from clothing to automobiles, is fading as consumer sentiment weakens.

A survey by the Retailers Association of India (RAI) of the top 100 retailers revealed that the previous fiscal year (FY24) saw a significant decline in year-on-year retail sales growth across segments. The slower growth rate of 4-7 percent observed in FY24 has continued into the current fiscal year (FY25), with April showing only a 4 percent increase.

Global giants like Zara and Starbucks reported their slowest ever sales growth in India during FY24 (excluding the pandemic year). Vedant Fashions, the owner of Manyavar, a leading men's ethnicwear brand, has experienced five consecutive quarters of weak wedding season sales for the first time.

Reasons for the Slowdown

RAI's CEO, Kumar Rajagopalan, attributes the slowdown to several factors. He highlights the increased use of equated monthly instalments (EMIs) for big-ticket items like electronics and cars by nearly 70 percent of consumers, particularly the middle class, compared to 40 percent pre-pandemic. This has impacted disposable income and discretionary spending. The initial post-pandemic surge in spending, driven by pent-up demand, has subsided. Consumers upgraded wardrobes and frequented restaurants as restrictions eased, leading to high growth rates of 13-24 percent in FY23. However, this momentum is not sustainable. Meanwhile, direct-to-consumer (D2C) brands on social media platforms are capturing market share from established players, particularly in the fashion segment.

Devarajan Iyer, CEO of Lifestyle International, India's largest departmental store chain, attributes the slowdown to cautious consumer spending, particularly in Tier II cities, where disposable income is a bigger concern. He anticipates this trend to persist for at least the next few quarters.

Experts predict a potential recovery in the next two to three quarters. Dalip Sehgal, CEO of Nexus Select, notes that while fashion brands struggle, other categories like electronics and beauty are showing healthy growth. Established brands need to reinvent themselves to compete with D2C players. He expects a better second half of the year.

Industry experts remain optimistic, anticipating a gradual improvement in consumer spending as macroeconomic factors improve and retail inflation moderates. Saurabh Kalra, MD of Westlife Foodworld, believes that out-of-home consumption trends are stabilizing sequentially, but remain lower year-on-year. He anticipates improvement in discretionary spending as economic conditions improve and inflation moderates.

The Indian retail sector finds itself at a crossroads. While the initial post-pandemic euphoria has subsided, there are signs of a potential rebound. The onus lies on retailers to adapt to changing consumer preferences, embrace innovation, and navigate the growing D2C landscape to stay relevant in the evolving retail ecosystem.