By Eric Bellman
NEW DELHI -- India's sputtering economy faces a critical test
this week when corporate executives and economists see whether its
annual festival of lights blockbuster shopping spree reignites
spending.
The shopping season, leading up to the Hindu festival of Diwali,
kicked off this weekend with a tsunami of ads and offers from
battling retail giants Amazon.com Inc. and Walmart Inc.'s Flipkart
among others.
The weeks around the celebration -- when gifts are frequently
exchanged, and it is considered auspicious to buy -- typically
account for up to a third of retailers' annual sales. So far this
year, flagging Indian consumer spending has been a major drag on
the overall economy.
Sales this week will be an important indicator of the depth of
India's slowdown, as well as whether the Western brands that have
bet billions on the emerging market will ever get a return on their
investments.
Last year, Bappi Raju, 57, used the sales to pick up a
refrigerator and an air purifier, but this year his family is
holding back on big acquisitions. His Diwali gifts to family,
friends and work colleagues have been downgraded to nuts from
silver items last year.
"We will spend, but not splurge," he said. "We want to keep some
money handy in case there is some sort of a financial crisis-like
situation."
Forrester predicts the growth rate from online sales this year
will be more than 30%, but that would be a sharp decline from the
more than 90% growth last year and the slowest expansion in at
least five years.
"The first half was slow in terms of sales so this is the window
they have" to make up for lost ground, said Satish Meena, a New
Delhi-based analyst with Forrester. "It's crucial for
companies."
The ads in websites, billboards and front pages of newspapers
shouted about the thousands of discounts and launches Sunday.
Amazon's promotions, which included handing out coupons at a New
Delhi railway station, focused on the deals. Flipkart's ads
features the biggest stars of Bollywood and cricket.
"This is really the harvest time for the whole country," in
terms of retail sales, said Rajneesh Kumar, chief corporate affairs
officer at Flipkart India. "It becomes the benchmark for the coming
year."
India's economy has slowed to a six-year low and has given up
its spot as the world's fastest-growing large economy this year as
a lack of credit and confidence has dampened spending by the
government, companies and, especially, consumers.
The nation's massive consumer class has been the last domino to
fall. Shoppers have cut back on purchases of everything from cars
and motorcycles to toothpaste and cookies in recent months. They
say they are worried about the economy, jobs and trade
tensions.
In response, the government unveiled a series of steps in recent
weeks to try to quickly spur borrowing and investment and
resuscitate spending. It has slashed interest rates, merged
state-owned banks, reduced restrictions on foreign investments and
slashed corporate tax rates.
But it is not clear the moves will do much to make India's
middle class less restrained this season, economists warn.
"I'm not buying the view that this is just a cyclical downturn,"
said Vivek Dehejia, an expert on the Indian economy at Carleton
University in Ottawa. "This reflects the whole unfinished economic
reform agenda."
Global brands have invested billions to be ready to reap the
rewards as India's potentially massive middle class starts spending
more. Many missed the boat in China and don't want to make the same
mistake in the other billion-person economy. Amazon has pledged to
invest at least $5 billion in India building a national network of
warehouses. Walmart made its biggest international acquisition ever
when it took over Flipkart last year for around $16 billion.
Big names like Starbucks, McDonald's and IKEA as well as tech
leaders like Uber, Google and Netflix have all been ramping up
commitment to India.
The spending during the competing five-day sales -- which
started Sunday and are equivalent to an extended Cyber Monday which
launches the holiday purchasing in the U.S. -- will indicate
whether people have been saving to splurge.
To generate interest, Amazon has added 150,000 more sellers and
will have a record amount of deals and financing options. To back
them up, last month it opened a nine-acre campus in Hyderabad, its
largest office in the world.
Flipkart launched a local language version of its app and hired
50,000 more people to help with the surge in seasonal orders. It
may even benefit from consumer gloom, said its corporate affairs
officer, Mr. Kumar.
"When there are noises around consumer demand then value players
like us, we get more traction," he said. "In these times, people
want more value for money."
The best-selling product during the sales, by far, is
cellphones. So companies time new product launches as well as big
discounts to coincide with the event. Samsung said that while its
smartphone sales have expanded more than 10% in India this year,
the lower-end feature phone sales have flattened.
For Amazon's online sale it launched competitively priced new
smartphones over the weekend with discounts. To help more buyers
upgrade, this week it introduced fast financing that will give
phone loans to Samsung smartphone buyers even if they have no
credit history.
"Is there a slowdown? I don't know," said Mohandeep Singh a
senior vice president of B2C sales at Samsung in India. "Will this
increase the demand for smartphones? I believe so."
--Vibhuti Agarwal contributed to this article.
Write to Eric Bellman at eric.bellman@wsj.com
(END) Dow Jones Newswires
September 29, 2019 14:59 ET (18:59 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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