The pandemic induced by Covid-19 has changed too much too soon in the overall retail industry and has affected it in ways people had not really imagined and these changes are going to stay and will dictate how the industry will run in the coming few years too.
While Moody’s was betting on 2021 for the apparel industry’s performance to go from negative to stable, the year brought the second Covid wave with a number of cases and deaths rising to a record high and leading to partial lockdowns, closure of malls, and curbs on late evening movement that kept consumers home. The second wave has come as a strong headwind to the apparel sector that was already under pressure with exporters facing concerns over working capital and liquidity.
“The business had started reaching the pre-pandemic level during the March quarter of 2021, where it started to pick up. However, the second wave of the pandemic will have a deeper impact on the industry for at least another quarter. Compared to that of the first phase of the pandemic, business sentiments are being largely affected during the second wave, as there are a lot more casualties and a lot more fatality happening across the country. On the other hand, a lot of people are now largely focusing on the health and wellbeing of their families, hence this very fact will prolong the recovery of the industry, as it will take a considerable amount of time for the situation to stabilize and enable customers to step out to spend on such products,” asserts Charath Narsimhan, Managing Director and CEO, Indian Terrain Fashions Limited.
The entire retail industry is indeed very badly affected by the pandemic, especially segments like apparel which are in the consumption space. While Covid hit the industry hard, the second wave yet again deflated the cushion the retail industry was trying to make on the back of pent-up demand, etc., and led to further losses to the retail brands.
Vinay Chatlani, Executive Director & CEO, Soch Apparels Pvt Ltd., avers, “We are certainly in for a bumpy ride filled with uncertainty. From a revenue standpoint, it has been devastating of course with varying degrees based on the brand’s channel mix and offers. Barring omni and e-commerce sales, the lockdowns have brought revenues close to zero. We, as an industry were on the road to recovery but now it seems to be prolonged and pushed back amid the rising Covid cases in India. With that being said, we have been investing time and effort into larger e-commerce operations over the last two years, and it is definitely yielding results. From a brand perspective, it is important to still engage with consumers but with a very sensitive and empathetic approach. We are however hoping this might be better than the last financial year, with favorable progress on the vaccination rollout and a material shift witnessed towards online shopping.”
According to domestic rating agency ICRA, the second wave is expected to delay the recovery back to pre-Covid-19 levels till FY23. It stated that the industry, which was recovering and had touched over 70 percent of pre-Covid levels by the December quarter of 2020, is set to show a revenue growth of 23-25 percent on a low base in 2021-22, but this will not help the business performance to get back to the pre-Covid levels.
Siddharth Bindra, Managing Director, Biba, says, “This is a black swan event that has hugely impacted the apparel retail industry. The majority of our stores have been closed with zero sales since most of the states imposed lockdowns. Out of our 285 stores, only 40 would be opening as per the guidelines and this has impacted sales and overall business massively. Online sales, however, have picked up pace once again, and Biba is doing well in the marketplace as well as on our own website. We are hoping that things will slowly normalize once various states start opening the lockdowns.”
And while most retailers are now relying on online shopping, there is still a huge section that prefers to visit stores to shop. Furthermore, the second wave has taken a heavy toll on employment in the industry as well. It is estimated that close to 1 million jobs have been lost across the sector including in high-street fashion, small stores, and standalone units including malls.
The Coping Mechanism
Even as the situation is grim, this is the second time the industry is going through this and is better prepared to deal with it. Brands have put in place their digital strategies and have upgraded their websites, worked on their omnichannel strength to provide their customers with best in class experience.
Ramesh Kapoor, Chief Finance Officer, Numero Uno, maintains, “The best way to survive during these times is to keep the expenses under control, focus on timely delivery, and offer quality products and value for money to customers. Stress on e-commerce and online business is going to be key in the coming months. We expect the government to give relief by way of lower GST rates in apparel and garment industry, easy working capital availability at lower rate of interest, concessions/ incentives to the industry/ corporates who have retained the employment of people and who have supported all workmen and employees in this difficult time. Free vaccination camps at offices/ factories so that production and operations continue without interruptions. The government needs to control the prices of fuel so that inflation can be under control and thereby reduction in transportation costs, etc.”
According to ICRA, the pandemic has led to an increase in adoption of online retailing in India, and a number of retailers are reporting more than 50 percent jump in online sales in the first nine months of the fiscal albeit on a low base and this has led to an increased proportion of online sales within the overall mix.
Adoption of technological advancements in retail is another mechanism helping fashion brands pivot and adapt to the current times.
Charath Narsimhan apprises, “When it comes to technology there are two facts, according to me. One, it allows the brand to connect with consumers directly through the means of e-commerce platforms and more. As more categories and opportunities emerge for the consumer, more opportunities for the brand will also emerge in specific segments and areas. But we must also recognize that in today's environment, any brand from B2C to conventional, the style and cost is just humongous unless it is in a unique area. It is evident that technology has made business more efficient so far, and will continue to play a larger role in the future as well. The nature of the country is so diverse that it will continue to have a healthy split between offline and online shopping.”
Soch, meanwhile, is trying to build pliability in all processes. “With our offline stores and online being aligned with our enhanced omni-channel initiative for seamless brand experience, we hope to use all merchandise and have it exposed to all digital channels of sale very soon. There is a rollout of multiple tech solutions on the planning and merchandising side, warehouse and supply change management and most importantly improving on the insights that data give using our BI Tool. We are also working on adding new categories with an online-first strategy and keeping a close eye on consumer demand which keeps changing frequently. Overall spends on digital marketing, e-commerce, omnichannel have gone up but it’s also giving yields,” informs Vinay Chatlani.
Furthermore, the pandemic has fast-tracked the growth of the D2C movement with more consumers opting for shopping online directly from the brands and this is helping fashion brands in D2C segment generate revenue even during the pandemic.
Siddharth Bindra adds, “D2C is definitely a way forward and more so post the pandemic. More and more people are opting to shop online now which is a great opportunity for brands to evaluate their sales channels and supply chain system to elevate the online shopping experience for customers. This model enables brands to have a wider control over business operations and gather consumer insights.”
Discounting too can be one strategy to navigate, like the last year; however, major retailers, during the second wave, are of the view that discounting can be an option for the short run and what would really work is the value proposition that the brand has to offer. It is important to understand that there are a different set of customers, few who think that if there is a considerable discount given by a brand then there are chances for the quality of the product being low, yet on the other side there are an equal number of people who seek discounts on products. Currently, consumers are shopping from categories like innerwear, loungewear, sleepwear, casuals, work from home range, comfortable bottom wear, etc.
The Road Ahead
The fashion industry had adopted several cost-saving measures by fashion retailers, including rental negotiations, salary, and overheads rationalization last year, to protect their businesses and they are expected to take similar actions this year too.
ICRA maintained that the fashion retail industry will invest Rs 2,4000 crore in capital expenditure in 2021-22, largely on store expansions that got deferred as a result of the pandemic adding that attractive rentals will be the driving force.
Even as the pandemic has impacted most industries across the country, the online fashion segment is continuously growing – both in volume and value terms.
According to e-commerce focused supply-chain SaaS technology platform Unicommerce, the online fashion industry continues to grow upwards with order volume growth of 51 percent and GMV (Gross Merchant Value) growth of 45 percent in FY21, in comparison to the previous financial year. While the consumer shopping behavior is changing, they will still continue to shop, if not today, then in the coming months and the brands who have adapted themselves in line with consumer demands will be the ones to prosper.
“To begin with, I think all of us now have a chance to take a hard look at our business model. Improve on your analytics capability, implement any tech initiatives if possible, reflect on spends, relook at your supply chain and frequency of drops per year, and really evolve into a more agile company. We cannot tell on a timeline but it is really about being prepared. We need to focus on what is in our control when it comes to cash flows, alternative channels and product avenues, and building resilience and sustainability till the markets pick up again,” concludes Vinay Chatlani.
While the industry is in survival mode right now, its looking at moving to revive and thrive before the festive season.