What’s this economic recession all about? Blame it on the bad lending policy and a large sub prime outstanding mortgage in the US economic system giving rise to severe liquidity crisis across the globe, followed by the collapse of US investment bank giants like Lehman Brothers and Merrill Lynch and insurance company like AIG.  The heat is felt everywhere, especially in countries where open economy rules the financial infrastructure. India is open to global economy, though not fully, thanks to some regulations still prevailing in our economic structure that have saved the country from being worst hit. Yet there are some changes. Sometime back, inflation was the prime concern, rising up to a 13-year high of 12.63 per cent. Now, a bit controlled at 10.72 per cent, the damage has already been done to economic growth. From a robust growth rate of 9.1 per cent in 2007, it may fall down to 7 per cent in 2009, projects IMF. Corporate houses have already started to cut down on expenses, projects are being shelved and companies are preferring to adopt wait-and-see policy as a cautionary measure. Retail being an intrinsic part of the economy, is not insulated from this crisis and many retailers are reining in their growth drive, backing out from expansion plans. Time has come to analyse whether such precautions are really a weighed measure to avoid downfall or will they develop into unnecessary panic, further aggravating the crisis.

The worst hit

It is interesting to note that with recession, there’s a prevailing stabilisation of price in the market. The prices of steel and metals have stopped rising. Skyrocketing petrol price has halted at a stable point. It’s a good time for a section of consumers. However, it’s a bad time for auto manufacturers and retailers. Automakers like Tata Motors, Mahindra & Mahindra and Leyland are slowing down their productions and cancelling several dealerships. Mr Narayanan Ramaswamy, Executive Director – Retail, KPMG Advisory Services explains that the middle class will stay away from spending on lifestyle goods like high-end consumer durables and electronics and also on vacations, etc. However, essential commodities will remain unaffected, as much as, super premium luxury items. This is echoed by Mr Shailesh Chaturvedi, CEO, Tommy Hilfiger India. The company has registered a growth rate of 100 per cent. Since the brand is premium and catering to a niche segment of customers, it will remain unaffected by the economic slowdown, he hopes. Interestingly, he observes, retail is witnessing promising growth in B cities, even during this critical period. 

Are Consumers short of money?

With the investment banks collapsing, share markets crashing and the Government of India’s monetary policy becoming more stringent, pushing up the interest rate, there is definitely a liquidity crunch in the market. There’s evident drop in sales in some sectors. But the consumers of India, who were so far enjoying the benefits of high disposable income, cannot become cash-poor overnight. Then what is causing these sluggish sales, resulting in inventory pile-up? To most retailers, consumers are panicked by the economic devastation and this recession is more of sentimental recession. As record shows, points out Mr Sumit Lal, Director of ECCO Shoes, “In October there’s been a record jewellery sale of Rs 11,000 crore. So, where’s the money coming from?”  It is true that panic is, to a certain extent, making the situation graver and the effect worsens. However, at present, consumers may have the money, but the fear of uncertainty and insecurity at the job front is making them tighten their purse strings.

Retailers’ line of action

With this backdrop, retailers should try to make the organisations future-proof, without aiming at short-term profit. Instead of spending in bulk on expansion, the money can be spent on back-end operations or technological upgradation. It is high-time for re-thinking on business strategy. Mr Ramaswamy cautions, “All previous forecasts should be re-looked at in the current situation. All new store roll-outs/expansions should be scrutinised. Suppliers should be managed to avoid inventory pile-up.” Retailers should adopt the persuasive selling technique with greater emphasis on BTL marketing. And economic slowdown too, has a silver lining. Experts see the potentiality of property price dipping with the rise in home loan interest – the correction so badly needed by the retailers. However, Mr Pradeep Jain, Chairman, Parsvnath Developers, begs to differ and retorts that there’s no question of price cut. “Unlike the US, we don’t want the Government to bail us out, but want their support in terms of debt moratorium,” he comments. With the fluctuating interest rate, the future of the real estate sector will be swayed by the fortunes of real-estate based industries like hospitality, retail, logistics, etc. Business tie-ups are always welcome at this period, if it can elicit mutual benefits.

Provide more value  

Consumers in India are intelligent enough and look for value for money, so adding more value to the products will always win buyers. “Some extra bucks will not detain the customers from buying if they get considerable value in exchange,” reflects Mr Gautam Dutta, CEO of PVR Cinemas. When all are voicing their distress against the sluggish market, entertainment keeps on doing business. Mr Dutta sounds positive on this.

Gravity of impact

“The future holds uncertainty. When about 40 per cent of GDP comes from outside India, the country is bound to feel the heat if anything goes wrong in the US,” opines Mr Shailesh Chaturvedi. Exports dipped 15 per cent in October this year, making a dent in employment. However, India’s economic structure is strong enough to withstand such problems and the scenario is not so bleak. But to lure customers and retain sales growth, retailers now have to do the balancing act of cutting down operational costs and offering more brand propositions.