Impact of COVID-19 on Retail Sector in India

India’s $95 billion organised retail sector is in hot water. With the number of reported cases of COVID-19 increasing by over 40% in the last two days, several state governments have announced either complete lockdown of the entire state or major cities of the state. The panic seems to be real.  Shopping malls, markets, dine-in restaurants, spas, lounges, and gyms have all been asked to shut down their shutters. The retail sector, both organised as well as unorganised, are feeling the heat of COVID -19 and the continued lock-down, both in the short-term and the long-term, will adversely impact the retail consumption. As per the advisories issued by the respective state governments, people have been asked to avoid crowded areas, especially F&B, entertainment centres, shopping malls, amongst others as a ‘social distancing’ measure so to curb the spread of COVID-19.

Earlier when the lock-down was not in place, malls and shopping centres, across the country, were reporting a decline in footfalls. A news report published in Mint, a business daily, stated that the walk-ins or unplanned visits to shopping centres and malls had slumped between 10% to 20% over the last two weeks leading to the lock-down as shoppers stayed away from crowded places fearing COVID -19 infections. The dip earlier was more visible in Karnataka and the Delhi-National Capital Region (NCR) where the reported numbers of COVID-19 were more pronounced. Now with Maharashtra reporting the maximum number of cases and the state authority closing even the district boundaries, all the non-essential shops have been asked to shut down till the end of the month. The state of affairs is the same across all other states. Footfalls in non-metros eg Rajkot, Surat, Patna, etc, which had hitherto remained unaffected, too have come to a grinding halt. A report by ICICI Securities has stated that with the COVID-19 issue likely to linger till at least Q1 FY’21 (April-June 2020), mall operators stand to lose 20-25% of their revenue.

The increassing number of COVID-19 cases coupled with the lockdown enforced across states will dampen household spending particularly on retail, eating out, recreation and leisure – which together account for 6% of the country’s GDP. 

The closure of malls and multiplexes, has brought organised retail to a grinding halt. “The order of closure of malls and multiplexes across many top cities by the respective state governments to prevent people congregating for any reason, has caused the organised retail scene in these cities to come to a grinding halt,” remarked Anuj Kejriwal, Managing Director & CEO, ANAROCK Retail. According to ANAROCK Retail, the top eight main cities of India have 126 malls sprawling over 61 million sft of area, and more than 100 malls have multiplexes attached. He is of the opinion that even a short-term closure will have significant financial implications on retailers. In fact several analysts, including those at Forrester, argue that even if the malls re-open in April, retail spending may not revive.

Leading brands are now victims of the Coronavirus-triggered slowdown. Brand outlets in SelectCity Walk (Delhi), Ambience Mall (Gurugram), DLF Mall of India (Noida), and DLF Promenade (Vasant Kunj), etc, which had already seen footfall declining by 25% in the past four weeks, now bear a deserted look. The lock-down, and as a result the shutdown, is only going to aggravate matters for malls and stores. In effect, Indian retailers are in for a harsh summer.

According to National Restaurant Association of India (NRAI) president - Anurag Katriar , the restaurant industry with an annual turnover of approximately Rs 4 lakh crore, providing direct employment to over 7 million Indians is in a very precarious situation currently, fighting a grim battle for its basic survival. Federation of Hotel & Restaurant Associations of India (FHRAI) estimated that at eateries, there was over 40% fall in customers in the last 15 days before deciding to shut down their dine-in operations till 31 March to mitigate the health risks at restaurants amid Coronavirus pandemic. “This figure could go up to 80% with more Coronavirus cases likely to be reported in India,” Gurbaxish Singh Kohli, vice-president of FHRAI, had shared. In Mumbai, the Indian Hotel and Restaurant Association (AHAR) had in fact reported a 60% drop in customers in non-vegetarian eateries in Mumbai over the weekend. The same for vegetarian restaurants stood at 40%. Fast food chain KFC had reported a sales drop of 15-20% sequentially over the past couple of weeks, while 1441 Pizzeria reported a hit of 20% on dine-in. 

However, with the lockdown announcements the situation has only gone from bad to worse. According to Katriar,“Now we are staring at almost zero revenue in the immediate term and at least drop 50% for months thereafter. We are therefore seeking support from everyone in the ecosystem in mitigating these fixed operating costs so that our losses are contained to manageable levels.” According to an analysis by Forrester, it is expected that the restaurant segment will take a hit of about 25-30% in coming weeks with people working from home, lack of corporate clients, cancellation of banquets, and events. While both F&B and retail industries will take time to recover, analysts are expecting resurgence only in late 2020.

Corporate India is expecting a 0.5% hit on economic growth in FY2020-21 if the COVID-19 pandemic lasts longer, pushing up fiscal deficit and creating more bad loans for the bank: CARE Ratings Survey

The Holi weekend normally gave a spike of 20-25% in terms of footfall for mall owners. However, this time around the celebratory mood was found missing. The media and entertainment industry too has been hit hard. Movie theatres which saw a sharp drop in footfalls during the Holi week, hitting the collection of movies, now stands at a threshold wherein theatres have been shut and film releases have been postponed. The fate of Indian Premier League, IPL,  the marquee sporting event of the year, too hangs in balance. In addition to this, shooting of ad films and movies have been halted to contain the spread of COVID-19. According to Ashish Pherwani, media and entertainment leader, EY India, the social distancing measures put in place to restrict the outbreak of Covid-19 “could adversely impact the media and entertainment sector for the next two to three months.” 

Retailers such as Vijay Sales which runs stores in Mumbai, Delhi and other cities, are grappling with supply disruptions thus impacting the business. According to officials at Big Bazaar, there is panic buying at outlets in Mumbai, Delhi, Bengaluru, etc, in categories such as food and fast moving consumer goods. “There is a clear business impact. People are avoiding crowded places and gatherings across cities. This is hitting business, both at traditional and modern trade outlets,” said Praveen Khandelwal, general secretary, Confederation of All India Traders (CAIT).  "The business of the company has been significantly affected over the last few weeks and will continue to be materially impacted due to the current crisis. The uncertainty around the situation makes it difficult to ascertain the exact impact at this point of time," said Aditya Birla Fashion and Retail Ltd (ABFRL) in a recent statement. The company has shut all its retail stores till 31 March 2020. Industry leaders fear it could be a long hard summer for businesses, big and small, formal, informal across India. “No one is able to predict how much it (negative impact) will be, because the mood is very low and it’s getting worse day by day,” said Harsh Mariwala, chairman Marico, in an interaction with BloombergQuint.

Going forward, CARE Ratings believes that with declining sales, players will have to control their fixed expenditure such as employee cost, power, and rentals. The closure of offices, malls, schools, colleges, multiplexes, pubs and restaurants by almost all state governments along with work-from home directives have boosted in-home consumption. Panic buying is happening. E-commerce platforms, retail chains and kirana stores are reporting a surge in sales of staples, daily necessities and personal hygiene products. Products such as rice, atta, pulses, edible oil, sugar, biscuit, tea, instant noodle, butter, frozen food, soaps, hand-washes and floor cleaners are flying off the shelves in a number of cities including that of Mumbai, Delhi-NCR, Bengaluru, Pune, Hyderabad, Kochi, Thiruvananthapuram and Ahmedabad. Other big sellers are sanitisers, honey, chyawanprash, toilet paper, tissues and wet wipes.  In fact, retailers and ecommerce firms have started to stock up on the 100 most-sold products in their stores to ensure that they can continue supplies in case of any uncertainty.

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