Stores Have Opened. Are Customers Shopping?
India continues to ease restrictions intended to curb the spread of the Covid-19 virus. Early indications suggest that consumption has seen a spurt as the lockdown eased but economists and company executives remain uncertain about the sustainability of that pick-up.
Private consumption, with a share of about 60% in the economy’s nominal GDP, typically leads growth. However, growth in private consumption had weakened even before the pandemic struck. Over the lockdown, consumption of essentials remained broadly stable but discretionary purchases stalled.
Pranjul Bhandari, chief India economist at HSBC, estimates that about 55% of the consumption pie comprises essential goods and services, while the remaining 45% comprises discretionary goods and services, according to a research note dated June 4. Essential goods and essential services may continue to lead the recovery for the next month or two.
BloombergQuint spoke to a cross-section of retailers across a few categories to understand demand in non-discretionary items from apparel and footwear to jewellery and electronics. Executives pointed to an encouraging pick-up across segments, driven by pent-up demand and a shift in preferences. However, business remains far from normal.
The dipstick survey is not exhaustive but illustrative.
Walk-ins for brands managed by Aditya Birla Fashion and Retail Ltd. have ranged between 60% and 70% of pre-Covid levels, said Amit Pande, brand head for the Collective and international mono brands at the company. The Collective, which stocks luxury and premium brands, has seen walk-ins range between 50% and 70% of normal at the moment, Pande said.
While fewer customers are visiting stores, ticket sizes have increased. Online sales have varied across brands depending on the strength of the brand’s presence. For the ‘Collective’, which has built a strong digital presence, online sales are trending at three times the pre-Covid levels.
But business is still significantly down in aggregate terms and limping back to normalcy.
There is some amount of pent-up demand in the market. Will it sustain through the rest of the year? That’s hard to say. The shock to the economy may well catch up, Pande said.
There is still a pending economic shock that we have not fully felt. It is hard to say how intense it will be. However, the mood remains somber and one has to recognise that if economic conditions go down, what can one really do to stimulate demand?Amit Pande, Brand Head - The Collective and International Mono Brands, Aditya Birla Fashion & Retail
Even across aggregator platforms like Snapdeal, demand has rebounded to 70-80% of the pre-Covid levels. Purchases on the platform have mirrored people’s preferences amid the lockdown. While demand for formal apparel has dipped, sales of casual wear, lounge wear, sleep wear and lingerie has picked up.
“While customers are not despondent, they are more thoughtful of what they are spending on,” said Rajnish Wahi, senior vice president at Snapdeal. Demand for value packs across categories has surged, Wahi said.
Rather than revenge spend, the platform has seen customers relief spending. They have stocked up more than what they may need immediately and are evidently relieved at being able to stock up. Now, they have also come to terms with the scenario and have begun to look beyond the current circumstances.Rajnish Wahi, Senior Vice President - Corporate Affairs and Communication, Snapdeal
Footwear & Activewear
Bata has opened 1,100 of its 1,400 stores across the country. Several of these still have curtailed opening hours and are open on fewer days of the week.
Considering the factors at play, Sandeep Kataria, chief executive officer of Bata, told BloombergQuint that activity across the stores has varied. As such, judging the national direction of demand remains hard. While some stores have seen sales resume to 60-70% of the usual, at others it has been lower.
Online sales are at a little over what they were before the pandemic.
The company has seen no specific change in consumer preferences across its brands such as Bata and Hush Puppies. However, sales of washable footwear have seen a spike, while demand for dress shoes has dipped.
For sports and activewear brand Under Armour, that caters to the affluent consumer, business on some days has been better than pre-Covid levels at stores. On Myntra, the primary platform on which the brand sells online, sales are just under pre-Covid levels, said Tushar Goculdas, the brand’s managing director in India.
Its performance may be reflective of the emphasis on health and wellness, more so amid the pandemic, said Goculdas. Customers want to feel and look good and also have fewer avenues to spend, he added.
For Tanishq, the recovery rate is at 66-70% of the average daily sales at this time last year, according to Ajoy Chawla, chief executive officer (jewellery division) at Titan Co. Currently, 300 out of the brand’s 330 stores are open. While some stores have opened in recent days, others have been open for about five weeks. When a store first opens, sales tend to range at 15-20% of pre-Covid levels, gradually climbing up with every passing week, he said. Online sales are at 2.5-3 times the usual.
Recovery rates for studded jewellery are lower though they are climbing up, Chawla said, adding it is an improving trend but will take time to catch up.
Sales have still been higher than one could expect. It may be because of gold’s stature as a safe haven, Chawla said.
While second quarter is likely to continue to remain patchy, the third quarter is expected to be defining, with expectations of a full recovery by the last quarter. That is assuming, no further shocks, said Chawla.
Consumers have also taken to video tours of the stores. Chawla recounts instances of families seeing the jewellery on smart TVs.
To jewellers, what may pose a challenge is the rising gold price and liquidity crunch. Liquidity was a constrain to the industry well before the pandemic struck. As gold continues to climb, what may happen is that the customer may change products.
Customers may downtrade but want to splurge on themselves, akin to the lipstick effect. They want to come out of the difficult times and feel good. At least for a certain class of people, it could even be revenge buying.Ajoy Chawla, CEO, Tanishq
Vijay Sales, a consumer electronics chain with 102 stores across the country, has nearly all outlets functioning. About 30-40 stores are open only on alternate days or with restrictions.
“We are now at 60% of pre-Covid sales on aggregate,” said Nilesh Gupta, managing director of the company. Online sales, which were a negligible part of sales ahead of the Covid crisis, showed a pickup but on a low base.
Overall, sales have been a tad better than initial expectations, Gupta said. There has been a definite shift to entry-level products across verticals, he said. For instance, categories like phones have seen demand restricted to the price bracket of Rs 10,000- 20,000.
Small appliances have seen a surge of 15-20%, while big appliances have seen a drop. Consumers would see these appliances as essential amid the lockdown when they have made use of their electronics to the hilt, Gupta said. A pick-up in laptop sales falls into this category.
Gupta expects flat growth in the consumer durables category. He sees this as a sign of maturity of the Indian consumer. “What is the point of spending recklessly and not being able to repay later,” he said. The customer would be better off purchasing a product of lesser value and fewer features with the cash they have, he said.
Odds & Ends
Snapdeal pointed to demand for lower-end electronics and ancillary items. “Earphones and headphones are the top most popular buys followed by laptop tables, home printers, and wi-fi routers. Mobile chargers, data cables, and extension cords are also in high demand,” the online platform said.
Stress buster balls, books on astrology and spirituality and anti-snoring devices are some of the oddities that have seen a surge in sales.