Home / Industry / Retail /  Festival season fails to lure Indian consumers

Mumbai: Consumer goods and retail companies reported the steepest sales decline in 24 quarters during the three months to December after festivals and sales promotions failed to attract shoppers waiting for an upturn in the economy to open up their wallets.

Eight firms analysed by Mint reported a decline in net profit for the first time in nine quarters, as slower economic growth and persistent inflation kept consumer confidence low in Asia’s third largest economy.

Aggregate net sales stood at 12,366 crore, down 9.4% compared with the same period a year ago. The companies picked represent a basket of consumer goods ranging from apparel to jewellery and consumer durables. This was the steepest decline since the quarter ended September 2011.

Aggregate net profit for Shoppers Stop Ltd, the Tata group’s Trent Ltd and Titan Co. Ltd, Gitanjali Gems Ltd, Cesc Ltd that runs the Spencers super and hypermarket chains, Bajaj Electricals Ltd, Videocon Industries Ltd and Bata India Ltd stood at 454.27 crore, a dip of 21.5% from 578.82 crore in the December quarter of 2012.

Future Retail Ltd was not included in the consolidated analysis as the firm’s year-on-year (y-o-y) results are not comparable because of a demerger of its fashion business in June 2013.

Same-store sales (SSS) growth—a measure of sales at stores open for at least a year—slowed across the board in the last quarter with most firms reporting a contraction, especially across the older, more established stores. The measure excludes sales at stores that are less than one year old.

Both consumer footfalls and spending have been declining, said Citi Research in a note dated 20 February.

SSS growth for Future Retail’s home division was 2% y-o-y during the December quarter, the lowest in two years, while Shoppers Stop departmental stores reported SSS growth of 6% y-o-y, the lowest in six quarters, said Citi Research.

What was worrying was that 11 firms such as footwear maker Bata, which have not been affected by the slowdown so far, showed cracks in revenue growth. Net sales at the firm grew 9% y-o-y to 554 crore, the slowest in four years. SSS growth was also anaemic at 2-3% for Bata India.

Meanwhile, sales of consumer durables such as household appliances, which pick up close to Diwali, also disappointed because of competition from cheaper options in the market and inflation.

For instance, the consumer durables business of Bajaj Electricals, which accounts for half of its revenue, grew 3% to 519 crore—among the slowest rates in many quarters.

“The Diwali season was shocking because there were hardly any footfalls in the stores. Moreover, the market was flooded with new entrants that are selling appliances at throwaway prices," said Anant Bajaj, joint managing director at Bajaj Electricals.

India’s economic growth slowed to 4.5% in the year ended 31 March—the slowest pace in a decade. Growth was still anaemic at 4.4% in the quarter ended June and 4.8% in the following three months.

“Overall, the recent quarters are still slower than previous quarters. This sluggishness is being seen across key consumer sectors like durables and auto as consumers seem reluctant to commit to items that entail a higher ticket value," said Adrian Terron, executive director, Nielsen India, a consumer insight and research firm.

“In an inflationary and uncertain environment, the reaction is quite naturally for middle-class consumers to curtail discretionary expenses, and will change once confidence and sentiment turns more positive," said Terron.

For now, though, the consumer mindset remains cautious. “Earlier, it was a matter of ‘when’ rather than ‘if’ things will improve. Now, given the macroeconomic environment, people have gone back to savings mode—buying only essentials and postponing all other purchases," said Sandeep Tarkas, president, customer strategy, Future Group.

Consumers are also holding on to their durables for longer due to the economic uncertainty, said Nilesh Gupta, managing director, Vijay Sales, a consumer durables chain in West India.

“The average life of a product has increased 20%. This means replacement or upgrade that took five years earlier now happens in seven," said Gupta, explaining that part of the reason behind this trend is the 15-20% increase in the prices of these items over the past two years.

According to data by the Consumer Electronics and Appliances Manufacturers Association, growth in the 45,000 crore consumer durables industry in 2013 was a meagre 5%, down from 14% in 2011.

Likewise, the volume growth rate of the consumer packaged goods sector stood at a mere 0.5% in the September quarter, compared with 10% in 2012, said a December Nielsen report. Inflation, measured by the Consumer Price Index, could stay close to 9% till the end of the current fiscal, and range between 7.5% and 8.5% a year later, according to the Reserve Bank of India (RBI).

Consumer prices rose 9.87% in December, the fastest pace in a basket of 17 Asia-Pacific economies tracked by Bloomberg. Consumer inflation eased to 8.97% in January, but the relief was mainly on account of lower prices of fruits and vegetables, which some fear may not be sustainable for long.

Consumption demand in both rural and urban markets, meanwhile, remains weak. Even a bountiful monsoon has not helped boost demand in rural India.

Also, an RBI circular banning the 0% interest schemes on consumer durables before the Diwali season weighed on consumer sentiment in the quarter, said Sanjay Manyal, a research analyst at ICICI Securities Ltd.

“This festival season consumer sentiment was very weak and the momentum which was seen during the previous Diwali seasons was missing," said Sangeeta Tripathi, a retail analyst at Sharekhan Ltd.

To be sure, there has been a slight uptick in consumer confidence and consumption of packaged consumer goods that include home and personal care products in the December quarter versus the September quarter, but the overall environment depicts a cautious and circumspect consumer, said Terron of Nielsen.

“Consumer confidence has been declining for one whole year now (and) even though there is some uptick since December, this has yet not boiled down to a rise in consumer spend," said Debopam Chaudhuri, vice-president, research, ZyFin Research, which monitors consumer sentiment.

Meanwhile, retailers and manufacturers have shifted focus to profitability, given the prolonged slowdown and consumers’ reluctance to spend.

“All modern retail till 2008-09 was in recruitment mode. The focus is now to sustain through the sluggish period and harvest the existing customer pool rather than hunting. This has an impact on everything—the relationship with customers, relationship with manufacturers," said Tarkas.

Likewise, manufacturers are also postponing new launches as they look at strengthening their core brands and positioning. “We will look at strengthening our position in the categories that we are already present in by getting into adjacencies and not launch new products until the market improves," said Sunil Duggal, chief executive officer of Dabur India Ltd.

Unless the macroenvironment improves and election-led spending kicks in, sales of consumer companies and retailers will remain tepid, analysts said. The government, in its interim budget, cut the excise duty on consumer appliances from 12% to 10%, but this is unlikely to turn around sentiment.

“Companies may not pass on the excise duty benefit at the cost of margins," said Hitesh Taunk, a consumer analyst at ICICI Securities.

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