Early November, the government’s decision to demonetise currency notes of the value of 500 and 1000 left the entire nation stunned. What followed was a bewildering 50 day long period for cash-strapped citizens and businesses, which witnessed a downfall in sales, footfalls and revenue. The tactical decision was taken with the sole intention to eradicate corruption and create a healthy eco-system for the country’s future. While it impacted every sector in the industry, the retail sector witnessed a mixed reciprocation, filled with positive and negative implications.
India is among one of the highest cash-intensive economies in the world, with a cash-to-GDP ratio of 12 per cent. Such a move destabilised the entire eco-system, leaving most retail shops and malls deserted, especially in the initial days.
The Immediate effect on Retail
India has a high propensity to deal in cash, and as a result, the immediate aftermath of demonetisation caused considerable inconvenience among retailers and their customers. The impact was felt more by small traders and the unorganised retailing segment, as most of these small retailers are not equipped enough to make provisions of non-cash payments for their customers. However, the sales of basic commodities picked up within a few tough initial days. Customers flocked to large stores which accepted non-cash payments to purchase items of daily essential and staples such as sugar, flour, fruits and vegetables. Organised, large retailers and malls too witnessed a drop in sales and decreasing amount of store footfalls, which however picked up pace as consumers adopted various digital payments. Retailers, dealing with non-essential or luxury items including the automotive, high-end electronics and jewellery segment, experienced a slump in sales and are expected to take a longer time to recover.
Sales were up by 15% at stores dealing with essential items and those who offered digital payment methods. In the long term, the outlook of retail looks promising and positive, with people opting for non-cash modes of transaction.
Online retail sales also took a hit, reporting a substantial decline in sales. In the initial days, the cash on delivery (CoD) volumes were down by 60% than usual. An approximate of 70% of online shoppers in India, prefer cash-on-delivery option over prepaid modes.
In addition to this, ever since demonetisation took effect, e-commerce companies registered returns of about 40-50%, which is generally 13-15%. Most cancellations reported were on cash on delivery orders due to the growing reluctance of customers strapped for cash.
The organized retail industry in India, which consists about 5% of total retail market, is estimated to touch 15% by 2025 and the recent push by the authorities to use digital payments could make the organized retail sector reach 20% of the total retail industry in India by 2025.
In a nutshell, the government’s demonetisation verdict has definitely impacted the retail Industry in a short term due to lack of liquidity in the economy. However, the industry is experiencing a swift resurgence with the growing flexibility shown by their customers in making digital payments. From a long term perspective, the outlook of this industry looks promising with tremendous scope for growth. Consumption will be stable owing to the country’s strong favourable demographics, economic base and resilience of the industry.
Hence, demonetisation will give impetus to retailers to go cashless and enhance accountability on transactions. With more retailers and customers encouraged to adopt alternative/digital payment solutions, going forward the eco-system is expected to become more streamlined, structured and transparent.
This article has been authored by Amit Daga, Founder, Deal Kya Hai?