Coronavirus pandemic: What Indian retailers can do to tide over crisis

The COVID-19 pandemic has transgressed national boundaries and has temporarily changed life as we know it. Whilst containment has been addressed by the introduction of social distancing policies, it has brought the world to a virtual standstill. Many countries are under lockdown or partial lockdown, thus impacting the supply chain, as well as the job security of many involved in various sectors.


Irrespective of location, retail has been one of the most impacted real estate segments, with many micro and small and medium enterprises (MSMEs) forced to close temporarily or permanently. From our interactions with the market, we observed several major impacts of COVID-19 on retailers in India.



Let’s examine further.


Impact 1: Huge cash depletions, reserve gaps

At the end of the day, the retail ecosystem is consumer centric. It is for the people and depends on people. Wide-scale disruption is negatively influencing both the available cash flow and earnings of retailers, and their ability to pay vendors and stakeholders including landlords and employees.

With this backdrop, we are staring at huge cash depletions and reserves gaps that may take many small retailers, or weak cash flow retailers, to the brink of bankruptcy. In many cases, some retailers may have insufficient cash flow for starting the engine again when stabilisation occurs.


Impact 2: Inventory pile-up

This season’s inventory was not scheduled to hit the shelves until April 15, which presents an issue with the current lockdown in effect. If further containment measures are implemented, that leaves little time before the sale season, and discounts will be steep. A slew of inventory discounts will result in several downstream sub impacts to the retail market.


Sub impact 1: The discount of over three months sales volume will lead to almost 50 percent erosion of profit, leaving less cash for fresh inventory.


Sub impact 2: A consensus exists amongst retailers and developers that footfall will take time to recover, and the first months of 2020 may see a traffic drop of 50 percent. In other words, we are staring at a scenario of 50 percent less footfall trying to clear three months’ worth of inventory on sale. Add to this equation that consumers are being influenced by cost-cutting measures at their place of employment, and many are now jobless in the market. Bringing it all together, there is the multi-pronged issue of cost-conscious consumers, lesser footfall and more inventory, which will likely lead to decreased sales and erosion of principal for retailers.

Sub impact 3: The COVID-19 situation will have a cascading impact on future earnings for other stakeholders, MSMEs, developers / landlords, and decreased capital expenditure for next season’s inventory.

I therefore see this as a continued slowdown for a few months and a slow start for next season, which may pick up but will be weak to start. We estimate that it will take at least three months for the retail industry to reach 80 percent of the previous year performance. Multiplexes will take longer.

Impact 3: Societal changes 

A deeper transition brought upon retailers in India might be directly linked to the social and psychological aspects of consumption.

Change 1: Corporates may change their working style to include more work from home and rotational working, which will reduce consumption.

Change 2: People who were embracing the “work, live, play” philosophy, have been forced to have three-to-six weeks of isolation therapy – and this will have a lasting impact. On one hand, there will be a new normal established that may add an extra layer of self-time and family time to schedules. On the other hand, people may decide to act with more abandon and live for a diversity of experiences with their families. Regardless, this will change consumption habits and we could see more people in groups and family sizes at shopping centres than before. It may be the moment where retail goes family!

How to sustain through this challenging period?

Let’s break the coming months into three phases

Current – Lockdown Phase 1, and Post Lockdown Phase 2 (Slow Start Phase), and Phase 3 (Normal Phase).

To this scenario, what are the immediate solutions or actions for multiple stakeholders like the retailers, the employees and the malls?

Phase 1: Current Lockdown Phase

Mall developers

In the lockdown and semi-lockdown phase, developers may look to maintain, upkeep and renovate (which could extend to post lockdown phase 2).

Retailers

Businesses have a primary purpose to exist, survive and profit, but also take their stakeholders and employees along for the journey.

In this phase, most retailers should and have been focussed on the conservation of capital, reduction of expenses and a deferment of cash consumption. This is the most critical component and initial action, and I am happy to see many retailers quickly taking this up.

Retail employees

Retail employees are the backbone of the business. The conditions of lockdown may bring some strain, however, this too shall pass.

I would suggest all retail employees to upskill themselves in marketing, service and product, to improve their competency online - something one never found time in routine days.

Post-Lockdown Phase 2

Post-lockdown Phase 2 will resemble an unlocking of a logjam and the return of the consumer to the stores and malls. By my estimate, this could take a minimum of three months, and some expect this resumption to take longer.

As some wise friends told me in the industry, each store and each centre will have its own journey in this unprecedented situation, and it’s advantageous to start early.

My take is that sales will be low for some time, but I recommend that retailers start early to get the customer and confidence back. It’s a chicken and egg situation, the customer will not come in unless they feel safe and most likely when the majority of stores have reopened. And even then, they will be slow to return.

As such, there needs to be a collaborative approach during this period between mall owners and retailers.

Mall developers


  1. Make sure you have a plan for social hygiene, more housekeeping and maintenance, and social distancing.


  1. Collaborate with retailers, with more focussed events.


  1. Mall developer actions and regulation can manage social distancing for the first few months to ensure that we don’t see crowds and don’t see a reverse risk a new surge of infection.

Retailers

Some retailing ideas:


  1. More marketing, more customer events and activities, and more spread out discounts.


  1. Continue to conserve capital.


  1. Collaborate with landlords and other retailers to bring the ecosystem back to health.


  1. Make sure store focusses adequately on hygiene and social distancing.


  1. Above all, continue trading.


I have heard that policymakers will resume first with limited-hour trading and this may be a good approach to save and conserve capital. My guess is malls and retailers should collaborate and work on this point to see if they can limit the hours of trading to invite the consumer, and also to reduce costs for the first month or two.

Finally, I would like to say that this is all temporary. It’s the nature of business to have ups and downs. Although this collective down or weakness is unprecedented and the level is unseen, I firmly believe all will bounce back eventually. Make sure you know it’s a long road and you just need to be around to bounce back... and last but not the least, be ready for good times in the near term.


Shubhranshu Pani is MD - Retail Services at JLL India.


Source: https://www.moneycontrol.com/news/trends/expert-columns-2/coronavirus-pandemic-what-indian-retailers-can-do-to-tide-over-crisis-5187231.html

Apr 27, 2020

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