Retailers, who were struggling with rising inventories, received respite in the third quarter, with some of their inventory pile-up cleared with the help of better sales in December.
The country’s largest retailer Pantaloon Retail India?s (PRIL) inventory is expected to have fallen 8% to R3,950 crore for the quarter ended December 31 of the current fiscal, from R4,290 crore in the September quarter.
K Raheja Group company Shoppers Stop’s unsold merchandise was worth R212.3 crore for the September quarter. This, however, is believed to have fallen to R207 crore by the end of December. An inflation rate of 7% has been factored in while calculating the inventory estimates.
Apparel inventory has been the toughest for retailers to deplete, as opposed to accessories, non-durables goods or electronics items. This is because even a month-old apparel stock is considered old and out of style and, thus, becomes difficult to sell.
The festive season leading up to Christmas and New Year was better than that of Diwali, which led retailers to sell higher merchandise during December. At a time when retailers are witnessing a year of slowing sales, December came as a breath of fresh air, where companies saw sales growth of 12-15%.
Companies like PRIL and Shoppers Stop saw high growth levels before 2009 when the economic crisis hit, after which they have been witnessing slow sales and massive inventory pile-up.
PRIL, Shoppers Stop and Titan Industries make up in excess of R22,000 crore of the $28 billion (R1.54 lakh crore) organised retail market in India.
When contacted, PRIL did not divulge the unsold stock numbers. However, a senior executive at Future Group said, ?The merchandise levels have been going up for the group on a whole since sales were low. Now that we are making internal changes in the company, and inflation is running high, we may not see it easing soon.?
Watch and jewellery maker Titan has seen high inventory levels this year. ?We (the watches division) have been seeing inventory levels at a level higher than what we ideally should have. But with end of season sale, and better demand next year, we should have healthy inventory level next year,? says watches division CEO HG Raghunath. He added that the company is now assessing the required inventory levels according to demand, not forecast, which will cut extra flab.
?Pantaloon and Shoppers Stop will see lower inventory levels in the third quarter and that will help them close the year in a better way,? said analyst Abneesh Roy of Edelweiss Securities. ?Having said that, the inventory levels are higher than what it should be and this is a function of the muted demand that we saw.?
The number of days that stock is kept in warehouses, are expected to be lower for the current fiscal year. For the year ended March 31, 2013, Pantaloon’s inventory days are expected to fall to 100 -110 days from 120 days last year. In an ideal case, companies do not stock merchandise for more than 90 days as fast-changing fashion and styles make it tougher for them to deplete their inventory. But in India, analysts say, there are some companies which have about 220 days of inventory lying with them. Internationally, most companies exhaust their old merchandise in two months.
Arvind Lifestyle Brand managing director and CEO Suresh J reckons that the company was able to push out excess inventory through season sale and its chain of value stores Megamart. ?By the end of the season sales, we brought down 25-30% of inventory down to 5%,? he says.
Rajan Malhotra, president of retail strategy at Future Group said that stocks at eZone have been able to clear out sooner as they stocked up depending on the demand they are seeing.
