Indian Retailers Seek ‘Therapy’ As Covid-19 Second Wave Erases Recovery

CHENNAI, India — “It has been one and a half months since our electronics store is shut, and we have had zero sales,” Kadir Vel, a manager at Sathya Appliances in southern Indian city Chennai, told Zenger News. 

Stores like Sathya Appliances are a part of India’s retail sector, which accounts for 10 percent of the country’s national Gross Domestic Project. The sector, valued at $883 billion last year, was projected to grow to $1.3 trillion by 2024.

The industry was staging a recovery after last year’s three-month lockdown effects were wearing off but another spate of curbs began in April — just before the second wave of Covid-19 worsened in India. 

“After the first lockdown last year, footfalls reduced because people didn’t have money to spend on appliances priced over INR 20,000 ($274). But footfalls picked up in the summer because of offers on credit, debit cards,” Vel said.

Broadly, retail is divided into general trade (typically mom-and-pop stores, standalone and small shops), and modern trade (larger-format shops like chains, supermarkets, and hypermarkets). 

Dividing retail

But India’s pandemic-induced lockdowns saw retail being divided along the lines of ‘essential’ and ‘non-essential’.

Only essential retail — food and grocery stores — have been allowed to operate, while non-essential businesses from apparel to jewelry and restaurants have remained shut during the lockdown.

“For the first three-four months [during 2020 lockdown], there was no revenue for retailers selling non-essential items, who account for 80 percent of the community,” Kumar Rajagopalan, the chief executive of the sector’s apex body Retailers Association of India, told Zenger News.

“After that, things started getting better slowly. There was a 90 percent pre-pandemic level of recovery [by February 2021].”

The Retailers Association of India, which has 500,000 member stores, said the retail industry contributes to about 40 percent of India’s consumption and is one of the largest employers in the country, with an estimated 40-50 million workers.

Lockdown woes

While retailers were hopeful of getting pre-pandemic level business in the first six months of 2021, the second wave of curfews stalled that. 

Unlike last year, when there was a general set of rules for states imposed by the central government, the second wave saw states set their own restrictions at a local level, depending on the severity of cases.

For instance, Maharashtra, home to India’s financial capital Mumbai, became one of the first states to pass a four-week curfew order on April 4. Only essential retail was allowed. The nation’s capital Delhi imposed a night curfew from April 6, which restricted movement and trade from 10 pm to 5 am.

Retail is a capital-intensive sector with low margins and 60-70 percent of the costs are fixed. This has meant that most retailers, especially non-essential ones, are continuing to pay property taxes, salaries, and electricity bills, despite remaining shut.

“Retail businesses have been under tremendous financial strain due to the extended closures. The financial pressures are on various fronts such as salaries, rentals, electricity charges, and various taxes and license fees, among others,” Rajagopalan said. 

Splitting burden

“The entire cost of the shutdown should not be borne by the business alone. The state and central government, the Reserve Bank of India, and banks also have to chip in to soften the blow of the pandemic,” he said.

Some Indian states are slowly easing restrictions as the Covid surge dips. In Delhi, the ‘unlock’ plan began on June 7, and malls and marketplaces are opening from 10 am to 8 pm on an odd-even basis. So, only 50 percent of shops are open on a given day.

Maharashtra announced a five-level unlock plan and districts are divided from Level 1 to Level 5, where the former will have the least restrictions and Level 5 the most. In southern state Tamil Nadu, the lockdown has been extended until June 14, and essential items like vegetables, fruits, and meat can be sold from 6 am to 5 pm.

But reopening rules differ from state to state and are dynamic — depending on the spread of Covid-19. So, there is continued uncertainty among businesses. 

Confidence lost

“Some states have begun opening all forms of retail in a calibrated manner. The concept of essentials has undergone a change and, therefore, it is necessary to open stores selling non-essentials, too,” Rajagopalan said.

The lockdowns have also contributed to a shift in the Indian consumer psyche, as the economy has taken a huge hit. 

Around 100-120 million Indians lost their jobs during the first wave of Covid-19 last year and the second wave has had an adverse impact on small businesses, employment, and household incomes. 

“India was one of the fastest-growing retail markets pre-Covid, but the situation is different now,” Ankur Bisen, senior vice-president at management consulting firm Technopak Advisors, told Zenger News.

“Last year, there was a loss of sale for three months, but activity resumed after that. This time, it [lockdown] has impacted household incomes deeper. Savings have depleted, people are cautious on expenditure that can hold off. The entire psyche of the consumer has changed.”

“For non-essential retail to thrive, malls need to be open,” Bisen said. 

Stuttering recovery

Revenue of shopping malls will only grow 45-55 percent for the current fiscal year, after an expected decline of 45 percent in the fiscal year that ended on March 31, 2021.

For Viviana Mall — one of India’s largest shopping malls in Mumbai — the April lockdown came months after it had recovered about 80 percent of its business in February, according to its chief executive officer Gurvineet Singh.

“There was a certain amount of hope, but then the second lockdown came in,” Singh told Zenger News. 

“It’s a devastating scenario for us. Opportunities are running out even for shopping centers. There is no capacity that is left in any A-grade shopping center to survive because there is hardly any income.”

“We suffered a lot in the first lockdown as we agreed to give our retailers a 100 percent rental waiver for the lockdown period. Then, we gave them a 50 percent rental discount till the end of the year. Now, we don’t have any capacity left to even discuss waiver with retailers. It’s a terrible position for them as well,” Singh said.

Seeking help

The Indian government has not extended targeted relief measures for the industry despite calls from trade bodies like the Retailers Association of India and the Shopping Centres Association of India.

The Retailers Association of India wrote to the finance minister on April 28, asking for “urgent intervention to prevent the sector from slipping into irretrievable financial damage”. By May, the body said the “industry needs injections”, and sought more concessions to stay afloat on May 27. 

Retailers want the government to extend renewals of existing permits, licenses, and permissions for running shops, restaurants, and pubs for a year. They want the government to pay provident fund contributions of both employer and employee (12 percent each) till September for employees earning less than INR 15,000 ($205.5) a month.

Retailers want a 100 percent relief in payment of property tax for the fiscal year 2021-2022. They also sought a moratorium on principal and interest repayments for six months, as they say almost INR 75,000 crore ($10.2 billion) loans could turn bad in the absence of urgent relief measures.

“We were closed for five months last fiscal year but paid 100 percent property taxes. The [taxes] form a large component of our cash flows. The government could have given certain perks on the goods and services tax. Even a moratorium hasn’t been granted, unlike last year. So, we continue to pay monthly installments on loans on zero income, and we are completely cash stretched,” Singh said.

Last year, the Reserve Bank of India offered a six-month moratorium on equated monthly installments on all term loans. 

Hoping for revival

But Viviana Mall reopened its doors to customers on June 7, and Singh is hoping more people will return to physical stores soon.

In contrast, e-commerce players in India have been reaping the benefits of physical stores remaining shut. Boosted by strong order flows from home arrested Indians, the country’s e-commerce market is projected to rise by 84 percent to $111 billion by 2024. 

The need for social distancing, physical stores being shut, and fear of infection saw consumers turning to e-commerce players like Amazon India, Walmart-owned Flipkart, and e-grocer BigBasket in large numbers.

As for the road to recovery, Bisen believes all retailers will need to adopt an omnichannel, or multichannel approach to tide over similar disruptions and increase sales even as consumer spending patterns remain hard to predict.

“Revival of customer sentiment is important for retail to bounce back. We can’t ignore that [dent in consumer sentiment] anymore — it’s a structural issue now. If the revival of customer sentiment is not addressed by the government, it’s going to be a challenge for retailers. Just opening up malls and assuming customers will come back now will be an exaggerated assumption.”

(Edited by Amrita Das and Gaurab Dasgupta)