Economic slump, greater choices put pressure on brands, retailers

Firms are feeling the pressure with automobiles, retail, consumer durables seeing a slowdown in sales growth
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First Published: Mon, Feb 25 2013. 12 07 AM IST
Customers sitting at a car showroom in New Delhi. Photo: Ramesh Pathania/Mint
Customers sitting at a car showroom in New Delhi. Photo: Ramesh Pathania/Mint
Mumbai: Prabhat Handoo, a 30-year-old engineer from Pune, chose to upgrade to an iPhone 5 when it was launched in November.
“I could have held on to my iPhone 4 for a few more months and bought a second- hand car instead. But when I held the iPhone 5 in my hands I knew that I had to have it now despite it costing close to Rs.50,000,” said Handoo, who is aware that the economy is sluggish and inflation remains high.
Also, take the case of Devanshu Arya, 43-year-old ad film producer with Ignite Films, who cut back on expenses yet purchased an iPhone 5 in November and a new Honda City in December since the car manufacturer was doling out freebies and discounts.
Consumers like Handoo and Arya are being spoilt for choice despite the weakness in the economy, a trend that is putting pressure on retailers and brands.
In a tough macroeconomic environment, the volatility in retail categories is increasing as customers have more choices, admitted Sanjay Mehra, managing director of Tata International Wolverine Brands Ltd, a joint venture between the $83 billion Tata Group’s trading arm Tata International Ltd and Wolverine World Wide Inc., a marketer of branded apparel and footwear.
“In the past nine months of the financial year 2013, revenue growth has almost halved in consumer discretionary companies,” said analysts Arnab Mitra and Akshay Saxena of Credit Suisse Securities (India) Pvt. Ltd in their report dated 21 February.
Companies are feeling the pressure with categories such as automobiles, retail, consumer durables and even food and dining chains seeing a slowdown in sales growth.
In the 10 months since April, car sales have contracted 1.80% to 1.56 million units from a year earlier, according to the Society of Indian Automobile Manufacturers, or Siam. Likewise, retailers such as Titan Industries Ltd, Shoppers Stop Ltd and Pantaloon retail (India) Ltd, or even dining chains like Domino’s, operated by Jubilant FoodWorks Ltd have seen their same-store-sales growth take a beating. The promoters of HT Media Ltd, which publishes Hindustan Times and Mint, and Jubilant are closely related. There are no promoter crossholdings. Same-store sales measures growth at stores that were open for at least a year.
“Consumers are spending but they have more choices now and this is causing some slowdown for some of the existing brands,” said Sanjay Bindra, who launched Seven East, a premium women’s ethnic wear brand, after splitting from the family-owned Biba Apparels Pvt. Ltd. “Consumers are looking for new experiences as such freshness and aspirational categories and brands are doing better.”
Last year, for instance, saw international brands such as Claire’s (jewellery), Christian Louboutin (shoes), Kelme (sports shoes and apparel) and Starbucks (coffee chain) launch operations in India.
The pressure on retailers and brands will only increase this year as more brands and retailers are to set foot in the country with the opening up of the retail sector by allowing more foreign direct investment, or FDI, in them.
Yet, some emerging categories like luxury cars, utility vehicles (helped by cheaper diesel prices), beauty, smartphones, tablets and brands like Zara are bucking the trend. Tablet shipments, for instance, grew 546% to 3 million units in 2012. Likewise, smartphone shipments grew 40% to 15.8 million units in 2012. These categories, though, are growing on a smaller base.
Consumers do tend to get conservative in an uncertain macro-environment but as they cut back on large and discretionary spends, they tend to give in to small indulgences and novelty experiences, said Wilfried Aulbur, managing partner, Roland Berger Strategy Consultants, a consulting firm. Roland Berger places tablets and smartphones in the small “indulgence” category as compared to upgrading to a television or buying an air-conditioner.
Shally Seth Mohile contributed to this story.
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First Published: Mon, Feb 25 2013. 12 07 AM IST