Retail sales picked up in discretionary and higher priced products but weakened at the mass end for the second consecutive quarter during October-December 2022, they said.
“People earning between 15,000 and 35,000 in a month are under pressure of inflation because their shopping basket is largely food and essentials such as pulses, oil and vegetables. Their basket price actually increased by 30-35% due to inflation,” Lalit Agarwal, chairman of hypermarket chain V-Mart, told ET.
This has forced lower-income households to slash their discretionary spending. “There has been a slowdown and curtailment of discretionary income and expenditure at the lower end,” said Vishak Kumar, chief executive officer of fashion retailer Madura Fashion & Lifestyle, a division of Aditya Birla Fashion & Retail.
“It’s not the first time we are experiencing that… There is an equally strong recovery that happens when consumer sentiments improve,” he told investors during the company’s earnings call after the December quarter results.
The slowdown in mass-priced products is visible across categories including smartphones, televisions and refrigerators where premium products grew significantly faster than their overall segmental growth.
The demand pattern in electronics suggests that the rich and upper middle class have been buying premium products despite price hikes while lower-income consumers largely stayed away due to inflationary pressures.Most apparel and lifestyle retailers increased price tags across categories over the past year, especially after cotton prices surged due to higher shipment costs and rupee depreciation. Entry-level footwear prices went up last year when the goods and services tax (GST) rate on footwear costing less than 1,000 was raised to 12% from 5%.
“Mass categories do seem to have some kind of sluggishness in terms of demand, with the kind of hit that they have taken in terms of GST, as well as inflation,” Gunjan Shah, chief executive of Bata, told analysts in the footwear major’s third-quarter earnings call.
Retailers are hopeful of a revival in demand for mass products in the near future amid signs that inflation may have peaked or is near its peak, expected jump in job creation and investment due to the big jump in capital expenditure announced in the FY24 budget, and hopes of a revival in rural demand helped by a good rabi harvest.
According to market researcher NielsenIQ, rural sales of FMCG declined 2.8% on year in volumes in the quarter ending December while volume sales in urban markets increased 1.6%.
