The repercussions of soaring food inflation, reaching an alarming 11.5% in July, are being keenly felt in India’s fashion retail sector. The surge, attributed to erratic monsoon rains causing crop damage and disrupting supply chains, has resulted in a decline in foot traffic and sales, compelling brands to offer more prolonged and deeper discounts. This trend is posing challenges to the health of consumer spending, which was already facing headwinds prior to the food price escalation. Despite this, spending at cinema chains and premium SUV sales continue to show resilience.
Key Aspects of the Food Inflation Impact:
- Rising Food Prices: Notably, retail prices of tomatoes skyrocketed to over ₹200 per kg since June, while onion prices surged by 80% in certain areas like New Delhi. The food inflation rate of 11.5% in July represents a substantial increase from 4.6% in June, reaching a three-year high.
- Contraction in Fashion Spending: The clothing and shoe retail sector, estimated at $62 billion in 2022 by Euromonitor International, is experiencing a contraction as consumer purse strings tighten. Outlets across multiple cities report decreased footfall, prompting proactive measures such as personalized outreach efforts by staff to bolster sales.
- Deep Discounts in Footwear: International shoe retailers, including Asics and Skechers USA, are resorting to significant discounts, up to 70% in some cases, and extending the duration of their sales periods to counter the downturn in consumer spending.
- Impact on Private Consumption: Deutsche Bank economist Kaushik Das highlights the vulnerability of India’s growth, pointing out that weak private consumption, constituting about 60% of GDP, poses a significant threat. The bank forecasts a slower economic growth rate of 6% for the fiscal year, compared to 7.2% in the previous year.
- Hope Amid Challenges: While concerns persist, there are positive signs with a slight easing of tomato prices and optimism surrounding a decline in vegetable prices from September. Additionally, industry stakeholders anticipate potential relief during the upcoming festival season, including Diwali in November, a traditionally high-sales period.
In navigating these challenges, retail outlets and industry executives are actively seeking avenues to revive sales, acknowledging the potential impact on India’s economic landscape.