Teji Mandi: Third-quarter marked with uneven recovery trends for retailers

FY21 has been a year of two contrasting halves. After hitting rock-bottom in the first half; the second half proved to be a race to attain normalcy. While some industry sectors are getting there faster, others are taking a long and painful route. This trend is particularly prevalent in the retail sector which has seen an uneven recovery among the various segments.

Despite the improvement post lockdown, the trend has been largely uneven. On the whole, the retail sector is expected to report a YoY decline in the Q3FY21.

Segment-wise, Jewellery, Grocery, and Quick Service Restaurants (QSR) are expected to have gained momentum in Q3. Titan in its Q3 business update has reported strong growth in its jewelry business. Helped by the wedding season and festival season, Titan has already posted 15% growth in Q3.

In the grocery segment, Avenue Supermart has indicated a return to normalcy with 16% YoY growth. The company has posted a growth in profit for the first time in three quarters.

However, the management commentary has been far from convincing. Sales in December declined after the strong festival season. And, the company continues to face supply related issues. Despite these hiccups, Avenue supermart's Q3 revenue managed to reach 96% levels of the same quarter last year.

The same can not be said for Apparel retailers. Wedding demand helped the sector to an extent. But, the sales still remain 50-60% of the pre-covid-19 level. The segment is expected to see a revenue decline of ~50-60% in Q3. Innerwear and leisurewear segments are expected to post modest growth due to the major population working from home.

Among FMCGs, discretionary consumption is poised to make a comeback with good recovery in most personal care categories (soaps, hair oil, hair color, skincare, oral care, etc.). But, packaged foods and health & hygiene categories are expected to moderate from the high base during the lockdown period.

Closing comments:

The offline retailers are set to record below-par performance in Q3. They will continue their efforts to restore normalcy in the upcoming quarters.

The retailers will also be seeking the government to play an active role in restoring demand. They would be dearly hoping to see tax relief for the middle class. The tax relief will put more money in the hands of the consumers which in turn will flow back into the economy in the form of spending.

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Free Press Journal