Modern retail growth may dip by 5% this year

The modern retail sector is passing through challenging times in the face of inadequate funding, lack of sufficient space for expansion and talent crunch, and growth is expected to dip by 5% this year, say industry officials.

The modern retail sector is estimated to have grown in the region of 25-30% in 2011 but the last two months have been very bad for the industry, Aditya Birla Retail MD & CEO Thomas Varghese said.

"January [the current month] does not look great," Varghese, also Chairman of the CII-National Committee on Retail, told PTI here.

The country's big retail players are facing challenges in terms of funding, real estate and scarcity of talent. In addition, contrary to expectations, consumer shift to modern retail has not happened at an accelerated pace. "That�s also a challenge from consumption point of view."

"Getting real estate is becoming more and more difficult," he said.

"Funding has become very difficult for real estate developers and land-lords. So, I think we are going to see pretty challenging scenario in terms of real estate availability."

"This year, we [modern retail] will witness slightly lower growth than last year - about 5% lower [in calendar year 2012]. If we are to look at the current trend, we are in a challenging situation and FY13 also does not look like a great period as now. It is going to be a period of cautious optimism."

Industry officials expect FDI in multi-brand retail and allowing FII investment and private equity funding in the sector to be growth drivers.

"I think FDI [in multi-brand retail] will probably wait till the elections [to five states] are over," Varghese said. "But FII investment and PE funding can be enabled because it�s non-strategic investment."

But he did not sound optimistic. "The government needs to have guts to do anything; they are scared to do anything. It�s become a political brinkmanship issue."

Varghese said the Aditya Birla Retail plans to open 10 hypermarkets every year but that now appears "very ambitious." It currently has 589 supermarkets and opened its 13th hypermarket 'more.Megastore', here yesterday.

"Our plan is to open 100-150 supermarkets every year. Again, it has been challenging this year," he said.

He said the company looks at an investment of Rs 300-320 crore every year to modernise and upgrade supply chain, on back end infrastructure, information technology and front-end. "The mood is one of cautious optimism."