India went under lockdown on March 23, 2020, plunging its economy into darkness, the economic outlook very bleak owing to the COVID-19 virus. So far, over the last 3 months, the country has witnessed four phases of lockdown and a less restricted phase termed as ‘Unlock 1.0’ which is currently underway and is expected to be functioning till June 30.
These 10 weeks have been nothing short of devastating for the retail and shopping centre industry in the country, which has registered losses, forced shutdowns and layoffs. With shopping malls, retail stores, factories and other small scale business ventures remaining closed, economic activity coming to a grinding halt, and revenues falling drastically, it has been a virtual job bloodbath.
Millions of migrants (skilled and unskilled labour, associates and staffworking in retail stores etc.) have left urban centres – including Delhi and Mumbai – and heading back to their native places since they were no longer employed.
Job cuts have been swift and brutal. Standalone stores have reduced the number of retail staff , delivery executives have been furloughed, and a large chunk of workers in the supply chain industry and at the backend level have been put on leave without pay. Salons and spas, which are by their very nature, contact businesses, have also witnessed ruthless manpower slashing.
The worst hit perhaps has been the F&B industry which has cut many jobs and whose workers don’t hope to get their jobs back because even with the lockdown over, restaurants will only beallowed to work on half seating capacity. Less consumers allowed inside eateries, coupled with a low number of people who will turn up in any case fearing contagion will in any case mean less revenue and a need for minimal manpower.
The remaining workforce has taken hefty pay cuts. Many are transitioning to roles that involve multitasking as retailers and brands themselves undergo rapid transition to make themselves more relevant and safe for customers.
Retailers who are in a better financial position, currently have furloughed employees, with pledges to rehire them as the economy begins to reopen. While that means not all of those jobs losses will be permanent, it’s unclear how many jobs will return once the economy reopens.
“The major job losses will be from non-essential retail starting from fashion, lifestyle, accessories, travel, and tourism product/ services retailers. Restaurants, entertainment centers, and cinemas will be adversely impacted, and their businesses will take longer to return to normal,” says BS Nagesh, Founder, Trust for Retailers and Retail Associates of India (TRRAIN).
What Experts Say
The Retailers Association of India (RAI) has estimated about six million jobs losses in the retail sector in the coming months due to the Coronavirus impact. “About 40 percent of the six million employees working in India’s modern, rather than traditional, retail sector could likely lose their jobs in the next four months if the government does not intervene. As per recent RAI survey findings, retailers expect layoffof about 20 percent of their manpower. 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,” says Kumar Rajagopalan, CEO, RAI.
As per the Centre for Monitoring Indian Economy (CMIE), the Coronavirus crisis has led to a spike in the country’s unemployment rate to 27.11 percent for the week ended May 3, up from the under 7 percent level before the start of the pandemic in mid-March. The rate of unemployment was the highest in the urban areas, which constitute the most number of red zones due to the positive cases, at 29.22 percent, as against 26.69 percent for the rural areas.
As of end April 2020, Puducherry in South India had the highest number of unemployment at 75.8 percent, followed by neighbouring Tamil Nadu 49.8 percent, Jharkhand 47.1 percent and Bihar 46.6 percent. Maharashtra’s unemployment rate was pegged at 20.9 percent, while the same for Haryana stood at 43.2 percent, Uttar Pradesh at 21.5 percent and Karnataka at 29.8 percent. The hilly states had the lowest incidence of unemployment as of April. The rate in Himachal Pradesh stood at 2.2 percent, Sikkim at 2.3 percent and Uttarakhand at 6.5 percent, reports CMIE.
Impact & Current Situation
As per Rajagopalan, “Non-essential retail sales have seen a frightening drop from 50 percent in March 2020 to 80 percent in May. Essential retail, which has been the lifeline of the nation, was down by 40 percent in April and may further slide to 30 percent given its current run rate. Furthermore, owing to the multiplier effect, this prolonged paralysis has not only affected the retail sector but also manufacturing and several allied sectors that depend on retail to function. Apparel businesses could face revenue losses of up to 40 percent, and many small and medium players in the apparel industry are contemplating the closure of business. The shutting down of marginal businesses would have a multiplier effect on allied sectors. In the absence of major
support from the Government, as many as 20-25 percent of the retailers may be out of business or will need dire financial infusion to stay afloat.
“The retail sector is one of the most impacted sectors by the COVID-19 pandemic. Both essential and nonessential retail has experienced unique effects on their businesses. As per
the rules and regulations set by the Government of the state, city, and locality of the retailer, they’ve had to take measures accordingly to ensure safety. Based on the feedback, non-essential retail has only been able to achieve 5-10 percent of last year’s business. When considering April and May the sector has witnessed a full wash out with June’s opening being sporadic and slow. On the other hand, essential retail has achieved 65 percent of last year’s business in the last 2 months,” Nagesh further adds.
Bankruptcies & Shutdown
A recent survey conducted by RAI among more than 300 retailers has revealed that they have received little or no financial support from banks to recover from the impact of the COVID-19 crisis when they needed it. The findings seem to suggest that PSU banks have been comparatively more helpful than private banks.
Rajagopalan explains, “Retailers are among the most resilient entrepreneurs of the Indian ecosystem. Retailers selling both essential and non-essential items have reported a 40 percent and 100 percent drop in sales, respectively, due to the COVID-19 situation. The closure of business over the past couple of months has resulted in loss of revenue, which has rendered some of them unable to pay salaries to their staff . The reluctance of banks, especially private banks, to come to their aid is unfortunate, and could hurt not only retailers but the banks themselves. Banks have made huge investments in the retail sector, and if the sector struggles to get back on its feet, a significant portion of that investment could turn into non-performing assets.”
“Going by this situation, unfortunately, bankruptcies are inevitable. We are already seeing many retailers fi ling for chapter 11 in the US, and many more are buckling down under pressure. Initially, there will be store closures and realignment of backend costs to manage the shrunk chains,” adds Nagesh.
The Road Ahead
The road to recovery will be long and trying. Experts believe that the virus is not going to end completely on its own. It has reached a phase where people are preparing to live with it. As countries are reopening the industries and business globally, there is a hope for a quick recovery.
“The recovery will depend on the Government’s support to the sector. It may take a minimum of three quarters to stabilize. As per a survey conducted by RAI, 70 percent of retailers expect business recovery to happen in more than 6 months whereas 20 percent expect it to take more than a year. The Ministry of Home Affairs’ directive has allowed states to open retail stores as per their own independent guidelines. This has led to multiple interpretations and rules that have inconvenienced customers and retailers while continuing to severely impact demand and sales. The problem has been compounded by the change in the definition of stores; large standalone stores are considered malls in Gujarat, Punjab, Uttar Pradesh, Andhra Pradesh, Telangana, Tamil Nadu and Assam. Furthermore, states like Karnataka, Kerala and Tamil Nadu have prohibited stores from operating air-conditioners inside stores. We need a policy framework that allows for the non-discriminatory reopening of retail and time-bound resolution of fiscal and legal matters,” says Rajagopalan.
“Currently, job losses are unavoidable. They are likely to be around 20-25 percent and will start recovering only from April 2021 onwards. However, I believe that India will begin recovering in the second half of 2020 and the true potential of the new India will only emerge in 2021-22. Therefore businesses must learn to adapt and sustain themselves for the next 24 months. The impact will be most severe in the middle and lower class working in non-essential retail. As they are likely to exhaust a lot of their savings in order to survive through these times; and will be facing difficulties for the next 2-3 years till they recover,” concludes Nagesh.