The government hopes inflation will start softening from next month, but retailers don’t expect that to translate into better sales for them immediately.
Most retailers expect a “visible” slowdown in consumer demand in the coming quarters, mainly due to high inflation and interest rates, which have left lower disposable income in the hands of shoppers.
Food inflation hit a nine-month high of 12.21 per cent in the week ended October 22. It rose 11.43 per cent the previous week. Headline inflation hovered over nine per cent for 10 months to September, the most recent month for which data is available. It stood at 9.72 per cent in September. The Reserve Bank of India has increased interest rates 13 times since March 2010 to tame runaway inflation.
“During the last global slowdown, there was little impact on India. But during the current slowdown, inflation is high and rates have peaked. Though it has not impacted the festive season much, it may impact the normal period. There is an apprehension that sales may slow down in the coming quarters,” said K S Raman, director of Next, India’s largest consumer durable and electronics retail chain. Next saw 15 per cent sales growth during the Diwali season, compared to a 40 per cent rise in the same period last year.
“Interest rates have gone up and inflation is putting pressures on wallets of consumers. We have to wait and watch how things will pan out in the next three months. There may be some slowdown,” said J Suresh, managing director, brands and retail, Arvind Ltd.
But Hemant Kalbag, vice-president and partner at management consultancy A T Kearney, does not think there will be a major slowdown, as fundamental factors driving growth are “intact”.
“There is some slowdown... If retailers were seeing double-digit growth month-on-month, it may come down to seven to eight per cent... Still there is some growth,” he said.
Retailers are already bracing for a slowdown in demand and decline in sales. “One of the major issues will be that of inventory pile-ups. We are careful in managing that. We have to cut down on lead times further, if there is a slowdown,” Suresh said.
Lead time refers to the time from placing of an order with a manufacturer to the delivery of goods.
“We faced similar dilemma in 2008 and 2009, when realty sales were down and rates were high. I would rather devote my time coming out of it than thinking about it,” said Ajit Joshi, chief executive of Infiniti Retail, an arm of Tata Sons, which runs Croma. “In such a situation, we need to work out new strategies and be efficient to boost revenues,” Joshi said. During Diwali, Croma cut down spendings on print advertisements substantially and focused on radio and bus hoardings, which were economical.
