Shailaja Sharma & Ashish K Tiwari, Daily News and Analysis
Mumbai, December 28, 2011
2012 will be the year of moderation in consumer spending across durable, consumer goods and apparel, as industry experts foresee an unfavourable sentiment gripping consumers, which could make companies cautious in their growth talk.
“2012 will be a tough year,” says Dr Y V Verma, president, Consumer Electronics and Appliances Manufacturers’ Association (CEAMA), and chief operating officer, LG Electronics India. “It will be challenging on account of several factors — economy, slowing industry growth, currency fluctuation, inflation that has gone up again. And it would be difficult to say when things will revive.”
Almost half of the durable and electronics sales happen during the festive season around Diwali. December, Dr Verma says, was anyway a dull period for sale of white goods. And next year looks dim as consumers will not likely be in the best of their spirits, given the current gloom-and-doom talk.
Devangshu Dutta, chief executive officer of retail consulting firm Third Eyesight, says there already has been moderation in the way money is spent by consumers, both on apparel and out-of-home consumption.
For the apparel industry, demand has slowed since August and the festive season was way below expectations as high cotton prices and levy of excise on branded apparel forced brands to hike prices, says Anurag Rajpal, vice president- apparel, Spencer’s Retail. Consumers are, however, buying now during the clearance period that will last till early-February.
Paresh Parekh, tax partner – retail and consumer products, Ernst & Young, says that while consumers continue to spend, there will be a degree of correction in the rate at which they have been spending until now. “The trend in spending patterns will be more evident in metros while the middle- and upper-class in the tier two and tier three markets will not be much impacted.”
An analyst with an international brokerage firm says that after two quarters of slowdown seen in sales of automobiles and white goods, there is an impending slowdown in consumer goods as well. For spenders are set to go into ‘savings’ mode. “Given the fiscal deficit pressure at the hands of government, doling out funds under the National Rural Employment Guarantee Act (NREGA) proportionate to previous years may be a challenge. This can leave less disposable income in the hands of rural consumers. Similarly, as salary hikes will be restrictive, demand in cities will be dampened.”
Some analysts have already started cautioning on ‘downtrading’ (consumer tendency to move to cheaper brands) in detergents, tea and personal care items. This means that the net addition of new consumers in several categories will be lower than expected. While food and staples is not seeing any weakening in demand, discretionary categories like home and personal care are starting to get affected.
Emkay Global Financial Services analysts Pritesh Chheda and Jay Shroff conducted a consumer goods channel-check at modern retail stores in Mumbai recently, to gauge inventory of popular stock-keeping units (SKUs). In their report, Chheda and Shroff state: “Our conviction for moderation in growth momentum in consumer goods is getting vindicated.”
Their survey showed average inventory of products in modern retail
outlets was dated back to two-and-a-half months with relatively
old inventory seen in categories like hair oils, shampoo and toothpaste,
and relatively newer inventory in foods.
A report last week by Latin Manharlal Securities said volume growth for FMCG companies will be lower in 2012 as consumers remain wary of spending too much.
Consumer goods companies are already battling inflation, high input prices and slowdown in the global economy. Most FMCG companies feel further price hikes will be eminent. From double-digit volume growth, the sector growth has come down to 8-9% in the last quarter. It could slip further if consumers chose to make do with less.
“The added pressure comes from the rupee front (currency depreciation), which is compelling companies to take up prices at a time when pricing power is limited. All these negative sentiments continue to pinch the FMCG sector so much that most FMCG players are expecting volumes to be impacted,” states the Latin Manharlal report.