THE SEAMLESS LINK
The recent revelations about widespread unprofitability in Indian retail stores, even as sales climb, underscore a fundamental disconnect between top-line expansion and bottom-line health. This situation is less about demand and more about operational inefficiency, specifically the persistent problem of inventory gluts. Retailers are finding their profitability eroded by shelves laden with slow-moving merchandise, a problem compounded by a reluctance to decisively manage stock, thereby constricting the availability of space for full-price, new-arrival merchandise.
The Profitability Paradox
The stark reality for Indian organized retail is that nearly a third of outlets are unprofitable, a figure ranging from 28% to 40% across various segments, according to a survey of major chains by Vector Consulting Group. This is occurring even as sales growth metrics remain positive for many. The crux of the issue, identified by the consultancy, is not necessarily weak locations or high rents but an overwhelming presence of stagnant stock. An astonishing 96% of retailers are prone to relocating unsaleable items to more prominent shelf space rather than removing them. Concurrently, 94% of these businesses continue to introduce new products without clearing existing slow-movers. This practice of shelf congestion has systematically diminished the viable selling window for merchandise at full price over the past five years.
The Inventory Drag and Data Inaction
This inventory drag directly impacts crucial per-square-foot profitability metrics. Retailers often pursue opportunistic bulk purchases and expand their stock-keeping unit (SKU) portfolios, increasing overall inventory levels. When market corrections become unavoidable, the sheer volume of stock often leads to the perception of unacceptably high losses, discouraging timely interventions like markdowns or stock withdrawals. Vector Consulting Group senior partner P Senthilkumar highlights that while a majority of retailers track key performance indicators such as sales per square foot (three-fourths) and profit per square foot (half), a mere 9% actively utilize this data daily to inform purchasing decisions. This significant gap between data availability and actionable strategy perpetuates the problem, leading to capital being tied up in unproductive assets. Vector Consulting Group itself notes that poor inventory management is a primary driver of low profitability in retail chains, despite high gross margins.
Strategic Store Rationalization
Confronted with this profitability paradox, companies are beginning to take more decisive action. Kavindra Mishra, managing director of Shoppers Stop, has indicated to analysts that the company is conducting granular store-level profitability assessments. This signals a willingness to make clear decisions on store closures where turnarounds appear prolonged, aiming to free up capital before mid-next year. This shift reflects a growing recognition that maintaining unprofitable locations, even if they contribute to overall sales figures, is detrimental to shareholder value. Shoppers Stop's market capitalization stood at approximately ₹4,406 Crs as of February 13, 2026, with a reported P/E ratio of 898.0 or -248.51, indicating significant investor concerns despite its premium positioning. The company's recent stock performance showed a decline of 2.88% on February 13, 2026, amidst 38,275 shares traded, possibly reflecting market anticipation of these strategic shifts.
The Hedge Fund View (THE FORENSIC BEAR CASE)
While Shoppers Stop's management acknowledges the inventory issue and signals action, the path to recovery is fraught with challenges. Competitors like Trent, through its Westside format, have demonstrated stronger inventory turnover ratios by adopting a more agile, data-driven approach to SKU management and smaller, more frequent replenishment cycles, a strategy not as evident in Shoppers Stop's historically slower inventory turnover. Reliance Retail, leveraging its vast network, is reportedly implementing sophisticated AI-driven inventory forecasting to minimize overstocking, a strategic advantage. A similar inventory build-up reported by a competitor in early 2025 led to a 10% stock price correction over two months as margins dipped, highlighting the market's sensitivity to such issues. Analysts have expressed caution, noting that Shoppers Stop's profitability remains under pressure due to investments in new ventures and slower-than-anticipated discretionary demand, with average price targets suggesting limited upside. The company's P/E ratio has been volatile and at times negative due to fluctuating earnings, further complicating valuation. The effectiveness of Shoppers Stop's investments in supply chain technology will be crucial in translating into tangible improvements in store-level inventory reduction.
Future Outlook
The broader Indian retail sector is projected for moderate growth, with forecasts indicating it could reach $2.2 trillion by 2034. However, persistent inflationary pressures and potentially cautious consumer spending could exacerbate profitability challenges for less efficient operators. For Shoppers Stop and its peers, the imperative is clear: shift from a focus on sales growth alone to profitable growth. Success will depend on mastering inventory management, leveraging data for timely decision-making, and executing strategic rationalizations where necessary. Kavindra Mishra's prior experience in leading retail turnarounds provides some confidence, but the market will closely watch the actual implementation and impact on margins and inventory turnover in the coming quarters. Analysts, while holding a consensus 'Buy' rating, have set average price targets suggesting a modest potential upside. 
