25% Retailers May Be Out of Business After Lockdown: Retailers Association of India

Firms may have to sack 20% of their workforce, says a study by retailers' association.

New Delhi: Around 25% of retailers would require serious infusion of capital to help them deal with the impact of the 21-day nationwide lockdown imposed to check the spread of coronavirus disease (COVID-19), else they would be out of business, the Retailers Association of India (RAI) said based on its estimates.

Says Kumar Rajagopalan, RAI chief executive officer: “It’s a tough situation until the government comes to the rescue. Non-food retailers have had no revenues during the lockdown, yet their fixed costs continue.”

To add to the woes, retailers who are members of the association say that they have to get rid of 20% of their workforce to survive, with smaller retailers saying it would be as high as 30% after the lockdown is lifted.

The sobering news is that retailers — including big firms like Reliance Retail — and exhibitors are contemplating issuing “force majeure” notices to shopping malls and real estate owners, and are in discussions with them to formulate an action plan for sharing the financial burden of the lockdown. Reliance Retail declined to comment.

RAI, which undertook a dipstick study of its 768 members from organised retail (including small, medium and big chains), says that 51% of respondents expect a recovery only in 6-12 months, while 24 per cent believe it will take 3-6 months.

Also, 80% of respondents do not expect to make any profit by August. And in the next 6 months, non-food retailers expect to earn only 40% of revenues compared to what they earned last year.

About 18% of respondents were food retailers, who did not close operations during the lockdown, the rest were non-food retailers, who were forced to shut.

There is a consensus that mall owners are willing to agree to a rent waiver during the lockdown. However, most retailers say their problems of cash outflow would remain for at least 2-3 quarters. So, they require sharp cuts.

Also Read: India’s Unemployment Rate May Have Shot Up to 23% After COVID-19 Lockdown: CMIE

Says Rajgopalan: “With demand and supply mismatch… rental yields have to fall accordingly. After all, rentals constitute around 35-40% of costs, followed by workforce (30%) and holding inventory.”

Retailers are demanding benefits in goods and services tax (GST), removal of minimum electricity charges (imposed even if store is closed), renegotiations of rentals based on revenue share rather than being fixed, moratorium on payment of property tax by mall owners (around 5-10% depending on the state) the benefit of which can be passed on to retailers.

Says Arun Sharma, chairman of Select group, which runs Delhi’s upmarket Select Citywalk and houses big retailers from Zara, H&M, Starbucks, and exhibitors like PVR: “We have got requests from restaurants, retailers and movie theatres to waive rentals, defer them and some have asked for discounts. We are in wait-and-watch mode and are hopeful that government will address the issue.”

Mall owners have their own challenges. Says Anuj Puri, founder of real estate consultants Anarock, which has many mall owners as clients: “Mall owners have taken lease rental discount from banks, so rent is going to the banks for payment of loans. If rents go down, they have to top up, but in the current position of real estate across sectors it will be difficult for them to do so and therefore they could default and the loan will become an NPA for mall owners who are leveraged.”

However, many retail experts say shopping patterns could change fundamentally after COVID-19 is controlled. For one, millennials could be more careful in going for buying sprees on clothing or food, as the long stay at home has made them conscious that one can live with less, they say.

By arrangement with Business Standard.