• Model Act clearance:Retail firms give thumbs up to Cabinet’s decision, raise sales targets

    With more than 1 crore central government employees and retirees set for pay and pension hikes, India’s consumer economy is about to get a giant boost well ahead of the year-end festival season. The extra payout approved by the Cabinet on Wednesday amounts to Rs 1lakh crore annually, abonanza that should encourage beneficiaries to open up their wallets.

    The Cabinet, led by Prime Minister Narendra Modi, also approved the model shop and establishment Act aimed at allowing stores to remain open as long as they want. While it will be up to states to adopt the rule if they wish to, Govind Shrikhande, managing director of India’s largest department chain operator Shoppers Stop, was enthused enough to describe it as “Prexit” or “permission Raj exit”.

    “Most of the salary hike will go into consumption and not necessarily savings,” said Kishore Biyani, CEO of Future Group, India’s biggest listed retail firm.

    “Government officials could also buy discretionary products in anticipation of the actual payment rather than waiting till the festive season. Hence, we see a boost in demand for most categories across apparel, durables and groceries,” he said. Biyani said the pay increases are likely to lead to a surge in same-store sales.

    Investors agreed stocks of retail and consumer companies rose on Wednesday soon after Cabinet approved the pay hike. Expectations of a bountiful monsoon also helped.

    Shoppers Stop, Future Enterprises and Aditya Birla Fashion & Retail surged more than 5% each on the Bombay Stock Exchange even as the benchmark Sensex closed with a gain of less than 1%. Westlife Development, which operates McDonald’s restaurants in south and west India, rose nearly 7% while Jubilant FoodWorks (Domino’s Pizza, Dunkin’ Donuts) and Speciality Restaurants (Mainland China and other outlets) saw shares rise about 4% and 5%, respectively.

    The Cabinet approved a spending of Rs 1 lakh crore annually in giving a hefty hike in salaries and pensions, with increases expected to take effect next month. Once the Model Shops and Establishments (Regulation of Employment and Conditions of services) Act, 2015, is adopted by the respective states, mall owners in Delhi and Mumbai say they can immediately extend shopping hours well past midnight. “You see ecommerce is 24/7 as you can shop anytime. Now, even brickand-mortar will get that level-playing field,” said Yogeshwar Sharma, executive director of Select Citywalk Mall in Delhi, which currently shuts at 11 pm, barring some restaurants that are open until 12:30 am. “Retailers are paying rental for 24 hours so it is in their interest that they have longer hours of trading. Even if 50% shops agree, I think we could extend it to 12:30 a.m. or even 2 o’clock in the first stage.”

    Rajendra Kalkar, president, west, at Phoenix Mills Ltd that operates malls in Mumbai, Chennai and Lucknow, agreed. “We will definitely give it a shot. If there are customers and if it makes commercial sense, we will keep it open well past midnight why not?”

    Retailers Association of India (RAI), a group representing hundreds of India’s brick-and-mortar retailers, estimates the model Act will add about 6% to India’s $600 billion annual retailing market if all states adopt the rule.

    Retailers and consumer electronics makers said the seventh pay commission award will boost consumption, improving sales that have been on a rollercoaster since Diwali last year.

    Shrikhande of Shoppers Stop said nearly half of the pay hike will convert into cash flow that will boost consumption with some of this having already happened in anticipation of the Cabinet approval. “We had seen high sales especially in Delhi and few state capitals where there are lots of government employees,” he said. “The feel-good factor is potent in driving demand and such a hike is a great impetus.” Smartphone, television and white-goods makers like Sony, LG and Panasonic are raising sales targets as they expect the good monsoon that has been predicted to act as an additional booster.

    Sony India sales head Satish Padmanabhan said the television market had been expected to expand at 15-17%, but the pay commission approval will provide an additional growth trigger. “Large screens will drive sales as consumers will now have additional disposable cash in their hand,” he said.

    Panasonic India’s head of sales and service Ajay Seth said the consumer electronics market is already growing at 13-15% and the industry expects that with the pay award, this will almost double across product categories.

    Consumers will upgrade consumer durables following the increase in disposable income in both urban and rural markets, said Niladri Datta, head of corporate marketing at LG Electronics India, the country’s largest white goods company. The white goods market is already growing at 25%, he said.

    The restaurant industry, which has been struggling with single-digit same-store sales growth for the past six quarters, is hopeful that longer opening hours and pay hikes will bring momentum to the sluggish sector. “It’s a consumption-oriented move. It will also help in increasing employment. IT and BPO sectors, for example, work late hours and they are a captive audience,” said Westlife Development vice-chairman Amit Jatia. “Consumer demand had bottomed out four-five quarters back. While sentiments have not changed dramatically, consumption has been trending up.” Westlife posted same-store sales growth of 8.4% in the January-March quarter.

    KFC India Managing Director Rahul Shinde said: “This will boost the industry. We will evaluate its implications, basis various factors such as trade area and our business policies. In addition, the seventh pay commission will also give an impetus to consumer sentiment and retail spending.” Yum Restaurants-promoted KFC operates over 300 stores in the country.

    The move will benefit service providers as well as users, said Ajay Kaul, Jubilant FoodWorks chief executive. “It has the potential to generate additional employment opportunities,” he said. “For us, the new Act opens up greater avenues for reinventing our service offering for customers and catalyse growth.” Jubilant runs more than 1,000 Domino’s outlets. Tyrod Taylor Jersey

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