Recent aggressive spending on rapid fulfillment networks severely depressed Reliance Retail's earnings, causing a 24.5% year-on-year net profit drop in the September quarter following earlier declines. However, digital commerce revenue jumped 42% over the same period, bolstered by higher average order values on the JioMart platform. Executive Venugopal informed analysts that the firm is deploying incremental capital into existing assets rather than starting fresh. The company intends to scale online operations through disciplined execution rather than funding deep discounting and heavy customer acquisition subsidies.
Key points
Profit margins are projected to rebound next year as rapid delivery investments begin gen…: Profit margins are projected to rebound next year as rapid delivery investments begin generating financial returns.
Management is utilizing incremental capital to remodel existing stores and warehouses rat…: Management is utilizing incremental capital to remodel existing stores and warehouses rather than constructing assets from scratch.
The retailer plans to avoid aggressive discounting and coupon spending, opting for a meas…: The retailer plans to avoid aggressive discounting and coupon spending, opting for a measured expansion strategy against competitors.
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The country's largest retailer is ramping up investments in dark stores in large cities to enable 15-20-minute deliveries, while remodelling existing stores and warehouses to serve online customers. The spending has weighed on profitability over the past three quarters, with net profit either declining or growing marginally.
Speaking to analysts on Friday after the company reported its September-quarter results, Venugopal said the targeted improvement in operating Ebitda was realistic once the current investment phase was completed.
"Even though it may look very, very aggressive, it is not starting from zero. It is not a bootstrapping story. It is about how do we leverage our existing large asset base that we already have by doing these incremental investments, which are significant, but we get the high leverage effect once we do the investments on the existing base," he said.
Reliance Retail reported a 24.5% year-on-year decline in net profit in the September quarter, following a 14.2% drop in the June quarter. Profit had grown just 0.5% in the March quarter.
The company is accelerating its push into ecommerce and quick commerce…
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