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  RISING INCOMES AND CONSUMER SPENDING IN INDIA; THE IMPACT ON RETAIL
 
 

Transcript from "Value for Money" on the Indian television channel - NDTV Profit (2005)


Ambika Anand (Studio Anchor, NDTV Profit): In 2005 pay packets of Indians increased more than workers in the rest of Asia. Sonia Bhaskar finds out what it means for consumer spending. After all, what are Indians doing with more money in their hands.

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Sonia Bhaskar (Correspondent, NDTV Profit): In the last ten years the amount that you or I have been spending out of our wallets has grown at over 10%. That is faster than the rate of growth of our economy. The reason for this: more money in our pockets, and the willingness to borrow more to fulfil our aspirations.

Indians, young and old, are riding high on desires to acquire all that money can buy. This stems from the fatter paycheques that most Indians are taking home today. Global Human Resource Services firm Hewitt Associates in its preliminary Asia Pacific salary increment survey finds that salaries in India grew faster than 11 other countries in the region.

Says Nischae Suri, Hewitt Associates (India), "Given the current economic context, the way organisations today are able to deliver pay-packages is more employee-friendly. Which means that you give them the money and tell them, well, spend it the way you want, and I think that is the element of flexibility that's being built in. What's really helped is that the income tax laws have provided for that avenue today."

So Indians are on a buying spree. What are they spending on? Quite a few things; from eating out, to electronics, from children's education to domestic help. Experts categorise the spending into regular spends - things that we normally spend on - and emerging spends - things that we are now beginning to put our money into. In the regular spend category, the top categories include food and grocery, eating out, personal care items and consumer durables. As far as the emerging spends are concerned, topping the list for Indian consumers is the payment for household help, and then there's mobile phones and even computers and laptops. In the last one year, emerging spends have grown 20% compared to just 4% for the regular spends.

"I think it's younger people who are spending more on account of relatively high salaries. In TVs, music systems, we're seeing a huge growth this year. TVs, especially the flat TVs, are going to be a big driver in the consumer electronics market in the years to come. People are buying bigger capacity refrigerators. So these are some of the areas where we are seeing a very direct impact of higher salary levels," says Arvind Singhal of KSA-Technopak.

The spending pattern is not just confined to the metro areas - experts believe that it is widespread across cities and towns of India. But yes, it is an urban phenomenon, and rural India is yet to see the surge in income and the desire to spend. As for the future, experts say that the trend is likely to continue. Increasingly, your salaries are going to be linked to performance. So the harder you work, the more you earn, and that will determine how much you can splurge.

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Ambika Anand (Anchor, in the studio): To discuss the increase in consumer spend in India, I am now joined by Mr. Devangshu Dutta, He is the chief executive officer of Third Eyesight, a retail consultancy. Mr. Dutta, thank you so much for joining us on the programme. Let me begin by asking you what are the factors responsible for the spurt in increasing consumer spending in India, and do you see a let up in the years ahead?

Devangshu Dutta (CEO, Third Eyesight): There are two main factors that I see behind the increasing consumer spending. The first one is that there is a real rise in incomes. For the last 10-12-14 years there has been a growth in the economy, there has been a growth in business, there has been a growth in employment and a real increase in salaries. In fact, in the recent years the salary increases in India have topped increments on a percentage to percentage basis when compared to the other Asian countries. The second one, is that there is a real generational change - so if you take the generation that has come into the workforce over the last 3-4 years, this is a generation that I would call a post-colour TV, post-ASIAD generation, which has seen options, always. So there is an option to choose from multiple channels, colour is an option over black and white, there are options while choosing cars - in everything there is an option. And that means that they are also oriented towards spending on something that offers them choice. Today we have more choice available, and that group of consumers, the young consumers who are coming into the workforce are also, therefore, more oriented towards spending more time in areas which give them more choices. Shopping is one of them, and there is an increasing propensity amongst them to spend that money as well, whatever they are earning. As for the trend letting up: I don't see it letting up anytime soon. We do see rises and falls, we do see what we might call booms and busts, but overall it's an upward curve as far as I see it for now.

Ambika Anand: What impact is this increasing consumer spend having on the economy at large?

Devangshu Dutta: The increase in salary gets invested, in a sense, back into the economy, it goes back into business through shopping, and as it comes back into the economy it is an upward spiral. Broadly, that's a beneficial impact.

Ambika Anand: But do you think the mall mania in India is really sustainable?

Devangshu Dutta: The retail sector has been developing organically over a long time. The real boom happened in the last 5 years, let's say, when Delhi's Ansal Plaza and Mumbai's Crossroads took off, everybody else started thinking that there was a boom in the making. When there is a boom in the making, everybody wants to start investing. What has happened as a result is that real estate developers, shopping centre developers, various owners of parcels of real estate have got into the act of building a shopping centre. Whether those shopping centres are sustainable or not is a big question mark in my mind. There are shopping centres which are coming up now which are better planned, which are better integrated with the rest of the environment around them, and they are definitely sustainable over a longer term. There is an estimate in the market that there are likely to be 350-odd shopping centres that are likely to be developed in the country over the next 2-3 years. If I were to guess, a third or maybe even 25% might do very well, a bunch would completely fail, and the rest would get converted into other uses - maybe office blocks.

Ambika Anand: There are also a lot of speciality malls coming in; you have the Gold Souk, you have a Wedding mall. Are they really value-for-money?

Devangshu Dutta: When we look at the malls that are coming up as specialised malls or specialised shopping centres, they are structured around 3 or 4 themes really, at the moment. One is wedding. Now, if you take weddings, you have a number of products which you need to buy for a wedding, you need to buy a number of services, there's lots of gifts - it's a variety of things. So a wedding mall looks like a workable option. Too early to say, they are very new at the moment, but the concept looks workable. Another theme is home. If you take home, construction, design, if you mix all of that together, there's a huge variety of products that you could be putting across to the customer. And that's something again which is very, very workable.

Ambika Anand: Going ahead, one hears about a lot of hypermarkets coming into India, large format stores. Do you think Indian consumers' pockets are deep enough to make them sustainable or do you see a shakeout?

Devangshu Dutta: The hypermarket is a "value department store", if I can call it that - I'm stretching the definition a little bit. It's run by one retailer, it's owned by one retailer. You might have concessions of different brands in the hypermarket, but it's one operation. Which is different from a mall or a shopping centre, because in a shopping centre you have different tenants, each of which is a discrete operation by itself. A hypermarket, therefore, has one advantage over a shopping centre, which is that there is one company driving the whole strategy.

Ambika Anand: What are the challenges that you see, which could spoil the party for the malls and the hypermarkets?

Devangshu Dutta: Differentiation is a huge, huge challenge. Where do we discover new brands? How do we differentiate one shopping centre from the next one? The second is oversupply. The number of malls that are coming up concentrated in a very, very small geographical expanse - where will they get the customers from? When you look at it from the urban planning side, most shopping centres that are coming up in India are not at all integrated with the towns and cities that they are in. One clear example is traffic. They are planned for an average flow of traffic, so whenever you hit a weekend, you will have local residents almost fearing to get out of their house because there is this mad rush on the road - not just side roads but arterial roads getting blocked because of the traffic getting into the mall. There is no holding area, there is no traffic planning into the mall. When you take the product mix, it is not relevant to the local catchment, typically, because the shopping centre operator wants to fill the mall as quickly as possible, so they've gone and got the tenants out as quickly as possible. And that may be completely the wrong mix. And that has an impact on the success or failure of the shopping centre and the tenants. These are some of the major issues - there are others, but these are really big concerns.

Ambika Anand: Mr Dutta, thank you so much for joining us on this programme.

 
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