Small- and medium-sized retailers generally operate on low margins and are impacted by multiple sourcing agreements, competition and price volatility.
- Consumer durables sales showed robust growth in the first ten months of 2016. About two-thirds of retail revenues is generated from the urban population in India, fuelled by rising disposable income, easy financing and the growing popularity of e-commerce platforms.
- However, the government’s decision in November 2016 to abolish cash by withdrawing rupiah 500 and 1,000 bank notes had a negative impact on sales, as cash transactions have traditionally been high in the retail sector. Across regions, smaller retail outlets were more affected than large retailers.
- Since January 2017 consumer durables retail sales have started to rebound again, especially in the urban areas where consumers have been fast in adapting to alternative payment channels. Sales are expected to increase 10%-15% in the fiscal year 2016-2017.
- Retailers would benefit from the planned implementation of a nation-wide Goods and Services Tax in 2017, which would help to reduce tax burden and lower logistical and transactional costs. Government investment in rural electrification should help to boost demand for durable products in the future. However, market liberalisation in some durable goods segments has already attracted a large number of foreign players, which will increase competition in terms of efficiency and price struggles.
- Payment terms are 60 days-90 days on average. Overall, the payment experience in this segment is on par with other industries, with more payment delays registered in the small distributors segment. Payment delays and insolvencies are expected to level off in 2017.
- Our underwriting approach is generally open for large retail chains which are financially sound. However, we maintain a more prudent approach on small- and medium-sized retailers, as those generally operate on low margins and are impacted by multiple sourcing agreements, tougher competition and price volatility.
Related Documents
Market Monitor April 2017
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