The COVID-19 pandemic has had a profound impact on the Indian retail industry. Fashion retail has been the most affected with FY2021 revenues dropping almost 45per cent Y-o-Y.
Hit by the first COVOD-19 wave in March last year, most Indian fashion retailers had recovered from their losses by the fourth quarter of FY2021. They had recovered almost 90 per cent of pre-COVID sales when they were once again hit by the second wave and another lockdown.
Dropping footfalls and revenues
During the second wave, fashion retailers witnessed a sharp decline in footfalls. Their store traffic declined to 25-30 per cent of the pre-COVID levels. Most operated only 15-20 per cent of their store network during April and May 2021. Though their operational store network improved as lockdown restrictions eased in June 2021, they were compelled to operate with restricted timings. Their revenues are therefore, likely to decline by 70-75 per cent Y-o-Y in Q1 FY2022 as against their pre-COVID quarterly sales.
Revenue of these retailers are likely to decline 22 per cent during July 2021-March 2022 period despite improved pace of vaccinations. On the other hand, revenues of food and grocery (F&G) retailers are expected to grow 8-10 per cent in FY2022. Footfalls in this segment are yet to recover to pre-COVID levels. However, the high transaction sizes of these retailers are helping them adjust to the COVID-induced losses. Another segment that witnessed a faster recovery in FY2021 is the electronics retailing segment. Sales and profits in this segment are expected to reach pre-COVID levels in the next three quarters though footfalls dipped during Q1FY2022
Rent and salary negotiations to cut costs
Fashion retailers adopted several cost-saving measures in FY2021 to tide over the pandemic’s effects. These included negotiating rents and salaries and rationalizing overheads. Following the lockdown, retailers are once again invoking the force majeure clause in rental agreements and renegotiating rents for FY2022. Fashion retailers’ employee expenses declined by 20-23 per cent Y-o-Y during FY2021. These retailers are likely to be extra cautious about their marketing and other expenses in FY2022 though they are not likely to introduce any further cuts in employee expenses.
Online sales continue to grow
Most large fashion retailers raised equity during FY2021. This helped them strengthen their balance-sheets and also their capital outlay towards store additions in FY2022. Retailers also increased their online sales by 50 per cent on a Y-o-Y basis in FY2021. Omnichannel retailers, however, had to deal with many challenges including procuring large investments to upgrade their product and inventory offerings, etc. They also had to personalize consumer experiences and allow stores to handle returns and enhance packing/shipping capabilities.
Though omnichannel sales increased during FY2021, they continue to remain low at mid-high single-digit levels of the overall sales mix. This will reinforce the importance of offline retailers in FY2022, though online retailers are also likely to increase presence.
