Retailers Anxious About Sales In Run-Up To Festive Season

Retailers may see weaker-than-expected sales this festive season as shoppers cope with tightening budgets amid subpar economic conditions.

The mood of the chief executives of retail companies these days is anything but ho-hum. They do not expect a blowout festive season, even though they expect sales to be higher than last year.

"We are cautiously optimistic about the demand outlook," said Saif Khan, managing director at BSH Home Appliances Pvt. The company has built a flexible production system to be able to swiftly adjust production levels to match requirement, given that demand forecasting has become unpredictable—especially after the Covid-19 pandemic.

Makers of television-to-refrigerators say this festive season seems puzzling at this point in time, with consumers still figuring out how much will be spent and on what kinds of goods. Sales across categories are still skewed towards premium, while there is a lag in the recovery of mass products due to sky-high food inflation after erratic monsoons damaged crops.

"The April-June quarter of this fiscal was dampened in some geographies due to unseasonal rain and weather uncertainties, which may lead to pent-up demand in the festive season," Kamal Nandi, business head at Godrej Appliances, told BQ Prime. The appliance major is targeting over 40% growth this festive season over the last year.

Nandi, however, anticipates that high-end products will drive demand. "The premium segment has been witnessing over 30% growth, and we expect this momentum to continue through the festive season as well."

With the festive season also coinciding with the ICC Men's Cricket World Cup, an uptick in sales of TV sets is expected during the October–December quarter, according to Avneet Singh Marwah, chief executive officer of Super Plastronics Pvt., the brand licensee of brands like Thomson, Kodak and Blaupunkt.

"We expect at least a 50% increase in sales of televisions in the 40-inch segment and above and a 100% growth in sales of 55-inch TV sets compared to last year," Marwah said, indicating that the festive season is unlikely to reverse the mass demand slowdown unless inflation cools.

Consumers' willingness to spend on apparel is also subdued, said Rahul Mehta, chief mentor at the Clothing Manufacturers Association of India, which represents over 20,000 apparel makers and retailers in the country.

But that doesn't mean this festive season will turn out to be historically bad. "We are hopeful of a 10–12% growth over last year as we expect consumer sentiment to improve at the peak of the festive season," Mehta said.

India's festive season—starting from Onam, covering Ganesh Chaturthi, and peaking around Durga Puja and Diwali—accounts for 40% of the annual sales for companies in sectors like apparel, home decor, white goods, electronics, and packaged goods mainly snacks and confectionary.

Discretionary spending has been under pressure since last Diwali. Some recovery in August during the Independence Day weekend and Raksha Bandhan brought cheers, but it failed to sustain, according to retailers.

The spending on the furniture category has not drastically increased yet, said Elena Pogosova, country commercial manager at Ikea India.

However, the Swedish furniture retailer is seeing "growing" interest and spending in the bedroom and living categories. Customers are more inclined to spend in these categories during the festive season, she said.

Not all retailers are bearing the brunt of weakness in demand the same way. Companies like Parle Products Pvt. and Mondelez India Foods Pvt. see a pickup in demand of impulse categories as consumer appetite picks up.

"Demand is looking promising," said Desmond D'souza, senior director of sales at Mondelez. The Cadbury maker is looking to make "substantial investments" in advertising and marketing to boost demand, as D'souza said the festive season remains "crucial and conducive" to its growth.

However, the packaged goods makers have a word of caution about the current inflationary spiral and the vagaries of the monsoon — the factors that would determine the magnitude of the rise in demand going ahead.

Parle had started to see some resurgence in rural demand and was expecting good sales in the festive year, Mayank Shah, senior category head at the company, told BQ Prime. "But with reports suggesting that this year, the monsoon may not be normal ... that can create a problem."

"The next 15–20 days are crucial, and if we don't see the monsoon reviving, then it may have a bearing on the feeble rural demand recovery," he said.

Shah also pointed out that the prices of commodities like wheat and sugar are critical. "While companies can probably tackle one variable [monsoon], it becomes very challenging when too many variables play out at a time."

Retailers expect government interventions in taming food inflation as the country gears up for the general elections to fuel festive consumption.