After two years of poor financial performance, the Indian retail sector is predicted to reach pre-pandemic levels of revenues and earnings in fiscal 2022–23 (FY23). According to rating agency ICRA’s analysis, retail firms in its sample set will see a growth in sales of 12–13% year over year (YoY) in FY23 and a rise of 5–6% above pre-pandemic levels.
The benefits of operating leverage are expected to cause an improvement in the operating profit margins (OPMs) of the retail firms of 150 basis points to 8.2 percent YoY. As a result, the rating company changed the sector’s outlook from negative to stable.
“Following the second COVID-19 wave, the retail sector reported a robust recovery in sales, driven by pent-up demand, increased vaccination coverage, and a pick-up in economic activity. The third wave temporarily impacted operations in January and February 2022, but the industry quickly recovered in March 2022, according to Sakshi Suneja, vice president and sector head at ICRA.
“As a result, revenues in FY2022 increased to up to 90% of pre-COVID levels. “Retail companies in ICRA’s sample set are anticipated to experience a 5 to 6 percent revenue gain in FY2023 compared to the pre-COVID period of FY2020,” she said. “Footfalls will surpass pre-pandemic levels in Q1 FY2023, she added.
As retailers worked to maintain their gross margins against the backdrop of lower sales, the amount of discounting by the retail industry remained modest throughout FY2021 and FY2022 compared to FY2020, ICRA stated in a release.
As merchants battle for a larger portion of the consumer’s wallet, ICRA anticipates that the amount of discount will increase in FY2023 when foot traffic and revenue approach pre-pandemic levels.
Retailers anticipate continuing with their store development ambitions in FY2023, driven by a positive demand forecast and a rebound in foot traffic.