What Helped Reliance Retail Defy Consumption Slowdown

Reliance Retail Ltd.’s revenue jumped 27 percent year-on-year to Rs 41,203 crore in the three months ended September, according to parent Reliance Industries Ltd.’s disclosures. Of this, core operations including consumer electronics, grocery, fashion and lifestyle contributed 60 percent or Rs 24,725 crore. Other operations including petroleum retail and Reliance Jio recharge stores for which it has a master-franchise agreement with RIL.

Its margin rose to 5.6 percent, aided by private labels that, according to BloombergQuint’s calculations, account for 39 percent of the core retail revenues. That compares with 4.3 percent a year ago and 5.4 percent in the preceding quarter. And it’s the highest since at least the first quarter of FY18. The company, in its post-earnings call, said its own brands contribute 46 percent of revenue in consumer electronics, 13 percent in grocery and 77 percent in fashion and lifestyle.

“By far fashion is always the one which gives you better profit,” Gaurav Jain, head of strategy and planning at Reliance Retail, said at the press conference. “Between consumer electronics, grocery and fashion, we get nearly 85 percent of the profit,” he said. “We also get twice the margin because you control the chain and don’t have to depend on the partner who will give you a defined margin.”

Store expansion in smaller towns and cities also drove the company’s revenue during the quarter. Reliance Retail has 10,901 outlets across the country, of which more than two-thirds are in tier-II, III and IV towns, according to a company statement. The company added 337 stores across India in the second quarter.

Early entry in smaller cities helped the company to lease stores at cheap rentals, lowering costs. That, along with private labels, led to higher margin, it said.

“If we control that product (private labels) and breakdown the prices, then what we have is the product sourcing cost and the product packaging cost,” Jain said. “Because it (private label) is (part of) the store brand, we are able to pass on all of the savings to consumers and price the product right,” he said. “That’s what results into a 40-50 percent savings for customers.”

That has also helped the company to defy the consumption slowdown in the country. While Reliance Retail faced pressure on discretionary spends like high-end fashion and jewellery where consumers were able to postpone their purchases, it said the company’s approach towards customers helped it tide over the crisis.

“We have seen lots of pressure in the markets. It’s just that the way we have approached the business and understanding of consumers when they are being little more cautious,” Jain said. “But with strong offers, we were able to excite consumers and bring them to our stores.”