Retail needs therapy: Future and fortunes of a business after coronavirus

Modern, organised retail is bleeding as the coronavirus pandemic keeps India indoors and shuttered. Arvind Singhal explains what it will take to get this business back on its feet.

India’s economy slowed down in March, but it is projected to have managed a gross domestic product (GDP) growth of about $3,000 billion at the end of FY20. Private consumption accounts for about 58 per cent of GDP (around $1,700 billion). Of such consumption, about 48 per cent (or about $825 billion) is consumer spending on merchandise (the size of India’s retail sector) and the remaining $875 billion is spent on a range of services (and small savings).

Traditional mom & pop retail accounts for the largest share and will continue to do so, despite the Cassandras crying for the last 15 years that large (physical and digital) businesses will decimate them. India has an estimated 17 million independent retailers and their number is likely to increase to 20 million by 2025, despite the growth of modern, organised retail (brick and e-commerce).

India’s economy was expected to grow by about 3 per cent in FY21 and by 4.5 per cent in FY22 before returning to 6 per cent growth from 2023. A sharp fall in growth will have a significant impact on what India consumes in the next six or eight quarters as purchasing power diminishes. Accordingly, this will influence the fortunes of the retail sector across all types of channels and formats.

Food and grocery accounts for about $550 billion of the $825 billion consumer spending on merchandise. This spending is likely to see the least impact, either in terms of volume consumed across different sub-segments, or on retail channels selling food and grocery.

Textile and apparel, at about $65 billion, is the next big category in consumer spending on merchandise, and it may suffer the most from the coronavirus. Just about every textile and clothing manufacturer (including those in exports) is likely to have stocks of raw material and semi-finished or finished goods. With textile and apparel stores shut, their stocks run the risk of becoming slow-moving as summer goes. After the nationwide lockdown to contain the coronavirus ends, it is quite likely that spending on clothing (and accessories) would not be a priority for most consumers in various income strata. Clothing and fashion retailers may face tough times well into 2022.