E-commerce is dying; click & mortar in: Go, grab retail stocks

NEW DELHI: If Amazon opening up of first store in New York, improving sales figures for leading apparel retailers and euphoria over the recent listing of D-Mart are any signal, good days are returning for traditional brick-and-mortar retailers.

Analysts noted that e-commerce operators, who ate into market share of traditional brick-and-mortar stores on aggressive discounts in last few years, are reconsidering their strategies. They believe Amazon’s entry into brick-and-mortar space and better sales for domestic retailers in FY17 are all making a case for investment in retail stocks.

“You got to have real business, you got to have real customers, you got to have real cash flows and you got to have real operating profits. How long can you keep financing with investors money, keep financing discounts and losses? It does not work,” Sanjay Nayar, CEO & Country Head at KKR, told ETNow recently.

Milind Karmarkar of Dalal & Broacha believes Amazon ‘also understands’ that one needs to have a brick-and-mortar store.

“Indian promoters also understand that they need to have presence on the internet too,” he said.

“As far as food and grocery is concerned, internet will only be one more way to deliver goods or order goods. I have been talking to these people over this for quite some time and the answer I get is interesting. They say frankly it is more expensive to deliver goods via an online order than to a customer coming to your place and taking it himself,” Karmarkar said. But he insisted that food and grocery stores need to have online presence as well.

“There will only be one model like Amazon, which will work: It will be a combination of click and mortar,” he said.

Brokerage YES Securities is positive on Future Retail (FRL), which owns hypermarket chain Big Bazaar.

FRL’s dominance in the retail space, coupled with the focus on the aggressive store expansion, makes the brokerage believe that the company is well poised to report strong growth going ahead.

“The asset light model will allow it to improve upon its earnings quality; we expect RoEs to be in excess of 22 per cent in next two years,” it said.

Data showed March quarter sales at the apparel retailers grew at the fastest pace in three years, as the intensity of competition ebbed with online rivals eschewing deep discounts to shore up finances, said an ET report.

Price differentials have started disappearing for many categories, as online companies face pressure from investors to report profit and their offline rivals offer matching prices, the report said.

Meanwhile, GST implementation too is expected to be a positive impact on retailers. “The biggest beneficiaries of GST would be some of these organised sector plays, be it retailing, jewellery retailers, supermarket retailers. This segment would grow multiple times over next 10 years and organised players, who are well managed, would grab a significant share of this opportunity,” said Rahul Chadha, Co-CIO, Mirae Asset Global Investments.