Coronavirus lockdown: Indian retail sector stares at loss of over 20 lakh jobs

About 40 per cent 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, says Retailer Association of India

   

Over past several quarters, the Indian economy has been experiencing a tumultuous downturn due to reasons such as trade wars, liquidity crisis, taxation woes. However, the country’s GDP showed a marginal recovery in the third quarter of the current fiscal at 4.7 per cent over 4.5 per cent in the previous quarter.

But looks like the worst is yet to come.

On March 24, Prime Minister Narendra Modi asked the country’s 1.3 billion people to stay home for 21 days. The world’s biggest coronavirus lockdown has brought the economic activity to a halt. The already struggling and fragile Indian economy may collapse.

The COVID-19 pandemic outbreak has created a stir across sectors. In just few days, it has caused severe impact on the demand and supply chain – derailing the growth.

The share market is bleeding with the Sensex falling nearly 35 per cent so far this year [as on 25th March morning] – making it the worst performing Asian market. The pandemic threatens to worsen India’s already bleak economy, languishing at multi-year lows due to a drop in consumption.

sensex_ind

In Mumbai’s main stock indexes, financial shares were the worst hit with the NSE Bank index slipping over 2 per cent. “We are seeing weakness because there is fear about the impact of the 21-day shutdown on the economy,” said Deepak Jasani, head of retail research, HDFC Securities Ltd, told Reuters. “People will wait to buy for a few hours at least.”

Puts a big question mark on the retail growth story

Indian retail industry has been one of the most dynamic and fast paced economy generator industry in the country. Contributing 10 per cent to the GDP, the retail market was estimated to grow at a CAGR of 9 to 11 per cent to US$ 1.1-1.3 trillion by 2025, from US$0.7 trillion in 2019. The findings of a report of Boston Consulting Group (BCG) and Retail Association of India (RAI) revealed. The report states that India’s consumption is likely to outperform that of developed countries like the US and UK that will only grow at a CAGR of 3.6 per cent and 4.5 per cent respectively.

However, the widespread coronavirus fear and panic has also taken a toll on the Indian retail industry. The overall consumption has dropped significantly with mall shutdowns severely hurting business for all retailers. This could lead to major job losses as companies won’t be able to sustain this for too long.

“With the virus outbreak, these [estimated] figures are looking distorted. Due to closure of malls and stores retail industry will lose about half a billion dollars,” according to RAI. Indian retailers selling non-essential items like clothes and jewellery have already suffered a revenue loss of 75 per cent so far.

Shutdowns will cost India millions of jobs

The sector is likely to cause widespread job losses. Due to the mandatory closure of malls and retail stores across states, retailers face imminent financial crisis/insolvency. As a result, the livelihoods of millions employed in retail are in peril. 

“About 40 per cent 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,”

said Kumar Rajgopalan, chief executive, RAI.

Future Retail, which owns hypermarket Big Bazaar, said the pandemic has resulted in a “de-growth of revenue.” The country’s largest retail chain group, in a filing to the exchanges, added that the expected impact of COVID-19 as of now is hard to ascertain.

On the other hand, Gurgaon-based fashion retailer V-Mart Retailer has seen a 30% fall in revenue in the week of March 15-21 due to store closures. The retailer has shut about 116 of its 265 stores as of March 21.

“Manpower costs are fixed, we are trying to support our staff at least for the next 45 days,”

Reuters quoted V-Mart Retail managing director Lalit Agarwal as saying.

In addition, people, who were relying on e-commerce platforms, will face difficulties as complying to the lockdown, e-commerce giants Amazon and Flipkart have suspended their operations.

This is leading to small businesses also halting their operations. Apparel retail entrepreneur Yogesh Kabra, who is the founder and CEO of XYXX Apparels, is feeling the pinch of the lockdown. He claims that the company’s operations have drastically gone down in few days.

“Consumer sentiment has plummeted because of growing uncertainty. Even if the consumer demand picks up in ecommerce, there is no clarity on how it will be fulfilled. If these restrictions, no matter how reasonable, continue then a massive drop in ecommerce sales is inevitable even if the customer demand exists,” Kabra tells.

Entrepreneurs involving online platforms such as Kabra are facing number of challenges. “E-commerce, while on the front-end requires minimal human interaction and is tech-driven, the back-end heavy lifting is done by the ground force with technology taking the back seat. Warehousing and delivery remain the biggest challenges. The workers in the supply and delivery chain remain vulnerable and they need to be protected,” he adds.

Amid lockdown, retailers are also facing lots of problems – though essentials items are exempted from it – as Section 144 is imposed and authorities on the ground are preventing delivery personnel to service the customers. “Our staff is not able to reach the stores as police are driving them away when they are on the way to store. It is difficult to run a store in such,” Avenue Supermarts CEO and managing director Neville Noronha told PTI.

future-retail-stock-bi
Future Retail Stock Peformance for the week of 23rd March 2020
Source: Market Insider

Meanwhile, automotive retail sales have also nosedived with pandemic outbreak. Following the past week there has been drastic drop in sales and customer walk-ins have reduced to a trickle as caution sets in due to fear of spreading of the virus. Counter sales has fallen by 60-70 per cent across the auto dealerships in past few days.

“Owning to situations which are beyond our control and the fact that many of our members may face dealership closures if leftover with unsold BS-IV Stocks, FADA has once again approached the apex body with a request for permission of sale and registration of BS-IV vehicles till May 31, 2020 and hopes to get an urgent hearing in the Hon’ble Supreme Court owing to the criticality of the issue and the deadline of March 31 approaching fast,” Federation of Automobile Dealers Associations (FADA) president Ashish Harsharaj Kale said.

The last 14 months has seen the one of its toughest times in auto sales. As a relief measure, FADA has requested OEMs through Society of Indian Automobile Manufacturers (SIAM) that any BS-IV Vehicle billed, which are not against specific customer orders, to be on returnable basis to avoid financial loss to the members.

Urgent need of relief measures

A survey by Federation of Indian Chambers of Commerce & Industry (FICCI) reveals that businesses are facing reduced cash flows due to slowdown in economic activities. The aftermath, in turn, is on payments to EMIs, loan repayments, employee salaries, interest and taxes. A significant 53 per cent of Indian businesses indicate the marked impact of the coronavirus pandemic on business operations even at early stages. On the other hand, nearly 42 per cent of the respondents feel that it could take up to 3 months for normalcy to return, the survey finds.

In view of 21-days lockdown, RAI  has called the government’s attention suggesting moratoriums on the payment of loans and on the payments of the goods and services tax (GST) and other government duties.

In its statement, RAI asked for moratorium of 120 days for payment of installments and the interest of term loans, short-term loans, corporate loans, securitized loans, bonds, mortgages, debentures and general-purpose loans effective from March 1 to June 30, 2020. It has also requested for wages subsidy, subsidy on utility bills, an extension of the due date of compliances and payment of statutory dues like advance tax, GST, ESIC, PF, etc. for payments falling due between March 1 and June 30, 2020.

RAI has also written to the Reserve Bank of India, the State Bank of India and the chief ministers of all the states urgently requesting an immediate economic stimulus to ensure continuity of retail businesses and consumption in India.

“Unless the government provides some relief, revenues will slide by 90% in the next six months,” says RAI – an apex body that represents 500,000 stores in India, including brands like V-Mart, Shopper’s Stop, Future Group and D-Mart-owner Avenue Supermarts.

In addition, FICCI has also suggested some more measures that can help revive the sector. These are:

• Reduce GST on essential food and grocery items and waive off 0.1 per cent TCS provisions that will be effective April 1, 2020.

• There should be a moratorium on TDS for all service providers

• For consumer items to be readily available in the market, it is essential that the manufacturing facilities be kept open under the strictest of safety and hygiene guidelines. This will give some respite to organizations by easing cash flows at a time when business is on a steep downturn and also help avoid massive job cuts and closure of businesses.

The outbreak of coronavirus is having a severe impact on people, economy and business. As a responsible corporate, all retail players are adopting necessary preventive actions to ensure safety of their employees and customers. The end objective is to ensure easy and uninterrupted availability of essential food and grocery products at affordable prices so that people don’t panic.






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