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Revenue: Slowing consumer sales growth marks end of revenge shopping

Discretionary retail sales in India screeched to a halt in 2023, with growth in segments like apparel, footwear, beauty, and quick service restaurants (QSR) halving to just 9% after two years of pandemic-fuelled surge. This reflects weak consumer sentiment though spending on high-ticket items such as automobiles and electronics continued backed by easy loans.

Analysts and industry executives project a prolonged market slump, with a recovery expected only after two to three quarters.

‘Slowdown to be slightly prolonged’
According to the Retailers Association of India (RAI), in the apparel and footwear segments, the budget-conscious value category was hit the hardest.

With three-fourths of annual sales growth largely driven by network expansion, the organised retail sector’s same-store sales growth (SSG) of 2-3% last year suggests an ebbing of demand for clothes, shoes, cosmetics and fast food.

Worse, the traditionally busy October to December period, marked by festivals, saw a modest sales growth of 6%, with like-to-like sales declining compared to 2022, according to a report prepared by RAI and exclusively made available to ET.

The report surveyed the top 100 retailers in the country from modern retail spanning segments. SSG indicates customer demand and measures revenue from stores that are operational for at least a year.

“Like-for-like growth has been quite muted throughout the year. Most of the brands have expanded to new geographies and whatever the growth we are seeing is due to that. We were expecting things to recover after January but the way things are looking, the slowdown seems slightly prolonged,” said Devarajan Iyer, chief executive of department store chain Lifestyle International.

Most apparel and lifestyle retailers raised prices across categories in 2022, especially after a surge in cotton prices due to higher shipment costs and rupee depreciation.

However, last year saw companies either cut prices or offer steep discounts to clear unsold stocks after the previous year’s price increases.

Lacklustre Oct-Dec quarter
“We have seen slowdown across consumer segments but were expecting a retail recovery during October-December quarter which has not happened so far. Unless interest rates are lowered, companies, especially tech firms, give decent salary hikes and there are no further job losses, we do not see a recovery for another 2-3 quarters,” said Abneesh Roy, executive director at Nuvama Institutional Equities.

The pandemic was also marked by booming sales of athleisure wear, followed by apparel and lifestyle products, which bucked the overall sluggish trend due to pent-up demand and consumers upgrading their wardrobes after offices reopened. This momentum has since stabilised.

“Revenge shopping that we saw during the pandemic was never sustainable. While people are buying higher priced products including cars and electronics with finance options, the increasing EMI every month is forcing them to cut back on lifestyle products like clothing and accessories,” said Kumar Rajagopalan, chief executive officer of RAI.

While the fashion retail segment struggled with a demand slowdown in 2023 due to inflationary headwinds, the value category remained more impacted compared to premium products and is yet to attain its pre-pandemic level average sales per square feet, RAI said in the report.

Within segments, apparel and clothing grew at the slowest pace of 8% though QSR expanded 13% in 2023. Sales of furniture, sporting goods and jewellery rose 12% while beauty, electronics and food and grocery grew 11% each.

Premiumisation trend strong
Meanwhile, Shoppers Stop, during a recent investors’ call, said the retail chain has seen a recovery post Christmas, but it is still inconsistent and that the market remains muted despite green shoots.

“The entire non-apparel piece, whether it’s beauty or non-apparel, is doing really well. We also foresee that going forward, the premium brands and the premiumisation journey will keep on becoming stronger and stronger. For us, those are the reasons why the revival in demand will happen,” said Kavindra Mishra, chief executive of Shoppers Stop, which reported a 9% sales increase in the December quarter.

Others like Metro Brands posted a 6% revenue growth in the fiscal third quarter, while Bata India’s revenue remained almost flat. McDonald’s India franchisee Westlife Foodworld saw sales fall 2% with SSG declining 9%.

Rival Restaurant Brands Asia that runs Burger King posted a 20% increase in revenue but SSG slowed sharply to 2.6% from 28% in the year-ago quarter.

“On the macro side, demand conditions remained tough with lower levels of eating out frequency. The festive season saw a slight uptick, but the demand pressure continued thereafter. The softness in general consumption trends is quite visible across the retail space and several other macro indicators,” Akshay Jatia, executive director at Westlife Foodworld told investors recently.

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