Impact of COVID-19 on India's Retail & E-Commerce Sectors

The PHD Chamber of Commerce and Industry has risen to the call given by the Hon'ble Prime Minister and has already contributed approximately Rs 450 Crores to the PM-Cares fund specially created for COVID-19. State chapters and individual members have made
Impact of COVID-19 on India’s Retail & E-Commerce Sectors

Humankind had never seen anything like this before. And never have so many countries been affected so severely all at once by a small virus which goes by the fanciful name of Corona – which means a crown. As of today, over 12 lakh people have been affected by this disease worldwide and over 65,000 people have lost their lives.

India is still at Stage-2 of the pandemic and the Government has taken very timely and strong steps to observe “Social Distancing” and a complete “Lockdown” for three weeks till April 14 to contain the spread of Covid-19. PHD Chamber of Commerce and Industry appreciates the government for its pro-active and extensive preventive measures to protect the its citizens, economy and trade from the adverse impact of the unprecedented catastrophe which has befallen on the Nation by the spread of Covid-19 pandemic.

The PHD Chamber of Commerce and Industry has risen to the call given by the Hon’ble Prime Minister and has already contributed approximately Rs 450 Crores to the PM-Cares fund specially created for COVID-19. State chapters and individual members have made substantive contributions.

However, the lockdown has had a deleterious effect on the economy of the country as a whole and the Retail and e-Commerce sectors in particular. The retail outlets in malls and the neighbourhood “kirana” stores are the worst affected. India has over 125 malls with around 100 attached multiplexes. All these were ordered to be shut down. Due to restrictions on movement of goods and people across the country, the kirana stores are severely facing the brunt. It has been estimated that a large number of the employees associated with the retail sector are at risk of losing their jobs.

As a result of the pandemic, we are seeing a large number of people preferring to order their goods online rather than risk take the risk of walking to the neighbourhood store. This new mode of shopping is likely to become the new normal and it is thus necessary for our retail sector to realise that only brick-and-mortar stores will not so if they are to survive in this business. They have to invest in omnichannel digital transformation and develop O2O (Online-to-Offline) models of doing business.

It is estimated that Indian e-commerce lost $400mn in a week due to COVID-19 and these losses will grow to $1Bn during the nationwide lockdown. Due to serious upheavals in the supply chains, many established platforms like Amazon, Flipkart and BigBasket had to suspend services and they are slowly limping back to. But even so, it is estimated that the growth for this sector will plummet to 5% as against a pre-COVID estimate of 26%.

Needless to say, supply chain management has become the Achilles heel in this time of crisis. This is a grave risk for almost all sectors of the economy but more so for the retail as well as the ecommerce sectors as it is the backbone of their operations. Warehousing, logistics, order management, delivery, last-mile delivery, complaint servicing are sectors which would have to retool themselves in order to meet COVID-19 like situations in future. Maybe the supply chains would have to be shorter or have in-built redundancy. This would a fruitful area for management researchers.

The impact of the lockdown on the retail sector across the country has been very adverse and immediate and beyond comprehension. On one side all their cash flow and income has dried up and on the other side, expenses have remained constant. Their debt serving and interest payment obligation remains. Unlike all other businesses, they do not have any goods or merchandise to sell or reduce inventory holding or other such measures which other industries can take. Their Collections have completely dried up during this period, while they continue to bear a high fixed cost towards Personnel, Utilities and on-going routine expenses.

Along with business and retail houses, the impact has directly affected the on ground work force dependent on the retail industry such as, employees at the shops in the malls, drivers of the vehicles of supply chains, service providers such as maintenance and security staff, employees of the food outlets – all largely are from other states in India and would require relief packages in order to meet the expenses in the long run.

Shopping Centre are very capital-intensive business and large portion of the capital is funded thru Banks / Financial Institutions to construct and run their operations, which results in a very large interest and principal outflow on a monthly basis. In fact this is their largest expense head. This partial/full shut down of Malls has a cascading impact wherein not only the Mall owner, but all other related down the line businesses face the probability of Loans going under default due to prolonged shut-down. 

 

It is also pertinent to note that each large Shopping Centre provides employment to over 3000 people are suddenly faced with dwindling Income and immediate disruption of Cash flows. The Mall owners continue to bear a large fixed overhead towards Manpower Costs (like Security, Housekeeping, Engineering, Mall operations etc.) and other expenses like Property Tax, Electricity, Maintenance etc.

It is relevant to note that even after the SC/ Mall open up in the due course of time – there will be many challenges in the Near term which will include:

•        Low footfalls and hence low Sales at the Malls

•        Revenue and collections will take time to streamline

•        GST and other statutory payments will get impacted as well

However, we also see a silver lining to the cloud of gloom that has enveloped the whole earth today. Even in these troubled times, there is hope for the future – more so for the retail and ecommerce sectors in India. We saw many people switch over to e-services during the lockdown period. Media content streaming services will see heavy investments in future.

Opportunities also arise in the shift in categories of goods being ordered online. Medicines, self-help kits, groceries, health related and indoor equipment are the flavor of the season. On the software side, work-from-home tools and apps are futuristic areas. 

The Government has come out with a Rs 1.70 lakh crore fiscal stimulus package aimed at providing succor to the people, especially those living below the poverty line. Many relaxations have also been provided for the statutory and mandatory requirements of the industry and commercial sectors. However, much more is needed, especially if the disease surges as in the West.

The retail industry is in need of much more hand-holding and aid from the government to help overcome the wild tide which has destroyed the retail and e-commerce sector considerably. Certain relief measures that the Retail sector is awaiting on an immediate basis are:

- Waiver of interest on bank loans, NBFC’s for the period the malls are shut. Allow a moratorium period in repayment of bank’s principle amount   without levy of any penalties /penal interest and without impacting the credit rating.

- Provide short-term financing option for a period of 6 to 12 months, at lower interest rates to meet the fixed overhead costs of Malls.

- Further, one-time loan restructuring with lower rates of interest may be permitted for shopping centres/ Malls without the exposure being classified as NPA and accordingly no impact on the Credit Rating of entities.

- Abatement of all Government payments including Property tax, concession fee, Ground Rent and lease rent payment to Government.

- Grant deferment of payment of GST, Income tax & other statutory dues by a minimum of 6 (six) months without any interest, penalties.

- Extension of dates by a minimum of 6 months for filing of statutory returns with various Government departments.

- Issue instructions to appropriate authorities for Inclusion of Pandemic in the definition of natural calamity for the purpose of insurance policies for loss of business / profit.

However, we also see a silver lining to the cloud of gloom that has enveloped the whole earth today. Even in these troubled times, there is hope for the future – more so for the retail and ecommerce sectors in India. We saw many people switch over to e-services during the lockdown period. Media content streaming services will see heavy investments in future.

Opportunities also arise in the shift in categories of goods being ordered online. Medicines, self-help kits, groceries, health related and indoor equipment are the flavor of the season. On the software side, work-from-home tools and apps are futuristic areas.

 The article has been authored by Dr D K Aggarwal, President, PHD Chamber of Commerce and Industry

 

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