Retailers expect festive boost after high inflation, elections hurt sales

In India, the period from October to December tends to have several days deemed auspicious for weddings, besides a string of festivals such as Dussehra and Diwali that are likely to lift demand after many retailers reported tepid sales in the first half of the calendar year 2024.

Demand for several discretionary categories—such as apparel, fast food and personal care products—remained muted in the first half of the year, as consumers spent more money on essentials and conserved cash after two highly-inflationary years.

Executives at industry association Retailers Association of India (RAI) said companies are proceeding with caution, especially those in categories such as apparel and electronics as they head into the festive season.

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“Jewellery retail tends to do well during occasions and weddings. But you have to understand that the bottom-of-the-pyramid consumer is still reeling from the impact of high inflation over the last two years. As a result, we will see some pressure on discretionary categories such as apparel this season," said Kumar Rajagopalan, CEO, RAI.

Rajagopalan said growth will be challenging to come. “Most of the growth will come from new stores and expansion, not from like-to-like sales," he said.

Retailers have complained of consumption expenditure getting splintered over the past few years, with people spending more on travel, eating out, and subscriptions. Cost of goods has increased, too, prompting consumers to shell out more for buying daily essentials.

Apparel retailers have been forced to liquidate stocks early and focus on fast-moving items.

“Overall discounting this year was much higher compared to last year. The fundamental things around consumption haven't changed. We are seeing that the share of the wallet, whatever is left after inflation and high interest rates, is going towards other categories like mutual funds and travel," said said Nitin Chhabra, chief executive officer, Ace Turtle.

Ace Turtle operates outlets for brands such as Lee, Wrangler, Dockers, Toys“R"Us, and Babies“R"Us in India.

"The silver lining is that in October through December, there are more than 40 auspicious days for weddings and festivals. Weddings have a very positive impact on apparel, not just ethnic and traditional, but also casuals. Last year, we did not have those many weddings. That cheer might bring back consumers," he said.

Jewellery retailer Titan Company is “very very" confident about the upcoming festive season. “It was a shared feeling by the industry at the recently concluded jewellery fair (gem and jewellery show in Mumbai)—from a volume point of view we are quite gung-ho," said C.K. Venkataraman, MD of Titan Company Ltd.

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The company’s jewellery business saw a 9% rise in total income in the June quarter to ₹9,879 crore. The first six weeks of the quarter that included Akshaya Tritiya saw 20% retail growth. However, a steep rally in gold rates, election-led restrictions in many markets, very few wedding dates and an unprecedented heatwave across the country hurt the overall consumer demand during the quarter, Titan said in its earnings announcement.

Venkataraman said volatility in gold prices is always an immediate challenge. “Once prices stabilize customers flock to stores and we are hoping that will continue to happen," he said.

Meanwhile, severe heatwaves in many parts of the country coupled with the general elections also adversely impacted footfalls in stores earlier this year.

“This probably got people to stay indoors—as a result demand has not been vibrant. However, June was better than July as retailers went on sales a little early. We feel people will want to come out in the second half. Ganesh Chaturthi onwards we do expect a resurgence in demand and footfalls," said Pushpa Bector, senior executive director, head of luxury and shopping malls, DLF Retail. Bector expects demand to be up double-digits this festive season compared to a year ago.

However, Bector's portfolio covers the more premium end of the consumption basket.

Consumption at the bottom of the market still remains weak. However, an above-normal monsoon and moderating inflation could aid demand this quarter ending September.

Wholesale inflation, which surged to a 16-month high in June, cooled in July, Mint reported earlier. This was on account of low food prices and primary articles. Food inflation, a major contributor to the index, fell to 3.55% in July after climbing to 8.68% in June from 7.75% in May.

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"While the festive season does stimulate consumption, its impact has been minimal over the last three years, with FMCG consumption remaining stable or shrinking marginally compared to the previous quarter. This is due to added expenses in areas such as fashion, jewellery, and consumer durables. However, we are expecting a turnaround for the FMCG market in this festive quarter, due to growth in personal and home hygiene categories, and rural areas holding up well despite economic stress. This is supported by normal to slightly above-average rainfall and higher economic activities, as indicated by a continuous decrease in work demand under the MGNREGS in the last the last three months," said Manoj Menon, director, commercial, Worldpanel, South Asia.

Mumbai-based electronics retailer Vijay Sales expects consumers to continue spending on air conditioners, new refrigerators, and washing machines this festive season. A harsh summer saw shoppers buy more coolers and air conditioners that did not dent demand for other categories. “We will see consumers continue to buy household appliances and electronics," said Nilesh Gupta, managing director, Vijay Sales.