Sixth Pay Commission: Realty cools but home retail still hot

Sixth Pay Commission: Realty cools but home retail still hot

Tanvi Shukla

Thursday, October 16, 2008 03:46 IST

Despite tight purse strings, furniture and home accessories are flying off the shelves

MUMBAI: The real estate market is facing tough times, home loans have become expensive and consumers have tightened their purse strings. But there is one related sector that is still growing at 35% —home retail.


Simply put, buyers are still spending on furniture and home décor accessories at organised retail outlets.

@Home, the Rs 150-crore lifestyle furniture retail venture of Nilkamal Ltd, saw its same store sales grow at 42% in the first half of FY09. Same store sales is a statistic used to compare sales of stores that have been open for a year or more.

Manish Parekh, the director of Nilkamal Ltd, said the @Home venture hasn’t witnessed a slowdown. “The middle and upper-middle class still have access to high disposable incomes with steady increments continuing. Also, the Sixth Pay Commission has brought in a new segment of consumers for us,” he added.

One of the consumers in this new segment is the ‘normally conservative’ Rama Tiwari, a Pune resident and wife of a retired railways officer. Thanks to the Sixth Pay Commission, she can now indulge some of her wants. “I recently bought a couch for Rs 70,000 from one of the big showrooms. Our new house is still under construction, but since we have the money now, we might as well buy what we will need someday,” she said.

The organised home furnishings and décor business has a small base and so, is expected to post healthy growth. The fact that it hasn’t seen a slowdown despite the global economic turmoil is good news for those in the business. Interestingly, though the option of consumer loans exists, less than 5% of sales are through these loans. This means that consumers do have cash in hand.

So what are people buying? “Showpieces, artefacts, paintings, artificial flowers and furniture sell the most,” Parekh said.

Mahesh Shah, the chief executive officer of HomeTown, the home improvement format of retail giant Future Group, added that furniture is still selling ‘like hot cakes’. “Modular kitchens and wardrobes are very popular. We have seen a certain amount of downtrading, but being a value retailer, we will only benefit from such a trend,” Shah said.

Of the Rs 70,000-crore furniture market, just Rs 3,500-4,000 crore comprises organised retail, led by HomeTown, @Home and Lifestyle retail chain.

However, the consumer seems to have shifted from calling a carpenter to make furniture to buying completely designed and matched furniture sets from a showroom. This shift is what is driving the home retail segment.

At HomeTown, same store sales growth stood at 30.3% for the month of September. The group intends to add seven more stores by the end of this year.

But not everyone is witnessing similar growth. The same store sales at Godrej Interio, the furniture division of Godrej Industries, grew at an average of just 15% over the last year. Subodh Mehta, senior general manager, Godrej Interio (home division), said, “We are growing but the fact is that people are not buying houses with the same momentum as they were. That has brought down our same store sales growth from 30% to 15%.”

Godrej Interio might be an exception more than the rule. The industry is betting big on home retail, especially décor and accessories, and its expansion plans are on track.
Though shying away from buying new homes, consumers are going in for interior decoration, opting for expensive tiles, designer drapes and elaborate colour schemes, even if it is for a cramped one-bedroom-hall house.

With dreams of a new house postponed, they’re content to make the most of what they have. The retailers aren’t complaining.

Source: http://www.dnaindia.com/