The Covid-19 pandemic continues to impact most industries at an unprecedented scale, including retail that is fearing mass retrenchment, due to an extended lockdown.
The retail industry, comprising of 15 million retailers, is the second largest employer in India – small and medium-sized firms alone hire 450 million people, and the monthly business is to the tune of USD 70 billion. The business is so severely affected that there could be a 20-25 percent layoff, according to experts.
It also contributes nearly 40 percent of India’s consumption and 10 percent of the GDP, which is why its survival is of utmost importance. However, rents, salaries and huge stocks are the cause of worry for retailers, according to a survey conducted by the Retailers Association of India (RAI).
At this point, most retailers are not looking to make any profits but are looking for ways to survive amidst the crisis, while providing for employees and stakeholders.
The retail landscape
Mom and pop retail stores
Traditional mom and pop retail accounts for the largest share and will continue to do so, though it will suffer bruises to an extent. India has an estimated 17 million independent retailers or as we call kirana stores, and their number is likely to increase to 20 million by 2025, despite the growth of modern, organised retail.
On April 22, Facebook announced a USD 5.7-billion investment in Reliance’s Jio to leverage WhatsApp’s 400 million subscribers to connect small stores and consumers. Facebook’s decision to move ahead with the investment at a time when the country is ravaged by the coronavirus pandemic signals its confidence that Indians will continue to embrace digitization and take to online shopping and payments.
Amazon India already features a ‘Local Shops on Amazon’ to take local shops live. Flipkart is associated with 37,000 kirana shops and is further scaling up “to serve the new set of consumers who are more tech-savvy and want personalized services.
Food and grocery accounts for about USD 550 billion of the USD 825 billion consumer spending on merchandise. This spending is likely to see the least impact, both in terms of volume consumed across different sub-segments and on retail channels selling food and grocery.
Food and grocery
India’s top food and grocery retail chains such as Future Group, More, Reliance Fresh, Spencer’s Retail and Nature’s Basket, have had their highest-ever sales in March. This is largely driven by panic buying amongst people to stock up on staples and food products, especially before the lockdown began.
To ensure the consumers and their staff remain safe, these retailers have adopted stringent sanitisation measures across high-contact points within stores, including cash counters, racks and trolleys. Temperature checks are also carried out at entry and exit points of stores to ensure hygiene standards are maintained, apart from home deliveries being carried out to ensure convenience and easy availability of groceries.
Even e-grocers such as Grofers and BigBasket have reported record sales in March and April, despite suffering labour and supply chain disruptions
Spike in demand of sanitisers and health foods
With Indians focussed on cleaning hands, demand for hand sanitisers went up by a whooping 340% in March.
As big companies failed to meet the unprecedented demand, local brands pitched in to fill the gap. According to research, market share of local players in the hand sanitiser space increased to 61% in March compared to a mere 15% in January and February 2020.
For immunity booster Chyavanprash, demand increased to 81% in March from a mere 2% during the December-February period.
The consumer electronics and durables segment, which stands at USD 50 billion in consumer spending is another segment which will probably see the least impact, except for some summer-specific categories such as air-conditioners which may face loss in sales on extended lockdown.
Consumer electronics is likely to be among the first businesses to see demand returning from September-October 2020 and hence the impact on their retailers will be limited to six months.
Restaurants and online food delivery
While the food and grocery business is generating big business, the Rs 4.5 lakh crore food services sector is suffering a severe downturn.
The restaurants remain shuttered due to lockdown with several accumulating huge losses due to fixed overheads such as rentals and salaries.
Nearly 90 percent of the restaurants in the country operate on long term rental leases. Around 20 percent of the organised restaurants are located in malls, and the remaining on high streets and commercial areas. Due to this reason, restaurants pay a significant 15 to 30 percent of their income towards rentals.
Unnat Varma, Managing Director, Pizza Hut Asia Pacific, Yum Restaurants International, told TBC that the trend of moving away from on premise to off premise and ecommerce has been there for some years, but COVID19 is dramatically accelerating the speed of the shift.
“Ordering food online becomes the preferred option for consumers as call centres struggle to cope with the increased volume of calls. We have been fortunate that creating a frictionless and easy online ordering experience has been a key focus for Pizza Hut for a few years, and we are well placed to give consumers a great online experience,” he said.
Being value conscious
At these times since most consumers are impacted financially, being value-conscious is of utmost importance.
“We want to remain easily affordable by providing great value deals for our customers. In addition, our priority is to ensure the safety of our staff and customers. Besides requiring new equipment like masks and hand sanitizers, we have had to adjust our operations protocols to provide contactless delivery and takeaway services,” said Unnat.
Another issue plaguing the industry, according to NRAI, is the initial job losses of 1.5 million people across the sector that employed about 7.3 million people at the last count.
On this Unnat said, “Although we have had many store closures, we have continued to pay our permanent employees in most markets. We used this time as an opportunity to do training, cross training and redeployment of staff. Besides caring for staff, we have also actively engaged in caring for the community by delivering and donating free food to healthcare workers.”.
Since restaurants across the country remain temporarily closed, online food delivery companies have taken a severe hit. Zomato and Swiggy are trying to deliver to customers through their cloud kitchens, and are barely managing about 10 percent business as compared to the pre-coronavirus period.
Textile and apparel
Textile and apparel, valued at USD 65 billion, is the next big category in consumer spending on merchandise, and it may suffer the most from the coronavirus. Just about every textile and clothing manufacturer is likely to have stocks of raw material and semi-finished or finished goods.
With textile and apparel stores shut, their stocks are going to go to waste as summer goes. After the nationwide lockdown to contain the coronavirus ends, it is quite likely that spending on clothing (and accessories) would not be a priority for most consumers. Clothing and fashion retailers may face tough times well into 2022.
Only 5% of apparel retailers and makers in India will have enough funds to pay June salaries without government support. The Clothing Manufacturers Association of India (CMAI), said only 8% of its members have funds to pay salary next month since 90% of all apparel retail is still at physical stores.
Home furnishings is the core of the IKEA business. In India, IKEA currently has 48 suppliers with about 45,000 direct employees, and about 400,000 people in the extended supply chain.
Speaking on how businesses will function in the Covid-era, Peter Betzel, CEO & CSO, IKEA INDIA, told TBC, “It will not be the same again and it is important for businesses to consider all dimensions when we restart and come back to the new reality. Businesses are eagerly waiting to restart as it is important for economic revival and also to be able to safeguard the livelihood of the many people in India. For us in IKEA, safety and security of our customers and co-workers are of highest priority as we move into another phase of preparing ourselves to reopen some parts of our business units.”
He further reassured, “We will support our co-workers in a meaningful way, secure as many jobs as possible for as long as possible, and ensure their health & safety in our workplaces. We remain open and outward facing, collaborating more, tapping into trends, sharing our journey transparently, co-creating solutions and helping to shape the global narrative and future ‘normal’.”
Shift in consumer behaviour
Consumer behaviour will shift across three horizons, leading from the ‘now’ phase to the ‘beyond’, according to EY. In the “now” phase, consumers are stockpiling essential goods and there is significant surge in e-commerce and digital payments, while kirana stores continue to host smaller crowds, in both urban and rural areas.
In the “next” phase, daily life will resume, but health and economic concerns will reduce consumer confidence. Brand loyalty will diminish as consumers trade down and consume cheaper/private label brands. Focus on health will gain importance. New online shoppers such as elderly and rural consumers will continue to adopt digital. But, for rural consumers survival on essentials will continue.
Online adoption will continue to accelerate ‘beyond’ the crisis.
Resilient strategies that must be adopted by retailers
With revenues taking a hit for most categories and high expenses to deal with, it is important for retailers to focus on optimising cost to help them survive in the medium and long term.
Secondly, agility is very critical given the uncertainty around the crisis. A cross-functional swift response team must be ready to handle any event.
In addition, retailers will need to repurpose their supply chain to meet demand fluctuations within their categories amidst supply constraints. They must develop capability to plan inventory and logistics across stores in a highly dynamic way till business returns to normalcy. Digitization will help in reimagining company operations and meeting consumer demand for rapid fulfilment as the market moves to more omnichannel and delivery-based models.
Lastly, it is important for leadership to connect with employees, especially frontline staff, around their health and financial well-being during this time to generate a sense of trust that the organization cares. Once the business is operational, they need to focus on repurposing staff skills and deployment to meet the demands of the new business reality.
In the same way, retailers must continue their communication with customers through the crisis period.
What will the future look like?
Retail industry is estimated to take 9-12 months to recover amid the pandemic. The demand for non-essential retail is projected to open with 40% of the value noted in pre-Covid times. The cost of business across non-essential sectors is likely to increase by 30-35% post lockdown.
Clothing, dining out and the grocery retail industry will take about a year to recover, said top industry associations.
The short-term impact of the coronavirus pandemic on retailers in the country will be severe, but retail sales recovery period for India is expected to kick-start subject to the lockdown not being extended further, says a report by Capillary Technologies said.
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