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

India's retail sector saw a significant slowdown in July, with overall sales growth falling 2%, according to the Retailers Association of India. This marks the slowest pace of growth that the industry has experienced since the Covid-19 pandemic, falling significantly short of the double-digit growth that struggling retailers have been striving for over the past 18 months.

The July data is comparable to the 9% growth observed during the same period last year and the 5% growth in June 2024 .

The monthly survey, which was released on Monday, revealed a mixed bag of performances across various segments. Food and grocery sales rose 6%, while sales of furniture and furnishings, as well as sports goods, fell, suggesting that consumers are cautious with non-essential spending.

"The retail sector is facing challenges as businesses are yet to witness real growth compared to the previous year. Most of the retailers are stating that they have negative growth on a like-for-like basis, which is a cause for concern," RAI Chief Executive Officer Kumar Rajagopalan said, calling for immediate strategic interventions aimed at stimulating consumption.

Geographically, west India led with sales growth of 3%, followed by south India at 2%, while north and east India showed an increase of 1% each.

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."