BackIndia and China still no match for US spending
India and China still no match for US spending
PremiumHyperbolic expectation? A store at the Ambi Mall in Gurgaon. Companies that have entered India and China are finding these markets still too small to make up for the slowdown in the US and other rich
Mumbai: They were supposed to keep the good times going: Prakash Shetty, caught recently thumbing through Singh is Kinng DVDs at a mall in India, and Zhu Xiaolin, who enjoys cute Adidas sportswear and Body Shop cosmetics in China.
But how far can Shetty and Zhu, both 26, and other Asian consumers go to save the groaning global economy? Just how many Buicks, Barbie dolls, Wrangler jeans, waffle fries, kiwi lip balms and plastic thingamajigs are they willing or able to buy?
Not enough, it turns out.
China will be the world’s third largest consumer market by 2025 and India will be No. 5, ahead of Germany, McKinsey and Co. has predicted. As US sales swooned this year, emerging markets were the sole bright spot on many balance sheets.
But such heraldry obscures a painful bit of math: US consumers still buy at least five times as much as Indian and Chinese shoppers combined.
Companies such as Adidas AG that have plunged into India and China are finding that these markets are, by and large, still too small to make up for the slowdown in the US and other rich countries. Also, India and China are not immune to the global crunch. Declining exports, particularly in China, and tight credit have cooled spending growth, despite the favourable long-term trends.
Chinese consumer spending is projected to reach $1.3 trillion (Rs61.62 trillion) this year, according to Euromonitor International, a market research firm. That would approach France’s $1.4 trillion, but pales in comparison with the US’ $9.9 trillion. Indian consumers will spend $660 billion.
“In dollar terms, they can’t offset," said Arvind K. Singhal, chairman of Technopak Advisors Pvt. Ltd, a retail consulting firm based in New Delhi.
It’s not that Indian and Chinese shoppers aren’t eager. Take Shetty. Trim and gregarious, he just got promoted to assistant manager at the Leela Kempinski, a luxury hotel in Mumbai where rooms were going recently for $280 a night. After he got the news, he handed his mom a fistful of cash, bought a television set, two cellphones (one for his dad), a stack of DVDs, a $700 gold necklace for his fiancée and a couple of new outfits for himself. “You feel great when you buy new clothes," he said, fending off a small crowd at the DVD rack of Big Bazaar, a popular discount shop.
His appetite for shopping helps explain why growing markets such as India and China “may make up for some of the stagnation you have in more mature markets", said Jan Runau, a spokesman for Adidas. By the end of this year, China is expected to surpass Japan as the second largest market for Adidas worldwide, after the US.
But, Runau cautioned that once other countries entered the recession, India and China would be affected: “They can’t make up for everything."
Dell Inc., the world’s second largest personal computers maker, saw revenues grow 48% in India and 18% in China in the third quarter, but global sales still fell 3% to $15.2 billion. The two markets contribute about 5% of the company’s revenues, while the US accounts for half.
“It’s starting to have a meaningful impact on Dell’s results, but it’s not enough to offset what’s going on in the US," said Steve Felice, president of Dell Asia Pacific and Japan.
Now the economies of India and China, too, are slowing. Their stock markets have plunged, people are finding it harder to access credit, and fears of job losses have shaken consumer confidence.
Lower export growth in China is spilling over into consumer spending, as workers fret about pay and job security.
Zhu, who works at an export company in Shanghai, has been trolling the Internet for shopping deals, because she is not getting a bonus this year. “Companies that can’t manage to sell their export items are selling online at very low prices... It doesn’t mean I don’t like shopping in stores, but I can’t afford that right now."
Despite government efforts to spur domestic spending, many Chinese remain frugal, concerned about saving for health care and retirement.
“Consumer demand is not going to be the answer to disappearing exports," said Robert Lawrence Kuhn, chairman of Kuhn Global Capital Llc. and an adviser to the Chinese government. “China’s domestic consumption is necessary but not sufficient to stabilize China, much less the world."
India relies less on exports. They account for about 20% of the Indian economy, versus 35% in China. Still, the global financial crisis has hit the Indian stock market and sparked a nasty credit crunch.
Gibson Vedamani, chief executive of the Retailers Association of India, says overall retail sales in India will likely grow 8-10% this year, down from about 30% last year.
Sales of basic items such as food and clothes, which account for most Indian spending, have held up far better than credit-driven purchases, such as homes and cars.
“We are not seeing a slowdown on basic products," said Kishore Biyani, chief executive of the Future Group, India’s largest retailer, whose holdings include discounter Big Bazaar. He’s still hiring and plans to expand total floor space from 11 million sq. ft to 16 million sq. ft by June.
Most Indians won’t set foot in Biyani’s sweeping 16 million sq. ft for years, however. The masses still struggle, parcelling out their rupees at the hot, hectic mom-and-pop shops that dominate the landscape.
“We won’t buy from the mall," said Suraj Buralkar, 21, who dropped out of school and started driving a taxi to help support his parents and three siblings. “The mall is too expensive for us."
Still, Buralkar is on his way. Earning just Rs3,200 a month and working overtime to satisfy his gnawing desire for stuff, he saved enough to pluck a pair of jeans, at Rs1,300, from one of India’s teeming roadside bazaars.
Elaine Kurtenbach in Shanghai and Monika Mathur in New York contributed to this story.
Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!
