With major Indian cities, including the capital city–Delhi–and the financial capital–Mumbai–being designated coronavirus “red zones” by the Government depending on the level of infection, the impact of COVID 19 on retailers is far from easing out. Though the retail stores were shut in a single, they are definitely not start in one day. Fashion retailers are anticipant a structured roll-out, but see less hope of business opening in the first week of May.
According to Retailer’s Association of India (RAI), Indian retail industry has more than 15 million traditional and modern retailers. Retail employs ~40 to 50 million people directly of which modern trade employs more than 6 million Indians equalling to almost 12 percent of the total retail consumption of the country.
Retail contributes around 40 percent to India’s consumption and ~10 percent to India’s GDP.
The lockdown implemented by the Government to prevent the spread of COVID 19 to prevent the spread of coronavirus in the country has greatly affected retail business. Most stores, except stores selling essential food and grocery, have been shut across the country.
Non-essential goods such as garments, electronics, mobile phones, furniture, hardware, etc., almost all stores are closed.
“We run businesses across the globe. In China alone, we had to shut 7000 stores,” disclosed Gautam. “Fashion has relatively more challenges because the products start to age very quickly. Especially brands around fast-fashion like us are continuously seeing products getting older in stores and warehouses.”
RAI survey highlights that more than 95 percent of non-food retailers have their shops closed in the lockdown and are looking at practically no revenues till the lockdown is in place. In the next 6-months, non-food retailers expect to earn 40 percent as compared to last year’s revenues. Small retailers are expecting to lay-off 30 percent of their manpower going forward, this number falls to 12 percent for medium retailers and 5 percent for large retailers. While, about 70 percent of the retailers expect business recovery to happen in more than 6 months, 20 percent expect it to take more than a year and the remaining 10 percent of medium and large retailers expect to earn any profits till August 20.
While Chaturvedi expressed that in the past one month their business had ‘zero sale’ and ‘zero collection’, and limited cash flow. “Still, we have businesses to run and expenditures to meet. The short-term impact is how to get back after the lockdown is over. while in the long-term the fashion industry will suffer from commoditization,” he said.
About 85 percent of the retail costs are fixed costs, which is putting several financial pressures on retailers. The industry is experiencing severe liquidity challenges, which can lead to large scale unemployment. The cash inflow of the industry has come to a standstill, while the fixed operating costs remain intact.
“As a company we are reviewing each and every element of the cost since fixed cost are very high in retail business. We are reading each and every element to see if there are any bad cost which can be cut. Currently, 60 to 70 percent of the time, the management is focusing on ensuring how to bring least cost in control and make it a variable model,” said Dalpat Jain, CFO, Manyavar.
He suggested that the businesses should focus on safety, liquidity and returns. Firstly, is to ensure the safety of employees and consumers and people. Secondly, to arrive at liquidity the government should support the businesses with some stimulus. In various countries, the governments have supported businesses in some way or the other. And thirdly, to encourage consumer sentiments, there should be a relief on GST. At present, the businesses pay anywhere between 12 to 18 percent depending on the product.
“The government needs to work on some mechanism to allow companies to get some cash flowing because otherwise we are held to a very-very challenging times in business where there is no cash coming in but there is continuous capital outflow,” concluded Gautam.