Food and grocery accounts for about $550 billion of the $825 billion consumer spending on merchandise. This spending is likely to see the least impact, either in terms of volume consumed across different sub-segments, or on retail channels selling food and grocery.
Textile and apparel, at about $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 (including those in exports) is likely to have stocks of raw material and semi-finished or finished goods. With textile and apparel stores shut, their stocks run the risk of becoming slow-moving 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 in various income strata. Clothing and fashion retailers may face tough times well into 2022.
The consumer electronics and durables segment — worth about $50 billion in consumer spending — will probably see the least impact, through some summer-specific categories such as air-conditioners may face a significant 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.
Retailers for home-and-living, other than those selling premium-priced goods, are likely have a relatively easy FY21 as consumers look at value but consumption by volume doesn’t decline drastically when seen over the entire April 2020-March 2021 period. Another such segment will be footwear.
Bruised by the coronavirus
crisis, the finances of just about every type of big retail business will be stressed in FY21 and well into FY22. Of the three major channels, traditional and independent retailers are likely to be least affected because of the lockdown
and then its aftermath for the rest of the year. Such retailers typically own their stores (so they do not have to pay rent); they have few employees (with owners and family members running the business), and they can quickly recalibrate their inventories to align with consumer demand or preference. Food and grocery retailers may have, in any case, not suffered much during the lockdown and some may have actually gained when consumers stocked up for the lockdown.
Organised brick-and-mortar retailers are likely to be hurt the most after the coronavirus crisis. Most of them had to shut down or hardly got footfalls (even if they were selling groceries) due to restrictions on the movement of people. These businesses carry high fixed costs by way of rentals and common area maintenance charges if they are located in malls or large mixed-use complexes. They have to pay salaries at retail front end, head-office staff, and utilities. Organised retailers carry more inventory, not only in their outlets but also in warehouses and distribution centres. In case of private labels, they will have inventory at the warehouses of their vendors, too. In the next six-eight quarters, most of these organised retailers will see reduced “monthly sales per square foot of retail space” but will still have to incur the same (or nearly the same) monthly fixed costs. They may also have to face margin erosion when they are compelled to liquidate some of their inventory through aggressive discounts.
The situation is not likely to be much better for e-commerce players, either. Consumer sentiment is likely to be depressed for months to come, affecting companies' monthly gross merchandise value (GMV), and hence their monthly gross margin intake, even as their fixed costs remain nearly the same.
The retail sector’s critical importance to India’s economy (and its more than 250 million households) cannot be overstated. It is, therefore, absolutely essential for the government to allow 100 per cent foreign direct investment in all formats and all channels of retail without attaching any onerous and impractical riders. There is already a very high (financial) morbidity in many large organised brick & mortar and e-retail businesses. Government policy should not come in the way of Indian retail as it works to raise capital from anywhere in the world or tries to merge/sell businesses within India or anywhere else.
(The author is chairman of Technopak, a management consulting firm)