Retailers in Tier-II, III towns expect recovery in 9 months: Motilal Oswal

More than 80% stores of regional retailers have opened in smaller towns after the relaxations in Covid-19 lockdown, with footfalls at 50-60%, Motilal Oswal Financial Services has said

More than 80 per cent stores of regional retailers have opened in smaller towns after the relaxations in COVID-19 lockdown with footfalls at 50 to 60 per cent, Motilal Oswal Financial Services Ltd (MOFSL) said on Friday.

With the turning up of serious buyers, sales in tier two and three towns are positively surprising at 60 to 70 per cent of pre-COVID levels versus players' expectation of 30 to 40 per cent. Retailers expect a full recovery in a span of six to nine months with an overall revenue impact of 20 to 30 per cent for FY21.

Due to near-term supply constraints, said MOFSL report, retailers in smaller towns are not looking at liquidating inventory at a discount. Currently, customers are purchasing low-ticket size essential products. The contribution of kids' segment has increased and there is a lower demand for marriage products.

Smaller towns are less impacted by the lockdown and retailers are expecting normal demand by the festive season in October to November due to reverse migration, said the report. Moreover, farmers could have higher disposable income due to the implementation of agricultural reforms and better agriculture output on the back of healthy rainfall.

India's northern and eastern belts boast of 800 to 1,000 value retail stores with market size of Rs 7,600 crore. Due to the lockdown and post-consolidation, the number may decline by 30 to 40 per cent to 600 stores.

Currently, 20 to 25 per cent stores in these markets are under stress which could rise to 35 per cent in the coming days. Thus, there is a huge opportunity for surviving players as these regions can accommodate 2,500 stores.

Due to the weak balance sheet of many regional players, said the MOFSL report, consolidation in the market could provide strong players with store expansion opportunities.