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Retailers are expecting not a double, but a multiple whammy this year.
For starters, though consumer spend looks strong as of now, “it will turn weak as we go forward, and it will be because of poor sentiment”, says Mr B.S. Nagesh, Chairman, Retailers Association of India, and Vice-Chairman of Shoppers Stop.
He sees the first signs of this in “downtrading”. Giving an example, he says that buyers of premium bath soap will now buy cheaper soap. Those who want to upgrade to the next level will hold back for now. This trend is seen across categories, he explained in an interview to Business Line .
Running costs
The other major challenge is that the running cost of retail outlets has not come down. The three biggest components of modern retail are rental, employee cost and power. Rentals have gone through the roof. Power tariffs are going up, and so are employee costs.
Finally, retailers will end up cutting down on their advertising expenses, which may result in lower sales. Going by the industry rule of thumb, a good retail business should be able break even in around five years’ time. A good hypermarket business should be able to do it in 10 years’ time. With interest rates ruling at above 10 per cent, this kind of cost pressure will shift these gestation periods further by two to three years, he said.
The Government is also sending out mixed signals to the retail industry. It is neither supportive nor opposing, neither facilitating nor recognising. “On one side, they say FDI in retail is not required; then they say supply (chain) is the issue. It’s really very confusing. If someone has to take these signals and work out a business plan, he will be stuck,” he elaborates.
On the emerging trends in consumerism, Mr Nagesh says that people in the age group of 45-55 are fast becoming the top segment in terms of spending power. While the entire industry is focussing on the youth segment, the biggest change that is happening is in the mindset of people in this age group.
Age profile
“People in the age group of 25-35 have a reasonable spending power….they get married around that age, they set up a nuclear family, and can spend as they want. But people in the 35-45 age group cannot spend so freely as they have to put by for their children’s education, housing loans…and a lot of new responsibilities emerge during this age. People in the 45-55 age group are very interesting. They have not become so old that they cannot change; they are still in a job; their kids are mostly on their own now; their home loans are over; and hence they suddenly have substantial disposable income on their hands,” he said.
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