Demand slows down in small towns, retailers scale down expansion

The overall inflation has subdued the demand for non-essential items that include lifestyle products, shoes and apparels. Some retailers have now scaled down store opening guidance in tier-2 and tier-3 markets. The sales growth for non-essential items in cities have also come down.

The Retailers Association of India indicated the slowest sales expansion in March and April, compared to the last 14 months. The retail sales of lifestyle products, apparel and discretionary products have moderated to 6% for the second consecutive month in April. The sales grew in strong double digits over the past year.

However, the supply in value retail in tier-2 and tier-3 cities is more than the pre-covid times. In the last three years, these markets saw about 50% to 60% additional stores being built. However, the demand did not pickup as expected.

As per Economic Times, unlike the earlier slowdown in the value segment, Aditya Birla Fashion and Retail (ABFRL) saw growth tapering off across segments in the January-March quarter. Pantaloons expanded its stores by 40-50 stores as compared to 60-70 stores that were opened last year. ABFRL, however, is hoping for sentiment to improve by the festive period this year.

Most clothing stores also increased the prices over the past year as rates of cotton went up. However, retailers are expecting a reversal in the trend soon.