Diwali lights up consumer spending, festive spirit beats inflation

Despite a slowing economy and high inflation, consumers are loosening their purse strings as companies and retailers woo them with special offers in the festive season.

Jitendra Pundir, 33, a zonal manager with a pharma company in Lucknow, has made his shopping plans for the festive season. He is ready to spend Rs 40,000, which he saved over the last few months from his monthly salary of Rs 50,000. Most of it will go into buying an HP touchscreen laptop with Windows 8, worth Rs 35,000, and the rest for clothes. "I wanted to buy a car, but have put it off on high fuel prices and monthly outgo. Moreover, the day-to-day living expenses have really shot up," he says.

Times are taxing for the Indian consumer, with the economy in stress, high inflation straining household budgets, and thousands losing their jobs or having their increments and bonuses held back. But that has not held back spending by consumers such as Pundir during the festive season, according to an exclusive survey on Consumer Behaviour and Festive Season Dynamics conducted for India Today by management consulting firm Technopak Advisors.

The survey, that studied the spending pattern of 1,050 respondents in 10 cities, reveals that shoppers expect a higher spend in almost all key categories - a 25 per cent increase in average monthly spend on staples and packaged foods during the three months of the festive season, compared to the average monthly spend in the previous six months till September; a 12 per cent increase in spend on groceries; a 50 per cent increase in spend on apparels in the October to December compared to the three months ending September; a doubling of spend on lifestyle and fashion accessories in the next three months that mark the festive season over the three months to September.

The survey covered consumers in age groups 24-34 and 35-45 in Delhi-NCR, Mumbai, Kolkata, Bangalore, Chennai, Ahmedabad, Visakhapatnam, Ludhiana, Lucknow and Indore, and their shopping trends in groceries, staples and packaged foods (STPG), apparel & lifestyle, mobile & digital products, home appliances and automobiles. It reveals that although consumers have been awaiting the festive season to loosen their purse strings, discounts and promotions will hold the key as they will go in for the best bargain as inflation bites. The festive season extends from October to December, comprising Navratri, Durga Puja and Diwali celebrations and culminating in Christmas and the New Year.

Inflation, which touched a seven-month high of 6.46 per cent in September, is cited as the primary reason for this increased spend. On October 29, the Reserve Bank of India raised repo rate by 0.25 per cent to 7.75 per cent, a move aimed at taming inflation but will make consumer loans costlier.

Of the total respondents, 57 per cent in Tier 2 cities such as Ludhiana, Visakhapatnam and Indore cited inflation as a key driver for increased spend, while 38 per cent did so in Metros and Tier 1 cities such as Ahmedabad, Bangalore, Chennai and Kolkata and 30 per cent in mega metros such as Delhi-NCR and Mumbai. Other reasons for increased spend are discount in sales, visiting guests who will stay, gifts for friends and family and festive entertainment.

Cautious on 'high-ticket' spend

There is lower purchase intent for more expensive or 'high-ticket' items. On an average, only 45 per cent of the respondents to the Technopak survey intend to buy mobiles, digital products, home appliances, electronics or automobiles, with consumers in the mega metros more likely to make the purchase compared to the rest. Young consumers are more likely to buy these categories, with 59 per cent of respondents between 25 - 34 years expected to buy mobile phones compared to 48 per cent in age group 35 to 45 years.

"The macroeconomic issues have posed no threat to small ticket consumption," says Kishore Biyani, CEO of the Future Group.

"In our experience, consumption is being maintained in most categories, since consumers keep up to a certain lifestyle they are used to."

In September, industry body Assocham said middle and lower middle class income families will slash their Diwali expenditure by 40 per cent on high prices. However, Govind Shrikhande, MD of Shoppers Stop, differs.

"In a slow economy, consumers continue to worship and spend on three 'Fs' - food, fashion and films, as all three are relatively low ticket items. Festive season is a combination of religious festivals and feel-good holidays, combined with annual bonuses. We don't expect any big caution on part of consumers."

In 2012 too, Assocham had said that almost 70 per cent of the country's middle and lower income families would cut spending that year due to high inflation and less job avenues and salary packages.

"The inflation is a result of high interest rates and fuel prices," argues Biyani. "We should look beyond the so-called 'onion inflation' since essential categories of spending are not affected."

In STPG and groceries, Tier 2 cities reflect a tendency to spend more during the festive season. As many as 90 per cent of the respondents to the Technopak survey in Tier 2 cities said that they will spend more on the STPG category in the festive season, compared to 82 per cent in the mega metros and 94 per cent in metros and Tier 1 cities. In groceries, 84 per cent in Tier 2 cities show increased spending, compared to 76 per cent in the mega metros and 87 per cent in metros and Tier 1.

"Consumers within smaller cities are eager to engage with aspirational brand," says Pakhie Saxena, associate director, Technopak. "They are seeking wide assortment, customer experience, and latest fashion trends. The rapid penetration and growth of non-store format shall be primarily driven owing to the limited supply of quality real estate in smaller Indian cities."

Meanwhile, large format stores & specialty formats find high preference (62 per cent) for staple and packaged foods category. This is a reflection of Indian consumers evolving towards gourmet & specialty foods. But for groceries, neighbourhood stores continue to dominate.

As many as 40 per cent of respondents in the 25-34 years category purchased apparels in the last three months compared to 33 per cent in the 35-45 years age group. The survey also said women spent 8 per cent more on apparel than men, while men tend to spend 9 per cent more on lifestyle accessories than women.

The northern part of the country is expected to spend more on apparels (with 70 per cent saying they will spend) compared to the South (63 per cent), since festive occasions in the latter are more spread out over the entire year.

According to VN Dhoot, Chairman of the Videocon Group, there is no let down in durable consumption, thanks to rural demand and easy financing. "Rural demand has gone up by 20 per cent this year compared to the last," says Dhoot. The other category is consumer goods, which will again see good demand. "What could be affected is automotives," he added.

Shoppers corroborate Dhoot's view. In Chennai, Ajay Ayappan, 29, a realtor, plans to spend around Rs 60,000 to Rs 80,000 during the festive season, a 40 per cent increase from the previous year. He prefers brands, and will buy Diesel jeans and Gucci or Louis Vuitton shoes. "I have no family commitments yet, so I am living the moment and buying what I want," he says.

Malls in Chennai are cashing in on the demand from young shoppers. "Our footfalls are growing in double digits, despite two new malls opening nearby," says RR Aroonkumar, CFO of Express Avenue mall.

"Apart from apparel, home décor, cosmetics and healthcare products are also seeing a boost in sales. Youngsters like to experiment with new brands."

Value for money, offers key

The average spend on mobiles during the festive season is expected to range from Rs 15,000- 17,500, up from Rs 14,000 - 14,500 for the last six months. "High inflation and an unstable economy may pull the consumer back from spending big during the festive season," says Himanshu Chakrawarti, CEO of The Mobile Store Limited, part of the $39 billion Essar Group.

"In case of mobile phones and other electronics, consumers will re-look into various brands and their offerings especially, in terms of the value proposition (including offers) before making the purchase decision."  

The average ticket size for home appliances and electronics during the festive season is expected to be Rs 18,500; up from Rs 17,000 six months ago.

Most consumers prefer multiple branded outlets in malls to buy mobiles and digital products, as they get a large variety in terms of brands and prices at these formats. Consider the case of the Riverside mall in Gomatinagar, Lucknow, which saw average footfalls of 7,000 a day in the festive season last year. This year, however, it is likely to see 9,000 a day. The mall's owner Laxman Das Ladhani says the middle and upper middle class spend around Rs 10,000 to Rs 25,000 in the festive season. "Mostly they buy electronic items like mobiles, laptops or LED TVs," he says.

Kishore Bhatija, MD & CEO of Inorbit Malls, said that his firm is expecting around five million footfalls during Diwali across all its six malls in the country as consumers shop for jewellery, watches, electronics goods, ethnic wear, home utilities and gifts. Its two malls in Mumbai's Malad and Vashi will together see about two million footfalls. "During festivities, we see a 15- 20 per cent increase in footfalls," he adds.

Says Atul Ruia, promoter of High Street Phoenix mall in Mumbai, "September was slow but post the commencement of festive season, we have seen a good pick up. We expect to see some 3 to 5 per cent growth this year from last year, both in sales and footfalls."

Bracing up for footfalls

Malls in India have mirrored the growth story. From just 2 malls in 1999, the number of malls reached 250 by 2010. As on September this year, there are 470 operational malls in India with 129 million square feet of gross leaseable area, the Images Group said in a recent report.

Vishal Mirchandani, CEO, of Brigade Group Retail and Commercial Properties that operates the Orion Mall in Bangalore, says he is expecting 1.5 to two million footfalls at the mall this Diwali season, with shoppers likely to spend more on electronics and clothing. "Buying of jewellery might be slightly affected as current prices are very high," he says. Shashie Kumar, Senior Centre Director, at Bangalore's Phoenix Marketcity echoes the trend. "In the days leading up to Diwali, we are already experiencing a 35 per cent increase in footfalls, with shoppers spending on apparel, jewelry and durables."

In Kolkata, Mani Square Mall on EM Bypass has seen footfalls cross above what was expected. "There has been a 12 per cent increase in footfall figures this festive season as compared to the festive season last year," says Sudarshana Gangulee, Senior General Manager of the Mani Group.

It's the same story even in South Kolkata with South City Mall, a popular mall in Kolkata, where, during Puja shopping, footfalls crossed 1.5 lakhs even on rain soaked weekends.

S Raghunandan, chief executive for retail at Prestige Group, owners of the Forum brand, says the firm expects to see around a million footfalls a month in Bangalore's Forum Mall. "We expect a 20 to 25 per cent rise in footfalls during the festive season. As for Chennai, the Forum Vijaya Mall opened only six months ago in Vadapalani and I am expecting an average of a million footfalls a month over the next few months."

"Smaller cities seem to be directionally aligned with the metros," says Himanshu Chakrawarti, CEO of The Mobile Store Limited, part of the $39 billion Essar Group. He cites the shift of consumers from feature phones to smart phones as a "wonderful opportunity for organised retail chains such as ours."

There are the cautious spenders too. Asha Poddar, 45, a teacher in Ahmedabad, says festive budgets have risen above her earnings, turning her more cautious than before. "Earlier, festival budget used to come roughly around Rs 8, 000 - Rs 10,000 for the entire family. Now it is costing close to Rs 20,000. Our weekly petrol bill alone is up from Rs 2,800 to Rs 3,000," she says. Poddar has, therefore, shelved plans to buy gold this time round. "Consumers' spending this festive season will depend on the inflation levels and interest rates," says Bijou Kurien, President & CEO-Lifestyle of Reliance Retail.

Small is big

A study by Boston Consulting Group (BCG) in October 2012 said that small town Indian consumers are trading up, or spending on higher value products, more than their urban counterparts as consumption gained momentum in the hinterlands. Small town consumers moved up the value chain during 37 per cent purchase occasions against 31 per cent in the metros in the past one year, it said.

The Technopak survey offered similar insights. As many as 68 per cent of respondents in Tier 2 cities chose shopping malls as their preferred shopping location for apparel, compared to 76 per cent in the mega metros and 77 per cent in the metros & tier 1 cities, indicating the increasing popularity of malls in smaller cities. The biggest surprise is in the exclusive branded outlets category, which 39 per cent of respondents in Tier 2 listed as preferred format for shopping in apparel, higher than mega metroes (29 per cent) and metros and tier 1 (21 per cent). This tendency to go for exclusive branded outlets was true for lifestyle products too, which indicates that consumers in smaller cities are eager to engage with aspirational brands and are seeking wide assortment and merchandise mix.

"In metros such as Mumbai, Delhi and Bangalore, the two big segments of consumers are corporate professionals and working women," says Shrikhande. "In the smaller towns, there are very few corporates and a smaller percentage of working women." As a result, the kind of merchandise in demand is different. "So, while formals form a large part of metros, casual wear forms a large part in smaller towns." Similarly for women in metros, western wear is in huge demand, whereas in the smaller towns, ethnic wear rules the roost. "So, although the aspiration of consumers in both metros & Tier 2 towns is increasing, their expression differs," Shrikhande adds.

Marketing strategies

Meanwhile, retailers are weaving aggressive strategies to attract consumers during the festive season. "The MobileStore will try to be the preferred customer destination through advertising, superior service and offers," says Chakrawarthy. " The MobileStore pioneered EMI for phones on credit cards around 2.5 years back and is now again at the forefront with EMI for All (including people who do not have credit cards) offering which can now enable a customer to buy his/her dream phone with ease."

"This is one of the biggest quarters for us. We have approached it with Positive exuberance," says Shrikhande. "We are well prepared with a large assortment and latest collection across categories." Venu Nair, Managing Director, Marks & Spencer, says, "Our marketing plans this festive season include targeted advertising and promotions such as a special festive promotion which we will launch in the next few weeks." Electronics retailer Croma, part of the Tata Group, has a cash-back on products purchased using their HDFC debit and credit cards. Retailers have their plans laid out to woo consumers. Going by the response of shoppers so far, they are not likely to be disappointed.

-With bureau inputs