To

Mr. S. Chatterjee and Ms. Preety Wadhwa

Editor, BVIMR Management Edge
Bharati Vidyapeeth’s Institute of Management & Research
A-4 Paschim Vihar, New Delhi-110063
e-mail : pwadhwa77@gmail.com , bvimrnd@vsnl.com

Title:
Dynamics of Consumerism and Impact on the Retail Sector in India

Authors’ names and designations:

Dr S.R. Subba Rao, Visiting Professor
and
Ms P. Jayasree, Lecturer

Official Address:
Department of Management Studies,
Bhavan’s Vivekananda College,
Sainikpuri,
Secunderabad
500 094

Contact Address:
As of Official address

Mobile Number:
9908075758

Email: drsrsrao@yahoo.co.in
panuganti.jaya@gmail.com

Declaration
We, Dr S.R. Subba Rao and Ms P. Jayasree, declare that the paper titled
“Dynamics of Consumerism and Impact on the Retail Sector in India” has been
written by us and has not been published or submitted for publication anywhere
else. - Dr S.R.Subba Rao (on sabbatical at Raleigh, NC, USA)
P. Jayasree
 Dynamics of Consumerism and Impact on the Retail Sector in India

Abstract
Consumerism has been undergoing rapid changes in India. The process of consumerism mainly

involves the demand-side aspects, cosumer behaviour and the supply-side factors. The demand-

side covers the growth of the economy, income distribution pattern, consumption expenditure, and

the variables that influence the demand for goods and services. Consumer behaviour involves the

interaction of stimuli (of markets and environment), consumer characteristics, decision process of

buyer and consumer responses in terms of choices of product, brand and dealer, purchase timing

and purchase amount. The supply-side envelopes the practices followed by the producers, sellers

and allied agencies, besides environmental issues. Governmental intervention is warranted to

ensure that these factors contribute towards maximising social welfare. These factors are

interrelated. Demand-side changes could trigger supply-side responses. Consumer behaviour could

influence both demand-side and supply-side factors. Supply-side innovations, strategies and

actions could generate changes on the demand-side and in consumer behaviour. The retail sector

in India is in the modernisation phase in terms of products, formats and strategies. It is seen that

consumerism and retail sector are interrelated. The growth of consumerism is providing

opportunities for the retail sector to grow rapidly. The developments in retail sector are triggering

changes in consumerism. The paper deals with the dynamics of consumerism in terms of the

impact on the Indian retail sector in detail. It is found that the growing incomes of people and

changing fashion trends are making consumerism getting increasingly aligned towards shopping

in a relaxed environment which in turn are contributing to an accelerated growth of the retail

business and the organised retail sector in India.

1 Introduction

The world over consumerism has been changing significantly and due to globalisation the impact

is being felt in India as well. It is dynamic in nature and its process has been affecting the growth
of retail sector in terms of size, products, formats and strategies. In fact, consumerism and retail

sector are interrelated that one affects the other. The growth of consumerism is providing

opportunities for the retail sector to grow rapidly. The developments in retail sector are triggering

changes in consumerism. These aspects are examined in this paper with reference to India. The

process of consumerism is dealt with in detail in Section 2. The growth of Indian retail sector has

been discussed in Section 3. The linkages between consumerism and retail sector have been

covered intermittently. Concluding remarks are given in the last section.

2 Consumerism

Consumerism basically refers to the acquisition of goods and services by individuals for personal

use. It is sometimes looked at along with social, environmental and political issues. The process of

consumerism involves primarily three factors. One is the demand-side aspects, the second relates

to cosumer behaviour and the third concerns supply-side phenomena. On the demand-side, the

nature and extent of consumerism depends upon the growth of the economy, distribution of

income among the people and consumption pattern backed up by the demand for goods and

services. The consumers’ behavioural characteristics include their attitude towards lifestyle and

social status, and consumption habits. The supply-side aspects cover the practices adopted by the

producers, sellers and allied players such as intermediaries and advertisers and their impact on the

society and environment. The government intervenes when social welfare and environmental

effects are involved. These three factors are also interrelated in the sense that demand-side factors

will set in motion supply-side responses. Changing trends in consumer behaviour will influence

both demand-side and supply-side factors. For instance increase in the demand for a good triggers

production activity to supply the relaltive good. Changes in the lifestyle of people and the resultant

demand for goods will make the producers and suppliers to adopt themselves accordingly on

commercial considerations. These factors are discussed below.

2.1 Demand-side Factors

In the case of customers, the demand for goods and services depends upon multiple variables viz.,

prices and quality of goods and services and those of substitutes and complements, incomes,

tastes, preferences and expectations. The incomes of people depend upon the growth of an

economy, measured generally by the growth of gross domestic product. The rate of economic

growth is determined by the availability and use of economic resources, techniques of production

and government policies. The welfare of people or general standard of living depends upon

income distribution, growth of population and per capita income.

Table 1 shows that the Gross Domestic Product (GDP) of India at market prices (base 2004-05)
was Rs. 47,671 billion in 2009-10, recording a growth of 6.8% over previous year, which was
higher than the growth of 5.1% for the year earlier. Population, at 1.17 billion as at March-end
2010 had a growth of 1.39% in the year, which was marginally lower than the growth of 1.41% in
the earlier year. Correspondingly, the per capita GDP has risen to Rs. 40,745 from 38,695, and the
growth rates were the same as those for GDP growth. At constant (2004-05) prices, the Private
Final Consumption Expenditure (PFCE) was Rs. 27,643 billion in 2009-10 with a growth of 4.1%
during the year which was less than the growth of 6.8% in the earlier year. The PFCE as share of
GDP was lower at 58.0% in 2009-10 as against 59.5% in the previous year. The per capita PFCE
was Rs. 23,626 in 2009-10 showing a growth of 2.7% during the year and it was much lower than
the growth of 5.4% in the earlier year. The higher growth of the economy and the lower growth of
population have led to a rise in per capita income in 2009-10. On the other hand the consumption
expenditure had a lower growth resulting in a lower PFCE, and the share of PFCE in GDP has also
come down.
Table 1: Gross domestic product and Consumption Expenditure, 2007-10
(at 2004-05 prices) (Rs. billion)
Item 2007-08 2008-09(QE) 2009-10 (AE)
Gross domestic product (GDP) at 42,479 44,654 47,671
market prices (Rs. billion) (5.1) (6.8)
Population (million) 1,138 1,154 1,170
(1.41) (1.39)
Per capita GDP (Rs.) 37,328 38,695 40,745
(5.1) (6.8)
Private Final Consumption 24,856 26,555 27,643
Expenditure (PFCE) (Rs. (6.8) (4.1)
billion)
PFCE as share of GDP (%) 58.5 59.5 58.0
Per capita PFCE (Rs.) 21,841 23,012 23,626
(5.4) (2.7)

Note: Figures in brackets show the percentage change over previous year.
QE: Quick Estimate; AE: Advance Estimate
Source: Compiled from Press Information Bureau, 2010.
 Consumption also depends upon the distribution of people according to income classes. Data in
Table 2 show that the total number of households increased from 180.7 million to 199.2 million
during 2000-01 to 2006-07, with a growth of 10.2%. The Rich are at the top with Rs.2.15 lakh or
more of annual income. The ‘Consumer class’ follows with annual income in the range Rs.45,000
to less than Rs.2.15 lakh. The Climbers, who come next have income of Rs.22,000 to less than
45,000. The come the Aspirants having income of Rs.16,000 to less than Rs.22,000. The last are
the Destitutes getting annual income of less than Rs.16,000. From data in Table 2 it is seen that in
the period 2000-01 to 2006-07, the Rich households increased significantly from 2 million to 6.2
million recording a growth of 210%, followed by Consuming class rising much from 54.6 million
to 90.9 million, showing a growth of 66.5%. For Climbers, whose households formed the highest
number of 71.6 million in 2000-01 showed a moderate rise to 74.1 million in 2006-07, with a
growth of 3.5%. The other consumer classes which are lower in the rung i.e. Aspirants and
Destitutes, had a high decline in terms of number of households indicating a higher standard of
living for them. This reveals that across the income groups the affordabilily of the households in
terms of consumption expenditure has increased when we go upwards. Particularly, the top three
classes (Rich, Consuming class and Climbers) facilitate a rapid growth of the organised retail
market in India. Table 2: Households as per Annual Income
Consumer class Number of Households (in million)
(Annual income in Rs. ’000) 2000-01 2006-07 Growth (%)
Rich (215 and more) 2.0 6.2 210.0
Consuming class (45 - < 215) 54.6 90.9 66.5
Climbers (22 - < 45) 71.6 74.1 3.5
Aspirants (16 - < 22) 28.1 15.3 -45.6
Destitutes (below 16) 23.4 12.8 -45.3
Total 180.7 199.2 10.2
Source: Compiled from data in www.ncaer.org

By 2025 income levels of India are envisaged to rise three-fold and the current position of the

twelfth-largest consumer market of India is expected to move up significantly to fifth-largest in

the world. Over 291 million people are likely to shift from desperate poverty to a sustainable life,

middle class people are expected to increase from the present level of 50 million to 583 million

and over 23 million will be the country's richest people. Geographically India’s growth of income

and consumption differ. The share of urban areas in the total consumer market is projected to

increase from the present level of 42% to 62% by 2025. The annual real rural income per

household is also forecast to go up from 2.8% in the last two decades to 3.6 % in the next two
(www.mckinsey.com). Middle income people, low prices, and attraction towards brands will be

the key factors for business growth.

The world data as in 2005 show that the richest 10% of people consumed 59.0% of total private

consumption, the richer 10% consumed 17.6%, the middle 60% consumed 21.9% and the poorer

10% consumed 1.0%and the poorest 10% consumed 0.5% (World Bank Development Indicators,

2008). Thus the inequalities between the richest and the poorest are very wide. The organized

retail sector will obviously gain by focusing on the higher income people and the middle class.

The factors other than the incomes and size of households that influence consumption expenditure

are the number of working women, payment terms (cash or credit card), loan facilities and level of

education which are moving on the positive side as well for the growth of organised retailing.

2.2 Consumer Behaviour

The concept of consumer behaviour has been explained well by the black box model which shows

the interaction of stimuli, consumer characteristics, decision process and consumer responses. It

focuses on the relation between the stimuli and the response of the consumer. Companies instil

marketing stimuli and social factors generate environmental stimulus. The marketing stimuli are

product, price, place and promotion. The environmental stimuli are economic, technological,

political, cultural, demographic and natural. The consumer characteristics include attitude,

motivation, perceptions, personality, lifestyle and knowledge. The decision process of the buyer

includes problem recognition, information search, alternative evaluation, purchase decision and

post-purchase behaviour. These influence the response of the buyer in terms of choices of product,

brand and dealer, purchase timing and purchase amount. The buyer’s response is considered as the

result of a conscious and rational decision process which may not hold in reality always

(Sandhusen, 2000). While price was covered in the demand-side factors, the product, place and

promotion aspects are discussed below in the supply-side factors. Similarly, among the
environmental stimuli economic, technological and political aspects were referred in the demand-

side factors.

In essence, the consumer behaviour is more specifically dependent upon the cultural, demographic

and natural stimuli, the characteristics of the buyer and the decision process. The cultural aspects

do figure in as per social customs (e.g. observance of festivals and conducting of functions) which

involve expenditure on various products irrespective of economic status, and social changes by

moving from lower to higher income groups.

The higher income group's lifestyles may get influenced by the endorsement of products by

celebrities and buying those products may give a vicarious feeling to them of equation with those

celebrities in the society. The lower income classes try to emulate the purchase tendencies of the

people in the immediately above income class people to get the experience of belonging to that

higher class and social status, which is referred to as the demonstration effect.

The demographics that influence consumer behaviour include variables such as age, education

level and occupation. Family influences also play a role, such as value systems (e.g. maintenance

of a particular standard of living irrespective of affordability), size of household, needs and desires

of family members, special attention paid to children (e.g. buying goods as per their demands

irrespective of utility), among others.

Data in Table 3 show the age distribution of Indian population as at March-end 2001 and 2010. In

this period those aged 20-24 years were projected to grow by 16.9% indicating a significant

increase in the demand for fashion and entertainment-oriented goods. The people aged 45 to less

than 60 years are expected to grow by 14.7% with the demand for clothing, household goods and

durable items may be expected to rise much. People aged 60 years and above are forecast to rise

by 14.3% implying an increase in the demand for leisure-prone products significantly. Growth is

notable at 8.3% for those in the age group of 35-44 years and so the demand for household

appliances and semi-luxury products could go up reasonably. Persons aged 25-34 years are
projected to increase by 5.8% and the demand for furniture, furnishings, electronic products and

others of interest could go up.

Table 3: Population of India: Age Groups

Age Group Population as at March-end (%) Growth (%)
2001 2010
Below 20 45.0 38.9 -13.6
20-24 8.9 10.4 16.9
25-34 15.5 16.4 5.8
35-44 12.0 13.0 8.3
45 - below 60 11.6 13.3 14.7
60 and above 7.0 8.0 14.3
Total 100.0 100.0
Source: Compiled from data in http://www.reis.com

2.3 Supply-side Factors

Consumerism is a movement and includes policies seeking protection of and information for

consumers through practices such as honest packaging and advertising, guarantees for products,

and safety standards. Thus it aims at regulating the products, services, operations and standards of

producers, sellers and advertisers to safeguard the interests of buyers (www.consumerism_

answers.com).

Nature and quantity of goods and services produced will involve use of resources (i.e. factors of

production) which will have alternative uses. The producers have a moral responsibility for using

the resources productively and for social good. Such a use should not be detrimental to the

interests of consumers and the society at large, with no wastages. Ideally, production activity

should meet the needs of majority of the people in the country, though in a market economy this is

difficult to be satisfied due to commercial considerations of producers. Generally the buyers and

sellers interact in transactions. There are also online trading and mail orders where the buyers and

sellers do not see each other giving scope for exploitation and manipulation of consumers by the

producers and sellers.

The nature of production and distribution methods used (e.g. labour-intensive vs capital-intensive)

will have an impact on productivity as also the environment through pollution and waste materials.
The resources which may be needed for mass production of goods and services for the lower strata

of the society may get diverted for the use of the richer people of the country (e.g. use of steel to

produce utensils for mass consumption vs for production of parts of luxury cars). If production

methods and technologies used result in polluting the environment, health hazards and social ills

occur affecting the poor more adversely than the rich as the latter can protect themselves from the

impact while the former may get exposed to the hazards.

Advertisements may influence people in making purchase decisions and the claims or promises of

manufacturers or sellers of products may be misleading or true only under special circumstances

or conditions. They may also blur the distinction between necessities and luxuries. Some luxurious

or costly products (e.g. colour television, DVD, music system, cell phone) are projected as

necessities by producers and marketers through persistent promotion and advertisements.

Though it is the responsibility of the government to regulate and monetor the use of good practices

by producers, sellers and other related agencies such as advertisers to protect the interests of

consumers and the environment, the implementation process is beset with issues of availability of

adequate funds, sincerity and honesty of the supervisory authority and operational problems.

Ethics, corporate social responsibility and market forces such as competition may serve the

purpose to a great extent. The consumer movement, as per Asher (1998), should ensure enhancing

competitiveness instead of striving for government intervention as competition increases self-

regulation through quality standards and service, codes of conduct and consumer charters. He

stressed that the the consumer movement should ultimately achieve and maximize welfare of

consumers from the marketplace.

Besides being accountable for ensuring quality of products, the manufacturers and sellers should

control information about customers acquired by them in the process of their activities. Sellers

collect confidential information from customers relating to personal, financial and family

(including children) and store in computers. Privacy has to be maintained regarding the same.
Financial data of customers can be misused to decipher bank account or credit card details and

frauds may be committed through shopping or withdrawing money from bank accounts. This is

facilitated by recourse to internet. The data may be sold for a price to companies or marketing and

other agencies who may use it for business purposes which will be annoying the persons being

contacted by these companies or agencies. There are customer grievance cells in some companies

that deal with complaints but the overall effectiveness of such machinery is vital.

3 Indian Retail Sector

The retail sector in India has undergone rapid changes since its evolution in unorganised form.

The current scenario has many retail formats ranging from small corner stores serving the

neighbourhood to huge malls providing to customers the shopping experiences of international

standards.

Total retail sales have increased from Rs. 10,591 billion in 2003-04 to Rs. 14,574 billion in 2006-
07 recording a compounded annual growth rate (CAGR) of 11.2%. Out of this, the organised retail
sales have gone up from Rs. 350 billion to Rs. 598 billion showing a CAGR of 19.5% and the
share of this segment in the total retail sales has gone up from 3.3% to 4.1% in the same period
(Table 4).
This reveals the continued growth of the organised retail sector at a higher pace compared to that
of the total retail sector.
Table 4: Segment-wise Sales of Indian Retail Sector, 2003-07 (Rs. billion)
Segment 2003-04 2004-05 2005-06 2006-07 CAGR
2004-07
(%)
Indian Retail*
1. Food & Grocery 7,028 7,064 7,418 8,680 7.3
(66.4) (62.5) (61.7) (59.6)
2. Beverages 212 309 373 518 34.7
(2.0) (2.7) (3.1) (3.6)
3. Clothing & Footwear 777 993 1,036 1,356 20.4
(7.3) (8.8) (8.6) (9.3)
4. Furniture, furnishing, 512 656 746 986 24.4
appliances and services (4.8) (5.8) (6.2) (6.8)
5. Non-institutional health care 950 972 1,022 1,159 6.9
(9.0) (8.6) (8.5) (8.0)
6. Sports goods, entertainment, 212 272 308 395 23.0
equipment and books (2.0) (2.4) (2.6) (2.7)
7. Personal care 371 433 465 617 18.5
(3.5) (3.8) (3.9) (4.2)
8. Jewellery, watches etc. 530 610 655 863 17.7
(5.0) (5.4) (5.4) (5.9)
Total Retail 10,591 11,308 12,023 14,574 11.2
Organised Retail**
1. Food & Grocery 39 44 50 61 16.5
(0.5) (0.6) (0.6) (0.7)
2. Beverages 11 12 13 16 14.7
(5.0) (3.8) (3.6) (3.1)
3. Clothing & Footwear 168 189 212 251 14.3
(21.6) (19.0) (20.4) (18.5)
4. Furniture, furnishing, 67 75 85 101 14.8
appliances and services (13.0) (11.4) (11.3) (10.2)
5. Non-institutional health care 14 16 19 24 20.0
(1.5) (1.7) (1.9) (2.1)
6. Sports goods, entertainment, 25 33 44 63 37.0
equipment and books (11.6) (12.1) (14.4) (16.0)
7. Personal care 11 15 22 33 46.9
(2.8) (3.5) (4.7) (5.4)
8. Jewellery, watches etc. 18 24 33 49 40.5
(3.3) (4.0) (5.1) (5.6)
Total organised Retail 350 408 479 598 19.5
(3.3) (3.6) (4.0) (4.1)
** Figures in brackets relate to per cent share of organised retail in total retail.
Source: Compiled from data in (1) www.mospi.gov.in, Central Statistical Organisation, National
Sample Survey Organisation, Government of India, and (2) www.technopak.com

In the third quarter of 2010 the total retail sales are estimated at Rs. 16.3 trillion (US$353 billion)

and are projected to reach Rs. 25 trillion (US$543.2 billion) by 2014. The driving forces of growth
are considered as robust economic growth, increase in population, and rising incomes of people

(which were discussed in Section 2), and increase in the infrastructure for the organised retail

sector. (Business Monitor International, 2010)

The organised retail sector has been growing in India with domestic and foreign players in the

field. The major domestic retailers include Pantaloons, Shoppers’ Stop, Reliance Retail, More,

Foodworld and others with heavy investments in infrastructure. They operate through different

formats such as supermarkets, department stores, hypermarkets and malls, selling various

categories of products.

As per Indian government’s policy, Foreign Direct Investment (FDI) is allowed fully under the

automatic route in cash-and-carry retailing in which goods are sold to retailers at wholesale prices,

and up to 51% for single brand retailing. For instance, AG Metro has stores with cash-and-carry

business. Wal-Mart has entered into a joint venture arrangement with Bharti group for retail sales

with back-end operations of the former. Some foreign chains have franchise agreements in India

such as McDonald’s and Marks & Spencer. Their impact on the traditional retailers is debated

intensely at the government and political level with divided opinions. However, the big retailers

source their supplies from the manufacturers or distributors and some of them (e.g. Reliance

Fresh, ITC e-choupal) claim to get their food products directly from the farmers or food

processors reducing the number of intermediaries or eliminating them in the process.

While examining the trends in the segments of products sold in the retial stores, one may group

the same into basic items and lifestyle products. The former include grocery, clothing, footwear,

accessories, home needs, personal care and consumer durables. The latter comprise products

which are normally in the reach of high income people such as car, computer/laptop, high-end

furniture etc. For some items such as mobile phones the line of demarcation is thin, though they

include a range of products starting from low-end to high-priced items.

Data on retail sales, segment-wise, are given in Table 4. In the total retail sales, the share of food

& grocery segment has declined significantly from 66.4% to 59.6% during 2003-04 to 2006.07.

As this covers necessaries, this trend is in line with the Engel’s law which states that the

proportion of income spent on food decreases as income increases, other factors remaining

constant. The share of clothing & footwear segment has increased notably from 7.3% to 9.3% in

the above period. The rise could be due to greater use of clothing & footwear including lifestyle

products. Next in share comes the segment of non-insitutional health care which has fallen

marginally from 9% to 8% in this period. This may include basic products to some extent. The

share of furniture, furnishing, appliances and services segment has gone up notably from 4.8% to

6.8% in the years under review, reflecting perhaps the use of lifestyle items. The segment

jewellery, watches etc., which comes under lifestyle products, has shown an increasing share from

5.0% to 5.9% in these years. The share of personal care segment has risen from 3.5% to 4.2% in

the years referred indicating better lifestyle. Beverages segment has an increasing share from

2.0% to 3.6% in the years referred indicating higer demand towards the relative products. Sports

goods, entertainment, equipment and books segment has a growing share from 2.0% to 2.7% in

these years which may include lifestyle items.

During the period 2003-07 (Table 4) the share of the organised retail sector in the total retail sales

was significant but declined in the case of clothing & footwear (from 21.6% to 18.5%), furniture,

furnishing, appliances and services (from 13.0% to 10.2%), but showed an increase in the case of

sports goods, entertainment, equipment and books (from 11.6% to 16.0%). The share was on the

lower side but has gone up in respect of jewellery, watches etc. (from 3.3% to 5.6%), personal

care (from 2.8% to 5.4%) and non-institutional health care (from 1.5% to 2.1%). The share was

low and has fallen for beverages (from 5.0% to 3.1%). The share was insignificant for food &

grocery (0.5% to 0.7%).

The average Indian has spent on 8 categories of products in 1991 which increased to 17 in 2007

including mobile phones, gifts and durables items (www.icmrindia.org). As disposable income

rises, people spend more on branded goods, switch to processed foods, and the amount spent on

food, beverages, and transport and communication goes up (though the share of the amount spent

on basic necessities may fall as mentioned earlier). Middle income people may lean partly towards

lifestyle products for better social status. The rich class prefer luxury goods and brands. The super

rich class lean towards ultra luxury goods. Those aged 20-35 years are likely to spend more on

trendy items be it clothes, footwear and electronic products, while the higher aged people may be

more choosy about the same. Retail chains provide opportunities to customers to examine the

products before taking purchase decisions, spend time leisurely in an attractive and comfortable

ambience and shopping environment.

4 Conclusion

In India, incomes and fashion trends are growing. The distinction between luxury goods and

necessities is getting reduced. Leisure time is spent on entertainment. Expenses on personal care

and home decor are on the rise. Advertisements in media have been used extensively to woo

customers towards various products. Availability of imported brands has been increasingly

becoming liberal. Shopping with family and friends has become a source of spending leisure time.

Middle income people form a vital segment for business growth of retail chains due to the

availability of products at affordable prices. With all these, consumerism has been growing,

resulting in a rapid growth of retail business the organised retail sector.

References

Asher, Allan. (1998). Going Global: A New Paradigm for Consumer Protection. The Journal of
Consumer Affairs, Winter.

Business Monitor International (2010). Retail Report, Third Quarter.

Press Information Bureau (2010), Government of India, Press note, February 8.

Sandhusen, Richard L. (2000). Marketing, Third edition, Barrons Edu, pp. 218-219.

World Bank (2008). Devevelopment Indicators.

www.consumerism_answers.com

www.icmrindia.org/casestudies/catalogue/Business%20Reports/BREP047.htm

www.mckinsey.com/mgi/publications/india_consumer_market/executive_summary.asp

www.mospi.gov.in, Central Statistical Organisation, National Sample Survey Organisation,

Government of India,

www.ncaer.org

www.reis.com

www.technopak.com