“It is all about the feel-good factor which is getting better for India, getting better for Bharat. The government is speaking about it and the infra investment which is coming in will improve the economy. Even the election period brings in a lot of money in the economy and that should also help the economy to a greater extent in the coming year,” says Lalit Agarwal, CMD, V-Mart
When I speak to some of your peers, the sense I am getting is that there is a slowdown and especially a rural slowdown and everybody is feeling the heat including value retailers like yours. Is it true?
Definitely there is a concern, there is a pressure on the real consumer of Bharat and those lower earning group people who form almost 70% of the population of India. They definitely have reeled under pressure of inflation and their household budgets have gone down. I think they are struggling and that is what is causing a little bit of slowdown.
We are seeing a slowdown because during Covid they lost some of their income but post Covid also, they could not regain their income, which along with the inflation which ate into their pocket, led to a slowdown. But yes gradually quarter on quarter, month on month, things are getting better. It is also an outcome of the feel-good factor that the consumer has in terms of their forward earning capabilities and earning abilities and the risk that they see in future whether in terms of the Ukraine war or in terms of the recession coming in.
There is a lot of news in the media which makes them a little more conscious on their spending. But we are seeing improvement month on month.
So I will split my next question in two parts. On an aggregate basis, if you have to compare the current demand with pre-Covid demand, where does it stand and which are the categories that have not recovered in a meaningful manner from the pre-Covid slump?
Last quarter, we reported almost 11% degrowth from pre-Covid times from the same store sales. like for like stores perspective is concerned. That also incrementally is getting better but we are still not seeing a growth over the pre-Covid level. Primarily, the categories of apparel which is the biggest segment and the fashion segment have seen some kind of degrowth, especially in men’s and women’s apparel. The kids apparel continues to be where it is because people did not stop spending on the kids apparel unlike the other two segments.
What about the outlook in terms of some of the low margin products? Is that where you are seeing traction? Is that a bit of a concern in terms of what your margin recovery could look like as well? We have seen yarn prices correct and your margins have managed to sharply correct. Do you think that the low margin products seeing traction could be a bit of a concern?
I would not say low margin, I would say so there are different kinds of models. As the cotton yarn prices went up, most of the apparel manufacturers and brands and retailers took a price hike and we also took a very steep price hike, one of the steepest price hikes that we ever took in our 20 year journey which customers did not appreciate.
So we got the message in the last season and corrected our prices. We rolled back those price hikes and now we are seeing even the yarn prices are coming down but still not down to those levels. From the base level, it is still 40% up. The yarn prices are still up, not 70% but 40%, but we have rolled back our prices. We have done some innovation, some blending of the product so that we are able to provide consumers a similar price point product.
At lower price points, products are getting much more attention and much more attraction. We are seeing consumers coming back to the lower price point product but there is still a little bit of concern and stress on the higher price point products. That is where consumers are not spending on the higher price point product and that is very logical because of their basket.
I understand that you intend to take about 20% of your sales online in the next 24 to 36 months. What is the game plan and do you think it will be margin accretive?
We do not see very differently in the margin perspective because for us, almost all customers and all formats and all channels are equal and we would have similar pricing in most of the channels. I do not think margin will create a big impact on any of those. But largely it is all about the channel which the consumers are now preferring or leapfrogging. We take this as an opportunity and try to see whether our consumer base which is the real Bharat consumers – are adopting digitalization because we have always believed that because they buy clothes two times a year, they do not want to look at a photograph and buy their needs and do the investments.
But things are changing with the youngsters and the youth. We believe over the next three to four years, a lot of changes will come in and we want to see if we can grab on to those opportunities. That is how we are preparing ourselves through the new acquisition that we did of LimeRoad.
If there is a slowdown, value retail should do well but it is the reverse now. This time around, luxury is doing very well, mid-market is doing reasonably well but value retailing whether it is V-Mart or D-Mart has taken the highest hit?
It is a K-graph economy which is getting built up and we are seeing those Ks becoming steeper and steeper post-Covid and that has affected people who are earning and business houses or businessmen or rich people, the top 15-20% of the of the of the demography definitely have benefited whether they are professionals or whether they are doing their own businesses or other industries or in stock market or property market.
For most of them, incomes have gone up and they did not spend too much during Covid. All of those revenge shopping and revenge tourism came into effect and that is what we are seeing in malls and airports and then the tourist places.
On the other hand, if you look at the poor people, in this Covid period of 18 months, they lost their income for almost six months and that impact caused the pain and post that, inflation ate into their earnings. Combine the two and look at the small town consumers or those who earn between Rs 20,000 and Rs 30,000. We spoke to a lot of consumers and we realized that these consumers were struggling to build on the savings of Rs 2,000-3,000 that they used to do earlier and now they are in a little bit of debt. That is why they want to reduce their discretionary spend and that’s what is happening in this particular segment.
We are in for a hard summer and let us say poor monsoon this year. Will the stress in the rural economy only multiply because that is my other worry that this year the weather patterns have been quite erratic?
On the other side I say that in the last two years, the monsoon has been so good and the crop has been so good, the crop yield has been good, the MSPs have been good and still the rural was pressured. I do not know how much is directly going to be affected but yes, it is more about the feel-good factor which I mentioned and if that gets better, we start spending and people also start borrowing if they want to because they will not stop their spending.
So it is all about the feel-good factor which is getting better for India, getting better for Bharat. The government is speaking about it and the infra investment which is coming in will improve the economy. Even the election period brings in a lot of money in the economy and that should also help the economy to a greater extent in the coming year.
Give me a sub trend. Which particular geography including your acquisitions growth is above covered, which are the categories where growth is not recovering?
On the geographical sub trend, in our core belt of UP and Bihar, we have seen the pressure the most. Our peer group also says the same. Even FMCG companies have experienced it a little more steeply. So the pressure on the de-growth has been more in the UP and Bihar zone but otherwise in the other northern territory as well as the territories of southern India and eastern India, the scene is a little better.
So the overall rural picture is the head of the family is taking a hit and does not spend too much. They are spending for their kids. The women especially are curbing spending but still they are spending better than men who are spending a little less than everyone else in that particular zone.