• Q2 profit fell 60.7% to INR199.1m
  • Core retail sales up 31.2% to INR275.9m
  • Same-store lifestyle retail sales up 20.9% 

India's largest listed retailer, Pantaloon Retail, has warned that rising cotton prices and input costs are likely to lead to an 18% price hike on its fashion products next season, and that "inflation will continue to be a permanent reality."

The comments came as it posted a 60.7% drop in second quarter profit to INR199.1m (US$4.4m), from INR506.7m a year earlier, in the key festive season.

Turnover in its core retail business in the three months to 31 December increased 31.2% to INR275.9m, thanks to the addition of new stores and higher same-store sales. In the lifestyle retail unit, which includes apparel, same-store sales were up 20.9% in the quarter.

But margins were down 150 basis points to 8.6% from 10.1% last year.

Speaking on an earnings call, Pantaloon Retail's founder and managing director Kishore Biyani said the biggest inflationary pressure was being seen in its fashion business, where cotton prices and input costs have increased significantly in the past three to four months.

"Going forward, we expect close to 18% price increase on our fashion products in the next season," he continued. "I believe inflation is for real and is built in most of the sourcing we do from China where there are cost pressures.

"Product pricing will undergo a change. As a retailer, our job is to see that how do we bring in supply chain efficiencies in sourcing but ultimately it is the customer who has to accept to pay higher prices."

The retailer is undergoing a reorganisation that has seen it move out of peripheral retail businesses such as footwear and lingerie to focus instead on four core categories - food, fashion, general merchandise and home.

"As a group, we believe digital commerce is the next wave," Biyani added. "We are looking at trying to capture about 10% of our physical business in the next 5-10 years through the digital space.

"We are also working on upgrading our customers, especially in the fashion business. Big Bazaar for instance, has seen a lot of new customers, new products, and new price points. We have introduced a concept of good, better, best product categories, depending on the store and the location and the profile of the customer.

"This concept has reached some categories and assortment changes will help us improve productivities and margins."

The company is also planning to add another 18 stores next year to its Pantaloons fashion chain. It currently has 53 stores and will add up to nine stores this year.