After a surge in spending across various segments—from clothing to automobiles—driven by revenge shopping in the post-pandemic period, India’s retail sales growth is now slowing down.

Excluding the pandemic year, Zara, the world’s largest clothing retailer, and Starbucks, the leading global coffee retailer, experienced their slowest ever sales growth in India during FY24.

Vedant Fashions, the parent company of the men’s ethnicwear brand Manyavar, noted that this marks the first instance of a weak wedding season persisting for five consecutive quarters. However, the company anticipates improved sales figures upon recovery, attributed partly to a lower base effect.

The retail sales growth witnessed a year-on-year decline every month in the previous fiscal, reflecting weak consumer sentiment across segments such as apparel, footwear, and quick-service restaurants (QSRs).

The Retailers Association of India (RAI) reported that the slower growth rate of 4-7% observed in the previous fiscal continued into this year, with April showing a 4% increase, according to a survey of the top 100 retailers.

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Devarajan Iyer, CEO of Lifestyle International, India’s largest departmental store chain, said, “Pressure is evident across all sectors, particularly in tier II cities, where consumers are exercising caution with discretionary spending due to constrained disposable income. This deceleration appears poised to persist for an extended duration. We anticipate no signs of recovery for at least the next three to four months.”

Vedant Modi, Chief Revenue Officer at Vedant Fashions, expressed, “This situation presents a unique challenge, unprecedented in our experience. How we navigate through it will be equally unprecedented. Historically, after enduring five consecutive quarters of weakness, subsequent quarters often exhibit stronger growth.”

With the easing of Covid restrictions, pent-up demand sparked a surge in sales across athleisure wear, apparel, and lifestyle products. As offices reopened and social activities resumed, consumers upgraded their wardrobes, leading to consistent monthly growth of 13-24% throughout FY23.

However, this momentum has now waned.

Kumar Rajagopalan, CEO of RAI, remarked, “The recent deceleration isn’t necessarily a slowdown per se, as the post-pandemic growth was exceptionally high and inherently unsustainable.” He added, “Although we anticipated approximately 10% growth, the actual average was only 5%.”

He noted, “Approximately 70% of consumers, particularly those from the middle class, have increasingly opted for EMI options when purchasing high-value items like electronics and cars, compared to just 40% a few years back. This trend has impacted their disposable income, leading to reduced spending on discretionary items like clothing.”

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According to analysts and industry executives, a recovery is anticipated only after a period of two to three quarters.

Several direct-to-consumer brands in the realm of social commerce are gradually carving out market share from larger, well-established brands. Dalip Sehgal, the CEO of Nexus Select, backed by Blackstone and overseeing 17 malls across the country, expressed concern over the performance of fashion brands. However, he noted that other sectors like electronics and beauty are experiencing growth rates of 18-20%, contributing to meeting their targets. Sehgal acknowledged the success of certain D2C fashion brands, emphasizing the need for existing brands to innovate. He remains optimistic, anticipating a better second half of the year.

The most recent annual report from Tata Consumer, Starbucks’ Indian joint venture partner, underscored a decline in demand across the Quick Service Restaurant (QSR) sector throughout FY24, leading to muted growth in same-store sales.

Westlife Foodworld, which manages McDonald’s restaurants in western and southern India, experienced a 5% decrease in same-store sales growth in the March quarter and a 1.5% decline over the last fiscal year.

Saurabh Kalra, managing director at Westlife Foodworld, informed investors that after multiple quarters of decline, out-of-home consumption trends in the fourth quarter remained relatively steady compared to the previous quarter. However, year-on-year, there is still a decrease in dining out frequency. Kalra expressed optimism, noting that the easing pressure on consumer budgets due to improved economic conditions and a slowdown in retail inflation is expected to positively influence discretionary spending. He anticipates a gradual improvement in the upcoming quarters.

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