Opinion Lightening up the mood
The festive season indicates the revival of organised retail in India....
Everyone enjoys the goodies,the glitter and glamour and the endless zest for living that grips people around Diwali. All this does translate into increased consumer spending. Some consumers delay their purchase decisions until the festive season,both due to auspicious reasons and also to avail of the festive offers available during this time. This is especially important this year,as,hit by the economic slowdown,consumers have tightened their budgets,and the retail sector has been one of the biggest casualties. With market sentiments gradually turning positive,a ray of optimism and confidence can be seen in the Indian consumer. The festive season has built in expectations for most retailers,that the consumer would be back on a spending spree again.
Historically,the festival season accounts for around 20-40 per cent of the yearly sales in the consumer-centric sectors. Last year,there was a subdued demand during the festival season on account of recession in the market. However,initial data for the current year shows that the festival season has started on a good note as people are feeling good about the economic turnaround. For example a 10-35 per cent growth in sales has been observed in lifestyle products during this period.
Retailers are all set to cash in on this opportunity. Many companies in the consumer durables sector,automotive sector and other extended categories have initiated large scale advertising campaigns,announcing the launch of a number of new brands,new models of existing products in the market,special festive discounts etc. to boost consumer spending. There are deals galore everywhere. Other than straight discounts,consumers are lured with travel packages,cash vouchers and other sorts of gifts.
It is expected that the festive season will set the tone for economic revival and growth forecast for the next fiscal. The revival in organised retail sales points to an increase in urban consumer spending that could lift up the overall business environment. This revival,supported with buoyant consumer demand,has induced the big retail players to materialise their business expansion plans. Besides stocking up more,retailers are also on the way to renewed hiring and expansion.
It is definitely true that there has been a significant improvement in buyer sentiments in the second quarter. This is a result of a number of factors put together,including positive segments brought out by a strong political regime,a market upsurge in the economy,stabilisation of inflationary pressure and increased job security. Retailers are leveraging the current market dynamics by focusing on offering greater value to shoppers and providing consumers with various options.
The Indian retail sector is one of the key sectors being tracked by overseas investors. At present,100 per cent FDI is allowed in wholesale cash and carry businesses,while in single brand retailing,51 percent FDI is allowed but none in multi-brand retailing. Currently the share of organised retail is still very small in the overall market. Further,due to the existing FDI rules,which act as a roadblock for foreign investment in multi-brand retail,the pace of growth of organised retail has continued dawdling over the period. The sector is hopeful of reaping indirect benefits through the abolition of the fringe benefit tax and hike in the personal income tax ceiling as it will further increase consumer spending. Further,some recent developments like the proposal to introduce Goods and Service Tax could have a positive impact on retail.
Despite the fact that these factors lure foreign investment in the retail sector,there remains an apprehension on account of the FDI hurdle on investment in multi-brand retail in India.
On the whole,it appears that despite difficult economic times,the Indian retail growth story is all set to see better times with the changing economic scenario and positive consumer response,albeit with a bit of turbulence. Domestic consumption will be powering the expansion. The slowdown witnessed by the retail sector has helped the retailers to re-work their strategies and operation for long term sustainability. The festive season has only accentuated the recovery curve. So no guesses on who is most happy this Diwali. The expansion of organised retail has both the consumer and the retailers saying Happy Diwali!
The writers are senior professionals,Retail & Consumer Products Practice,Ernst & Young. The views expressed herein are personal
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