India Consumer & Retail Festive Fervour: Lights, Sound, … Action?  Citi Research

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India Consumer & Retail
Festive Fervour: Lights, Sound, … Action?
 Betting big on festive sales; but is sentiment impacting demand? — In an
environment of high inflation & moderating growth, consumer goods manufacturers and
retailers pin their hopes on the ongoing festive season demand – believed to be key to
overall revenue and profit growth in the current year. With the onset of the festive
season, we try and gauge a) the importance of the festive season; b) measures that
companies / retailers are undertaking to spur demand; and c) what’s happening onground
as we visit malls / shopping centers and talk to dealers & shopkeepers in
Mumbai and Delhi.
 Festive season – how big is it? — We analyzed revenue trends for 7-8 companies
(mix of retailers, paint companies & durable makers) over the past 5-6 years. On an
average, the festive season quarter accounts for ~24-30% of the annual sales. It is
thus, only, a tad higher than the average quarterly run-rate. The festive season is now
believed to have extended beyond the traditional Dusshera / Diwali period; retailers
mention that India is increasingly following the West with Christmas / New Year
becoming more important (more holidays, better weather?). Channel checks tell us that
most retailers have their annual sales earlier in August (or later in January too - as is
the case with Pantaloon) – which garner a large proportion of overall revenues.
 Gearing up for the festivities — The shopping centers / malls we visited, especially in
Delhi, have been decorated and lit up for the festival of lights. Press reports indicate
consumer companies have increased their advertising budgets by up to 50-60% Y/Y for
the season – targeting print, TV, outdoor as well as online / mobile ads; well supported
by discount offers, gift coupons and promotions to spur demand. Product launches and
innovations continue, albeit at a slower pace.
 What are channel checks telling us?.... — Speaking to most shopkeepers &
distributors, it was a near consensus view that growth rates in 2011 are likely to be
lower on last year’s high base. That said, there was a sharp variance across categories
/ shops on the absolute growth expectations.
 …. Mixed views — Some electronics retailers noted that higher EMIs (~4ppt increase
in interest rates in the last 24 months) could lead to modest / no growth. Apparel &
jewellery players mentioned that the price hikes are impacting volumes. Following the
recent discount sales period, many believe the offtake could be lower when consumer
goods and apparels are being sold at full prices. On the other hand, based on the initial
trends, a few FMCG, premium watch makers & some white good dealers, spoke of
strong growth expectations (the range was wide, between +15-40% growth).
 Signs of modest growth; but still early days — Our dipstick checks indicate that
sales this year will be steady, but are unlikely to be spectacular (see photos inside).
These are still early days - it is yet to be seen if the macro sentiment has dampened
consumer demand or if the festive spirit will positively surprise closer to Diwali.