Retail Sales Growth In July Hits Lowest Level Since Covid-19, Raising Stability Concerns

The findings come as India's retail inflation slowed to 3.5% in July, with the growth rate falling below the central bank’s target for the first time in nearly five years. This decline can be partly attributed to a high base effect, even as the journey towards disinflation is still being challenged by fluctuating food prices and escalating geopolitical tension.

As Covid-19 restrictions eased, retail businesses saw robust sales driven by revenge shopping following long periods of staying indoors. After offices reopened and eating out and socializing picked up, consumers upgraded wardrobes, leading to 13–24% monthly growth during much of fiscal 2023.

However, the momentum could not be maintained as consumers curtailed their spending in response to high inflation. The period between February 2023 and June 2024 saw a slower growth rate of 3-9%, the RAI data showed.

Weak demand compelled retailers to shut stores, scale back expansion plans, and exit unprofitable markets, resulting in job losses among both permanent and contractual employees. They are now counting on the upcoming festival season to potentially reverse the sluggish growth.

"The overall consumption environment has remained weak," Ashish Dikshit, managing director of Aditya Birla Fashion and Retail Ltd., told analysts during post-earnings call earlier this month.

"The apparel market, in particular, was further impacted by a subdued wedding season and prolonged heat waves, all of which have contributed to reduced consumer activities," Dikshit said. "We anticipate an improved demand environment during the upcoming wedding and festive seasons that will hold us in a much stronger position to capture the opportunity in the market."

Demand remains subdued for several reasons, including fewer wedding dates, a long election season, and a strong heat wave, alongside high levels of cumulative inflation, according to Shoppers Stop Chief Executive Officer Kavindra Mishra.

However, he firmly believes that the festive season will experience decent growth, supported by the monsoon and robust growth in the gross domestic product.

"We are looking at a very strong festive campaign," Mishra said. "I'm confident that the second half, with a large festive season and an increase in weddings—about 50 this time compared to just 14 in the first half of the fiscal year—should give us higher productivity and take us back to where we belong."