The retail industry
Organized retail in India constitutes a very little share of around 7.8% of the total retail market. Of that 96% is in the ten biggest cities, and 86% in the biggest six. Through the 1990s organized retail added just 1million sq.ft. of space a year. From 2001 onwards, the pace quickened dramatically and 2003 alone saw an addition of 10 million sq.ft. retail space. As per the Marketing Whitebook 2009-2010, Indian is estimated at US$ 280 billion but organized retail is estimated at only US$ 14 billion. The sector accounts for over 10% of the country's GDP and 8% of total employment of the nation's workforce. Growth in the retail sector had fuelled a rapid mall building scenario across the country, with the total number of malls expected to increase to 600 by 2010 from an estimated 300 by end of 2007. Several retailers, including Indian corporate houses, are foraying into the retail sector through different formats, unlike foreign retailers who usually maintain three to four formats.
Such growth was aided with an unprecedented pattern of increased consumption. Multiple factors responsible were favorable demography with roughly 60% of the total population below 30 years of age, higher disposable income of middle-class consumers due to employment in IT, increasing number of working women, easier consumer credit with low interest rates, aggressive marketing by companies and change in consumption pattern with high aspiration levels, within the framework of the economy growing at a robust rate of nearly 8%.
The economic meltdown
But then the US went into recession and India tried its best not to succumb to the global crisis created by the flight of capital of the FIIs. To curb the liquidity crunch the government designed stimulus fiscal packages which was expected to expand disposable income and generate demand. Despite such initiative to contain the impact of the global slowdown, economy-wide data revealed that quarterly growth plummeted from 7.6% in Q2 to 5.3% in Q3 2008. The stock market slumped and the rupee too devalued. Companies initially planning on lay-offs and job-cuts subsequently settled for salary cuts or re-allocation of human resources, after encountering stiff opposition. Industrial output in October 2008 was below its level a year ago, an unprecedented occurrence since 1993. There had been a sharp fall in production of consumer durables and non-durables and consumption growth is at a 4-year low. Global consultancy firm KPMG says that India's retail sales fell to 11% in December 2008 from 34% in December 2007. Presumably in this scenario, the assumed GDP growth of 8% to 10% during 2007-2010 in ICRIER's report to Union Commerce Ministry, 2008, leading to 45%-50% growth in organized retail would have to be revised for 2010.
Impact on consumers
Malls as a single-point destination for shopping, food and entertainment appeal simultaneously to the browsing, the brand-conscious, the quality-conscious, the ambience-seeking, the discount-seeking and the impulsive buyers. Studies reveal that when a shopper has a planned list, there is a difference between the list and the products bought reasons for which can be attributed to the factors in the store. In the malls, along with the air-conditioned shopping ambience, quality products, service, convenience and comfort, consumers are offered in-house parking, coffee shops, entertainment in multiplexes, gaming facilities, play areas for children and food courts; which have transformed the mere activity of shopping, movie-watching or dining, to an experiential, lifestyle activity. But amidst growing fear of a severe slowdown that will threaten future earnings, urban consumers have become apprehensive. Though they are buying the day-to-day essentials, it's the impulse buying that is minimal, with consumers preferring only compulsory purchases as per predetermined list. So the volumes have gone down as shoppers are choosing to spend less. Customers have become price-conscious due to weak market sentiments and are not willing to buy anything overtly expensive. In some cases shoppers are shifting back to traditional stores to get assurance of quality at reasonable pricing.
A curious trend has been observed among consumers of luxury goods in "Luxury Considered", a global report by Ledbury Research for the De Beers Group. As the global economic climate worsens and consumer-fatigue with mass-marketed luxury products escalates, there is a shift from conspicuous consumption governed by status and prestige needs to discerning consumption marked by greater scrutiny of product quality, craftsmanship, preference for exclusivity and heightened awareness of social and environmental responsibility so consumers gravitate towards fewer but better things that represent genuine value. A study by Rural Marketing Association of India shows that spending on marriages and travel for pilgrimages also has not shown any reduction. Weddings and celebrations account for 58% of non-routine expenditure. Thus requirement-based shopping does not reflect any decrease.