Spencers Retail Ltd Management Discussions.

Management Discussion and Analysis

Global economic overview

The global economy grew 2.9% in 2019 compared to 3.6% in 2018. This sharp decline was precipitated by an increase in global trade disputes that affected the cross-border movement of products and services, a slowdown in the global manufacturing sector, weak growth coming out of some of the largest global economies and the impact of Brexit. The result was that global trade grew a mere 0.9% in 2019, pulling down the overall economic growth average. Going ahead, the Great Lockdown, as a result of the pandemic Covid-19, is projected to shrink the global growth in calendar year 2020 and thereafter. (Source: World Economic Outlook, April 2020, CNN, Economic Times, trading economics, Statista, CNBC).

Indian economic review

India emerged as the fifth largest world economy in 2019 with a gross domestic product (GDP) of $2.94 trillion. India jumped 14 places to 63 in the 2020 World Banks Ease of Doing Business ranking.

However, there was a decline in consumer spending that affected Indias GDP growth during the year under review. Indias growth for FY2019-20 was estimated at 4.2% compared with 6.1% in the previous year. Manufacturing growth was seen at 2%, a 15-year low as against 6.9% growth in FY19.

Y-o-Y growth of the Indian economy

Particulars FY17I FY18I FY19I FY20 I
Real GDP growth (%) 8.3 7.0 6.1 4.2

Growth of the Indian economy, 2019-20

Particulars Ql, FY20 Q2, FY20 Q3 FY20 Q4, FY20
Real GDP growth (%) 5.2 4.4 4.1 3.1

(Source: Economic Times, CSO, Economic Survey, IMF, EIU

During the last week of the financial year under review, the national lockdown affected freight traffic, consumer offtake and a range of economic activities, casting an uncertainty over prospects.


Various forecasts have estimated a sharp de-growth in the Indian economy during the current financial year, the first such instance in decades owing to the nationwide lockdown caused by COVID-19 pandemic.

Indian retail industry overview

India is the fourth-largest global retail destination (after the US, China and Japan). India ranked second in Global Retail Development Index (GRDI) in 2019 The Indian retail industry accounts for about 10 per cent of the countrys Gross Domestic Product (GDP) and around 8 per cent of the employment. The retail sector was estimated at US$ 0.7 trillion in 2019, driven by socio-demographic and economic factors such as urbanisation, aspirations cum income growth and a rise in nuclear families. However, the sectors performance was sluggish in 2019-20 on account of consumption slowdown, a reflection of weaker consumer sentiment.

Indias retail market is estimated to grow to US$1.1-1.3 trillion by 2025 from US$0.7 trillion in 2019, growing at a compound annual growth rate (CAGR) of 9-10%, driven by socio-demographic and economic factors like urbanisation, income growth and nuclear families (assuming the market normalises from the pandemic effect).

Over time, India has moved up from rank 130 to 63 in World Banks Ease of Doing Business in 2019. The country is the only one to have improved ranking by more than 10 points consecutively for three years, strengthening FDI inflows into the retail industry. Indias retail sector attracted US$ 970 million from various private equity funds in 2019. Cumulative FDI inflows from April 2000 to December 2019 in the countrys retail sector were estimated at US$ 2 billion.

With the COVID-19 pandemic affecting consumer spending, retail sales for 2020 could decline. Retail categories like grocery and essential consumables could perform creditably, while miscellaneous discretionary categories (fashion, beauty and cosmetics) could be affected. (Source: Economic Times, Five Mint, IBEF)

Indian organised retail industry

As internet penetration increases, the share of organised retaii market is expected to increase from 12 percent in FY 2019 to 25 percent in FY 2024. Technology is expected a major role in enhancing consumer experience. The next 10-12 years could be defining for the Indian retail sector as the market matures and organized retail penetrates deeper into smaller cities and towns.

While more international brands and retailers across categories and formats could enter and grow the Indian business, India could become a key growth market for ones already present. Technology could replace human roles in retail; new ways to emotionally connect with consumers could evolve. New markets could develop, new channels could reshape markets

Indias organised retail penetration is lower than other countries like United States (85%), indicating headroom. Within organized retail, food & beverage account for around 65%, followed by apparel at 10% and personal care at 3%.

The Indian Governments decision to permit 100% foreign direct investment in single-brand retail through the automatic investment route and relaxation of sourcing norms could strengthen the organized sector. (Source: Care Ratings, Financial Express, indiaretailing.com)

Growth drivers

Population growth: Indian population is growing at 12% annually and is expected to surpass China to become the most populous nation by 2027.

Growth of rural consumption: Rural per capita consumption will grow 4.3 times by 2030, compared to 3.5 times in urban areas.

Young millennial households: With median age of 28 years, India is home to worlds largest millennial population at 400 million people, making 34 percent of the total population in the country Further, their contribution to the Indian workforce is sign: f icantly higher at nearly 48 percent in FY 2019.

Also, Millennial are known to be marrying late, with average age of marriage for women in urban India increasing from 20-22 years to 25-26 years, while for men it has increased from 25-26 years to 29-30 years in the past few years. This has resulted in the young millennial having more disposable income to spend.

Increasing women in workforce:

With increasing gender equality at office, women entering workforce has been on a constant rise in past few years. Women workforce in the country increased 5 mn in FY 2014 to 7 mn in FY 2019 and is expected to reach 10 million by FY 2024, increasing discretionary spending.

Growing income:

Increased economic activity helped India grow its per capita income from Rs 1,15,293 in FY18 to Rs 1,34,226 in FY20.

Omni channel:

Large offline retail brands launched their online presence, widening their complementary omni-channel model.

Growing wallet share and price trade-off:

With growing GDP per capita and higher disposable incomes, consumers have become more aspirational, seeking new categories. There has been a change in the wallet share of Indian consumers from food and clothing to evolving and new categories like mobile and communication, beauty and grooming, personal gadgets among others.

Market expansion:

With online players delivering to the smallest of towns, consumers are increasingly aware of international and indigenous brands, an opportunity for modern retailers seeking to enter Tier III and IV markets. Leading national brands are now looking at 500-plus cities as their market and opening stores. Other international and indigenous brands are planning expansions into these cities, influenced by changing lifestyles and digital connectivity.

Growth of shopping malls:

Extending from Tier I cities, mall development has entered Tier II cities and is spreading to Tier III cities, driving organised retail.

Indian e-commerce industry overview

The Indian e-commerce industry is expected to surpass the US to emerge as the second largest e-commerce market by 2034. The e-commerce industry in India was estimated at $32 billion in 2019. With advancements in internet access, payments and computing on mobility platforms, changed consumer behaviour with a large active internet user base, customers can now access an increasing choice of products at attractively low costs. This e-commerce trend is expected to accelerate. Currently Indias internet penetration stands at around 41%. Online sales in India accounted for 1.6% of total retail sales compared to over 15% for China and around 14% globally. E-commerce is increasingly attracting customers from Tier II and III cities, where people have limited access to brands but have high aspirations. (Source: Economic Times, yourstory.com, Live Mint)

Growth drivers for India ecommerce industry Online shoppers:

The number of online shoppers is expected to increase from 15 per cent to 50 per cent of the online population by 2026.

Increasing internet users:

India has more than 525 million active internet users. With better connectivity, quality of service and affordability of mobile internet, there could be an increase in rural consumers spending more time on the internet. Indias monthly active internet user base is estimated to reach 639 million by the end of December 2020, owing to the Covid-19-induced lockdown that has forced people to stay indoors and glued to smartphones.

Internet penetration: Internet penetration in India stood at 41% compared to over 88% in US and 61% in China, indicating headroom Interestingly, Indias rural areas are driving its digital revolution, contributing 45% growth in internet penetration in 2019 compared to urban Indias growth of 11%.

Corona virus outbreak: The new decade is expected to see the next wave of digital India, aided by the Covid-19 pandemic that catalysed the speed at which the already- connected consumer is deepening connection with devices, payments and e-medicine.

Increasing smartphone users: India had more than 502 million smartphone users in 2019; over 77 per cent of Indians access wireless broadband through smartphones. (Source: Economic Times, Times of India, Statista, Live Mint)


Following the COVID-19 outbreak, the future appears uncertain and the actual impact could depend on the extent of behavioural change. The modern trade format is expected to deepen its relevance on account of a superior value proposition, hygiene and convenience, complemented by online retail.

Forces that could shape the future of Indias retail industry

Consumer shifts Supply side innovations Data and technology driven disruptions New competitive forces Regulations
Given the attitudinal and demographic change in consumer preferences, there has been a significant shift in the way consumers shop – forcing retailers to constantly adapt to stay ahead of the curve Increased margin pressures, retail space crunch, rising costs are putting considerable strain on business models – pushing retailers to innovate to win in the next decade With the onset of the digital revolution, it is imperative for retailers to embrace data and technology to shape consumer shopping preferences and minimize costs – prompting retailers to up their game As boundaries across industries continue to blur, the retail industry might see itself facing competition from a new genre of players – unsettling retailers and traditional models by bringing in a fresh perspective With changes in FDI, GST and other rules, the Indian retail industry continues to be sensitive to regulations and a changing political landscape – driving retailers to rethink businesses and models

Company overview

Spencers Retail Limited is a part of RP-Sanjiv Goenka Group and a multi-format retailer providing a range of quality products across diverse categories including food, personal care, fashion, home essentials, electrical and electronics. The Company created a distinctive identity through specialty sections such as Spencers gourmet, patisserie, wine and liquor and the recently-launched Epicuisine section. The Company has acquired Natures Basket Limited in July 2019 which has presence in the western part of India including prime locations in Mumbai, Pune and Bangalore.

Spencers Brand enjoys a rich legacy in Indias organized retail market, being one of the earliest entrants in Indias organized retail, launched the first hypermarket in India in Plyderabad in 2000. Presently, Spencers operates 191 stores across 42 Indian cities (including 31 stores of Natures Basket Limited). Spencers carved out a positioning of Makes Fine Living Affordable, which embodies the philosophy of delighting shoppers with the best products and services that enhance fine living at reasonable prices in a friendly retail environment.

Operational performance

During the year, the Company has reported total income of Rs.2,402.84 crore and Loss aftertax of Rs.57.02 crore at the end of the year. To strengthen prospects, the Company has acquired 100% stake in Natures Basket Limited in July 2019. The Company focusses on growing the topline, keeping costs under control and improving the performance of the stores on the one hand while diversifying from a large food and grocery focus to nonfood categories. As a strategy, the Company has been increasing the share of non-food items to truly position it as Omni Channel food to retail brand. It continued to strengthen its offering under its own brands and strengthened the apparel business with launch of 2Bme.

During the year under review, the Company opened 10 new stores with 0.66 lakh sq ft of trading area in its focus markets. The Company plans to accelerate growth through accelerated store addition and improved store productivity by focusing on large-sized formats and non-food offerings.

To increase bill size, store productivity and store gross margins, Spencers plans to increase the share of apparel in its product mix following the launch of its proprietary value fashion brand 2Bme across its stores

Key strategic areas

• Focus on margin-accretive private brands and increase its share in the Companys revenue

• Grow the revenue share of non-food items, primarily apparel and general merchandise

• Leverage economies-of-scale

• Omni Channel Business

• Launch stores in existing clusters

Finance review

Revenues: Total income during the year stood at Rs.2,402.84 crore, as compared to Rs.2,214.98 crore in FY 2018-19.

Profit after tax:

The Company registered a loss of Rs.57.02 crore compared to profit after tax of T7.94 crore in FY 2018-19.

Key financial highlights :

Particulars 2019-20 2018-19
Turnover (Including other Income) (Rs. In crore) 2,402.84 2,214.98
Return on equity (%) -14.43% 1.33%
Net Assets Value per share (Rs.) 49.70 75.00
Earnings per share (Rs.) -7.17 1.00


Key ratios
Particulars 2019-20 2018-19
Debtors Turnover (Days on Revenue) 9 8
Inventory Turnover (Days on Revenue) 36 47
Current Ratio 0.72 1.60
Operating Profit Margin (%) 0.16% 0.79%
Net Profit Margin (%)/PAT -2.40% 0.36%
Return on Net worth (%) -14.43% 1.33%

Table presents key financial ratios, as applicable, for Spencers Retail Limited as a standalone entity.

Risk management

Risk management is an essential element of business governance and the Company has policies and procedures in place to ensure that risks are properly identified, evaluated and managed at the appropriate level within the business.

The identification of risks and opportunities, the development of action plans to manage the risks and maximize the opportunities, and the continual monitoring of progress against agreed key performance indicators (KPIs) are integral parts of the business process and core activities throughout the Company.

Economy risk

A slowdown in the economy could impact the companys growth.


The Companys revenues reported growth of 8.5% during 2019-20, despite the economy reporting slower growth of 4.2%. A large part of the Companys offerings include essential products that remained in demand despite a lockdown in India.

Geographic concentration risk

Concentration in a particular geography could hurt business growth in case of a geographical slowdown.


The Companys 191 stores (Including 31 stores of Natures Basket Limited) are spread across 42 cities in more than 12 states, de-risking the company from dependence on a single geography.

Business expansion risk

The Companys inability scout for new locations at reasonable rentals could impact growth.


The Company commissioned 46 stores in three years spanning 2 59 lakhs sq. ft.

Inventory risk

Loss of inventory could lead to customer dissatisfaction.


The Company estimates sales based on the forecast, demand and requirements for the forthcoming season. The Company maintains inventory across distribution centers for seamless supply.

Business risk

Inability to attract customer footfall in our stores could impact business growth.


The Companys stores are usually located in densely populated residential areas and neighborhoods, keeping in mind accessibility and development prospects. Sales are derived, in part, from the footfalls in these locations.

Financial risk

Inability to grow at competitive rates could impact business sustainability.


The Companys long-term debt-equity ratio of 0.08 provides financial comfort. Besides, the Company has a cash balance of Rs 59.63 crore, strengthening its business foundation.

Pandemic risk

A sustained impact of the pandemic (COVID-19) could impact prospects.


The Company is in the business of organized retail, which majorly deals in essential products. During the lockdown, the ability of customers to reach the companys stores was limited. In view of this, the Company launched alternative platforms to place orders, i.e, its online presence

Internal control systems and their adequacy

The Companys robust and intricate internal control systems ensure efficient use of resources and compliance with established policies, procedures and statutory requirements. The Company has developed well- documented guidelines, procedures for authorization and approvals, including regular audits. The Company has a well-established internal audit framework that covers all aspects of financial and operational controls, across units, functions and departments. The Company also has an efficient financial reporting system in place. The Companys internal audit team is actively engage in the evaluation and improvement of various functions and activities of the company and other support functions and departments.

Human resource management

The Company has 5224 officers and employees as on 31st March, 2020. The Company has been strengthening its human resource capital to mantain its growth in the past few years. The Company has created an enabling and conducive work environment free of discrimination and harassment. The Company has pre- determined training calendar to hone skills of various employees based on their requirements. The Company encourages ideas from employees and a number of them were implemented during the year resulting in improvement in cost, quality and delivery

Cautionary statement

The statements in the Management Discussion and Analysis section describing the Companys objectives, projections, estimates and prediction may be considered as forward looking statements All statements that address expectations or projections about the future, including but not limited to statements about the Companys strategy for growth, product development, market positioning, expenditures and financial results are based on certain assumptions and expectations of future events.

The Company cannot guarantee that these assumptions and expectations are accurate or will be realized. The Companys actual results, performance or achievement may thus differ materially from those projected in such forward-looking statements. The Company assumes no responsibility to publicly amend, modify or revise any forward-looking statement on the basis of any subsequent developments, information or events. To avoid duplication and repetition, certain heads of information required to be disclosed in the Management Discussion and Analysis have been included in the Boards Report

On behalf of the Board of Directors
Dr. Sanjiv Goenka
Kolkata Chairman
June 29, 2020 (DIN 00074796)