But the story in stores across the country isn't quite unfolding the way it should be. Last month, same store sales at India's biggest listed retailer, Pantaloon [Get Quote], dropped 3.5 per cent and 14 per cent for value and lifestyle retailing respectively.

This is not the first time in recent years that Pantaloon is seeing a contraction in same store sales. In a festive October 2007 too, the retailer recorded a shocking fall of 25 per cent and 7 per cent for the value and lifestyle segments respectively.

It's also not true that sales have started shrinking only in recent months or in 2008 - the tapering off had begun long before that and much before the slowdown in the economy was even anticipated.

In fact, Pantaloon posted a lower sales growth in the high-margin lifestyle segment in eight out of the 12 months in 2007, compared with the corresponding months of 2006. And for the value segment, the growth was lower in 11 out of the 12 months.

So, organised retailers have been living with single digit growth for about a year now compared with 20 per cent plus a couple of years back. That's beginning to reflect in their bottom lines - Shopper's Stop posted an operating loss of Rs 60 lakh in the September 2008 quarter, and it just might end 2008-09 in the red.

 But while it's true that customers may be spending less these days, the problem for organised retailers isn't just a cyclical one.

The main issue is the high cost structure, particularly the lease rentals, which is making the business unprofitable. When sales are up 26 per cent and lease rentals are up 40 per cent, as they were for Shopper's in the September 2008 quarter, there's something seriously wrong with the model.

Rentals and operating costs in India today are at approximately three-fifths of European levels, whereas revenues are at between a fifth and two-fifths, so clearly the business is not going to make money unless these numbers reverse.

 The other problem is the high cost of inventory, given the poor logistics in India. A study by Citi Investment Research shows that the inventory carrying costs per sq foot, for department stores in India, compare poorly with those in other Asian countries: against just $7 for Indonesia and a mere $4 for China, the figure for India is $29.

The total capex per sq foot, at $52, is more than twice that for China, whereas the typical revenue per sq foot, at $181, is way below China's $249.

So the asset-turn is about 10 times for China and less than four times for India. Also, asset-turnovers are falling; Spencer's, for instance, which, retails mainly food and groceries, saw a lower asset-turnover ratio in FY08 than in the previous year.

No wonder then that the earnings before interest and tax (ebit) margin for India is just a piffling 2 per cent compared with 10 per cent for China and 7.7 per cent for Indonesia. So while retailers claim to be breaking even in 18-24 months, it takes anywhere between three and five years to recover capital expenditure.

Scale does bring operational efficiencies but that means retailers need to expand and to do that they need capital which, currently, is both scarce and expensive. Rather than adding shelf space, retailers are pushing back store roll-outs.

Also, it's clear that smaller-sized food and grocery store formats are the least viable, because the higher rentals in cities like Mumbai or Delhi aren't necessarily fetching significantly better profitability.

This could be because all other costs too are proportionately higher. The rent per sq foot for Spencer's is estimated to be about 25-30 per cent higher than that for other retailers, and that crimps its margins.

But even without the rentals, the business model doesn't look great: Spencer's has the lowest gross margins because it sells a high share of grocery and food items. That's the same reason for reports of losses at Aditya Birla Retail and Reliance [Get Quote] Retail. Which means it's the bigger shops that are going to do well.

According to a Citi estimate, to generate an incremental revenue of around $22 billion from organised trade, the investment needs to be around $4.2-5.6 billion, assuming an asset turn of 3-4 times.

Clearly, that kind of money isn't going to be easy to come by. It looks like everyone's going to have to more than tweak their estimates for the growth of organised trade in this country.