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In India, shoppers tighten purse strings

August 16, 2011 09:41 IST

Stung by the interest rate spike and uncertainties, Indian consumers are enquiring more but are reluctant to convert those enquiries into purchases.

For example, two of India's biggest companies, Maruti Suzuki and Shoppers Stop, saw a sharp decline in conversions year-on-year (y-o-y) in the June quarter.

Mayank Pareek, managing executive officer, marketing and sales, Maruti, said enquiries had gone up 28 per cent in the June quarter y-o-y but conversions had declined sharply. "Normally, in a good quarter, conversions are at 24 per cent of enquiries but that has fallen to 15-16 per cent in the June quarter," said Pareek.

Passenger car sales for the sector, which had grown just 1.62 per cent in June, fell 10 per cent in July, its worst performance in nearly three years. Maruti saw a 26 per cent y-o-y drop in volumes in the same period. Another indicator of a slowdown in sales is the additional or second car purchases. When sales growth is high, additional car purchases increase. But, owing to the slowdown, the proportion of Maruti's additional car purchases was down 300 basis points to 28 per cent in the June quarter.

Debashish Mukherjee, principal at management consultancy firm A T Kearney, says big-ticket items on credit are likely to be impacted as purchase decisions are postponed.

Retail major Shoppers Stop, which runs 139 stores across 19 cities, has seen falling same-store sales due to a rise in prices. The company increased prices on apparel in the June quarter to counter the increase in cotton prices as well as the rise in excise duty.

While footfalls have increased 26 per cent y-o-y to eight million, the conversion (the footfalls to purchases ratio) has fallen to 21 per cent from 27 per cent in the year-ago quarter. Moreover, while sales growth for its department stores was up 22 per cent, same-store sales grew only seven per cent, the lowest in six quarters. Same-store volumes too are down five per cent.

Govind Shrikhande, managing director, says the volume drop was due to the increase in prices and there was a "slowness" in customer response in the June quarter. Companies have also extended their end-of-season sales period to help liquidate the inventory pile-up.

Shoppers Stop has started its current season's sales offer a week ahead of normal on August 6 and it will run for the entire month. Going ahead, given the rise in interest rates, experts believe the slowdown in discretionary spending will only worsen.

Arvind Singhal, chairman of retail consultancy firm, Technopak Advisors, said with the increase in equated monthly instalments and the recent hike in interest rates, consumer discretionary spends were likely to slow down in the next six months.While the macro outlook does not look good, companies are pinning their hopes on the forthcoming festival season.
Ram Prasad Sahu in Mumbai
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