Mixed-bag festive season spells speed bumps for consumer companies

• With a few exceptions, Indian apparel and footwear makers are expected to see muted sales growth in the third quarter.
• Beauty retailers, QSRs and even consumer goods companies are not expected to see any festive boost to demand in Q3.
• Luggage and jewellery sales however remained healthy and bling and travel is the discretionary consumption that refuses to die.
  

The third quarter of India is known for its many festivals, weddings and much more and is thus the country’s best spending season. After spectacular celebrations seen in 2022, the festive fervour dimmed in 2023, lending little to growth of consumer businesses.

From clothing retailers and footwear companies to consumer goods companies, e-tailers and even quick service restaurants are expected to report dull numbers — with discretionary spending presenting a damp picture this winter.

“While initial expectations during the Q2FY24 results season and initial festive channel checks pointed to optimism both on underlying demand revival and one-off factors—favourable base, festive shift tailwind—the quarter does not seem to be showing any improvement in sentiment/performance. This also poses a larger question on when and how revival will play out given the festive trigger is behind,” said a report by Nuvama.

Dressing down: Apparel & footwear

Some of the most affected companies of this trend are apparel and footwear companies. The much-awaited festive push was not seen. On other hand, the number of new entrants in value-retail in apparel and footwear are increasing, thereby slicing off revenues at both ends of the market.

The slowdown effects are expected to be felt across companies differently. “While demand remains muted overall, there is divergence in performance across players and category segments. Trent is again expected to outperform the sector and post a high single digit same store sales growth,” says Nuvama.

The Tata-owned retailer is where most brokerages are placing their bets on — with high single digit revenue growth. “We expect Trent to outperform within retail coverage due to robust store addition, and scaling up of Zudio format which provides a huge runway for growth,” says Centrum.

DMart too might lose out on robust sales from its high-margin businesses like general merchandise and apparel segment – which could hit its profitability in the third quarter, say brokerages.

While digital commerce is still a growing business as consumers keep shifting from online to offline, Nykaa too might see slower than expected growth in its best season. “We have moderated the growth expectations factoring in the current slowdown despite Q3 being the strongest quarter for Nykaa given the festive and wedding season,” says Nuvama.

A flat festive season is expected to impact consumer companies as big ticket purchases seem to have been lesser than expected. “Our industry survey in November and December indicates that business-to-consumer demand recovery has remained slower than anticipated. The festive season has been a mixed bag with low-teen growth in segments such as washing machines/refrigerator and strong growth in air-conditioners,” said a report by Nomura named ‘India Consumption Outlook’.

Bling & travel on spending charts

Not all big ticket purchases have been impacted though. For the right product, Indians are willing to loosen purse strings — and that’s jewellery. In a year when bullion has given double digit returns, people seem to be willing to bet on purchases that are more likely to appreciate in times to come.

Jewellery companies are expected to see double-digit growth in spite of an inauspicious Shraddh period that might have shaved off some demand.

A pandemic-era consumption trend that’s remained unchanged with unwavering demand is India’s love for travel. That’s expected to usher in good sales growth for luggage companies. Most brokerages expect these companies to present revenue growth in mid-twenties.

“Riding on strong domestic tourism, luggage remains in the sweet spot wherein we note demand to remain healthy coupled with strong festive/marriage season,” says Centrum.