It is not just FMCG and auto companies that are feeling the heat from the demand slowdown that has gripped rural India this year. Leading footwear maker Relaxo said efforts to stimulate demand in rural regions are not yielding the kind of returns that the company had hoped for.
“In the whole footwear category, we have seen that the sentiments are not that great. The rural market is definitely not responding. We are seeing that walk-ins of consumers are not the same as it used to be,” said the company management.
India’s rural market has been caught in a prolonged slump for the last one year, having never really fully recovered from the lows induced by the COVID pandemic lockdown in 2020. A variety of factors, including surging inflation, have served to dampen consumer sentiments in the rural market over the last one year.
Companies, particularly those in sectors such as packaged goods and automobiles, have been among the worst hit, and have been forced to depend on urban customers to avert a drastic decline in their revenue.
Things have not been much better for the footwear sector either, according to Relaxo.
“We were expecting that the industry would grow, but in the last 6-7 months there has been no sign of huge uptake in the market because of untimely rains, and inflation pressure in rural India,” said the company management.
A recent study by NielsenIQ put rural demand in Q2 at 200-300 basis points lower than urban demand signalling that the rural markets were still not out of the woods and are reeling under high inflation.
“There was an up and down since COVID, the first wave, second wave, third wave and things have not stabilized. And then the price increase was there in 2020-23 because of war. So, it has been like the last 3-4 years, the industry has been facing a lot of turmoil,” said the company.
“The price increase that you saw in FY23 led to a poor demand in volumes. And then again, in FY24, the volume pickup has not been seen yet,” it added.
The footwear company said that it saw similar trends of getting low orders and payments expand to even distributors and retailers from rural areas.
“...because of inflation, and their discretionary spending going down, they are a little selective in buying,” said the company management.
The company reported a revenue of Rs 715 crore in the September quarter, up by 7% compared to last year. It also reported strong EBITDA at 54% year-on-year growth at Rs 92 crore.
The company had taken price cuts recently to protect its market share, and this had some positive impact, said the company management.
“After the price correction, we have regained our market share. Our volume growth has been more than 20%,” said an official from the company management during the call. He added that Relaxo won’t be taking any further pricing corrections
The company remained cautiously optimistic about a possible recovery in rural markets in the coming markets as the festive season demand is yet to pick up. It also noted that raw material prices remained stable and hoped for uptake in demand.
“It is too early to comment upon it. We are waiting for this season, you know, this is important. November, December, things may improve,” said the company management.