The interaction happened on the sidelines of the recent launch of a report curated collectively by BCG and the Retailers Association of India, highlighting the key trends and expectations for the country's retail sector.
Despite efforts by retail companies to attract more customers towards brick-and-mortar stores through experiential retailing, e-commerce retail still catches more eyeballs, posing a concern for LFL sales growth across categories.
The share of e-commerce in the retail market is expected to grow 20–25% to 13–15% by financial year 2028, which can influence the LFL sales growth, according to the BCG-RAI report.
Singhi underscored that there is a shift on the consumer spending to services for experiences like travel and entertainment rather than on products, such as fashion and apparels, saying that is a major factor affecting the LFL growth.
Revenge shopping seen after Covid-19 has peaked after "reaching the new normal", which will be reflected in the growth numbers going forward. Stores at certain key geographies have also hit the critical mass or the self-sustaining level, leaving lesser room for growth, according to Singhi.
(Source: Abheek Singhi/LinkedIn)
The report pointed out that the LFL sales growth saw a decline across categories, such as quick service restaurants, fashion and grocery segments during the quarter ended December. Jewellery and electronics performed relatively better.
The QSRs recorded a negative growth of 2–5% across large and small retailers, while some smaller players in fashion showed a negative growth of 8–10% from a year-ago period during the quarter ended December. The LFL growth for the grocery space fell 4–8% from a year ago during the quarter ended December.
Market participants and retail firms had recently hinted at a slowdown for LFL sales growth during the quarter ended December. Jubilant Foodworks Ltd. reported a 2.9% year-on-year decline in the December quarter due to subdued performance in dine-in channels, increase in ticket size, increasing competition and challenging demand environment.
"Even after the stabilisation, LFL on an average is still 6–7% even in categories that are slowing down," Singhi said, hinting towards optimism for the sector in the long-term and considering the weakness in LFL sales growth as a potential short-term stress. The report said the LFL margins were also resilient across categories despite weak sales growth.
Singhi explained that margins in the electronics space were affected due to the pricing pressures in offline retailing as a larger presence of e-commerce in this space is leading to price comparisons.
Despite such headwinds, the BCG-RAI report said India's retail sector is expected to grow at 9–10% to reach $2 trillion in the next decade as the country's consumption story continues to remain strong with steady growth.
Yet, organised retailers will need to sustain performance and continue to grow shares as the sector is going through key shifts, impacting the pace and shape of growth. Steady growth in disposable income, shift in spending to experiences, increased savings and steady increase in urbanisation were some of the key changes mentioned by BCG in its report.
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