Bumpy ride ahead for Indian Retail Sector

THE potential of India’s retail sector may be huge and growing, but soaring rentals, salaries and interest rates could make the journey a bumpy ride for retailers in the near term. Case in point — Kishore Biyani’s Pantaloon Retail and Shoppers’ Stop, the two existing largest publicly traded retailers, are being tipped as the biggest casualties of the rising cost pressure being driven by the entry of giants like Reliance Retail and Bharti-Wal-Mart. According to retail analysts at Merrill Lynch, an expected surge in cost pressures could bring down the earnings growth rates of the two companies to about 30% over the next two years, as against over 50% in the past three years. New players like Reliance and Bharti are boosting demand for real estate as well as people and this is likely to result in a sharp surge in the rental and salary costs, while increased interest rates are already inflating the companies’ debt burden.Staff costs have jumped by over 35% since mid-2006, while there is room for further sharp rise here, Merrill Lynch’s Vandana Luthra and Manish Sarawagi said

courtesy:economictimes