According to a recent report by e-commerce SaaS platform Unicommerce, Indian e-commerce is growing at a steady pace and is projected to hold an 8 per cent share in the overall retail category by 2025.

As per the report, e-commerce order volumes increased by 31 per cent in the July-September quarter as compared to the same period last year, but the average order value declined by 5 per cent. This is also driven by the fact that in order to lure customers, e-commerce platforms have been doling out discounts and deals on products. They are launching sale events like Amazon’s Prime Day, Myntra’s End of Reason Sale, Flipkart’s Independence Day sale.

During the July-September quarter, orders from Tier II and III cities have almost doubled. This growth is driven by consumers living in Tier II and Tier III cities. The increasing focus on regional markets and the rising adoption of smartphones is driving growth from Tier II and beyond cities, said the report.

Ratings agency Icra estimates Indian apparel exports will decline 20-25 per cent in 2020-21. Due to the COVID-19 pandemic, the agency expects domestic revenues to decline by 30-40 per cent. To recover from this downtrend, apparel players bank on the upcoming festive season as they witness an encouraging buildup in their order books.

Domestic sales to recover in Q3

The recovery curve for Indian apparel exporters has been better this festive season though they remain concerned about a second wave of the pandemic, says Jayanta Roy, Senior Vice President and Group Head, Icra. Economic and retail recovery has accelerated sales in the last few months with exporters diversifying across customers and geographies.

During the pandemic, value brands benefitted from increased downtrading in metros coupled with faster recovery in Tier II and III cities and rural markets. However, domestic retailers suffered due to the lack of online presence, segments being catered to and their presence in Tier II and III cities and rural markets. These retailers are expected to recover sales in the third quarter of FY 21.

Government schemes to boost cash flows

Roy believes, extended online festive sales and further relaxations under Unlock 5.0 will support demand in H2 FY21. Rollback of previously announced pay cuts by some corporate entities and government's festive advance schemes will further improve cash flows and support discretionary spending, he adds.

Although revenue contraction in FY20-21 is likely to translate into at least 600 basis points (bps) correction for domestic retailers, the impact on operating profits will be lessened by companies’ cost rationalization initiatives like renegotiation of rental agreements and transition to revenue-share arrangements, employee-base optimization, salary cuts.

As profit margins shrink and operating cycles stretch, domestic apparel retailers will increase their dependence on debts this year, further weakening their coverage metrics, says Icra.

Fast fashion brand H&M is optimistic about India business. Although the world’s second biggest retailer is closing stores globally, it is planning to open new ones in India; both online and offlline, reports Live Mint. Led by Janne Einola, so far, the brand has opened 48 stores in 24 cities besides launching its own portal and its retail on Myntra.

Physical expansion despite headwinds

Before COVID-19, H&M was opening one store every month in India. Now, the brand may go a bit slower but expansion will continue, says Eionala. It is currently opening a new store in Lucknow and plans to open more stores next year. Some physical stores are still closed due to local lockdowns while remaining are operating with restricted hours. The brand’s revenues from physical stores up to August 2020 declined 31 per cent while net sales declined 50 per cent. Yet, the brand plans to continue opening physical stores in India.

Focus on kids’ and casual wear

The brand also plans to focus on online operations and as well as kids wear, says Eionala. During the lockdown, H&M saw growing demand for casual wear, lounge wear and basics. Eionala says, this trend was common for both men’s and women’s apparels. However, women are showing stronger interest for casual and lounge wear, she adds.

COVID-19 has made consumers conscious about their consumption habits. According to her, changing consumption patterns will determine future course for the industry. There will be growing emphasis on sustainability and H&M will benefit particularly since it has been focusing on sustainable operations for years.

India plans

Despite pessimistic industry outlook, Eionala is confident about the brand’s future in India. It has opened almost 50 stores in the past five years and plans to open more stores over the next five years. The brand plans to also launch a loyalty program called Hello Member in the country for better conversations and personalized shopping experiences.

Besides the flagship brand, H&M also plans to launch other brands from its stable like COS, Monki and H&M home in India. It is waiting for the right opportunity to launch these brands and hopes current FDI rules support its India investment plans.

COVID-induced online adoption will be driving the rise of internet shoppers this festive season. According to a RedSeer analysis, there would be around 70 per cent increase in online shoppers to 45-50 million during October sale this year from 28 million last year’s. The gross merchandise value for marketplaces during the October sale would also grow more than 50 per cent from $2.7 billion last year to $4 billion this year.

Smaller e-commerce players Paytm Mall and ShopClues are looking to increase their share of consumer spending in the coming days. Paytm Mall and Singapore-based e-commerce platform Qoo10-owned ShopClues have announced dates for their 2020 festive season sales – Maha Shopping Festival and Mega Maha Bharat Sale respectively. While Paytm Mall has picked October 16-23 for its festive sale, ShopClues’ sale will be live between October 15-21. Moreover, Snapdeal’s Kum Mein Dum Diwali sale will be hosted from October 16 till October 20.

Paytm Mall said that this year’s sale focusing on MSMEs “would be bigger than ever with over 5,500 brands participating in the event.” Over the past several months, the company said it saw more than 2X growth in sales in segments such as groceries, consumer durables, work from home essentials, grooming electronics, toys, kidswear, etc

According to Cushman & Wakefield, the average monthly rentals in Delhi's upscale retail locations of Khan market, South Extension and Connaught Place declined by 14 per cent year-on-year during the July-September period.

According to the data, rentals in malls were stable during the period. At present, malls in South Delhi commands per sq ft monthly rentals of Rs 600, West Delhi Rs 325, Gurugram Rs 350, Noida Rs 250, Greater Noida Rs 125 and Ghaziabad Rs 200.

The consultant noted that key high streets across most cities had become strong F&B (food and beverage) destinations along with other retailer categories across apparel and accessories segments. With most retail businesses being start-ups, they faced working capital challenges and found real estate costs as a big burden.

The consultant said that exits across retail segments were seen and it created new vacancy in the high street locations. With most retailers shelving their expansion plans for the next 6-12 months, new demand was also quite limited.

In such an unprecedented situation, landlords in high streets had to offer lower rents to new space enquiries as active retailers were negotiating hard, Sharma said. In some cases, landlords offered to reduce rents for a short time period or gave rent abatement support.Revenue sharing arrangements as suggested by retailers were also supported by landlords to ensure that retailers stay afloat.

After several months, fashion retailers are once again opening new stores,. Fashion retailer Madame opened six stores in July. It plans to open six more stores in the next three months. Similarly, footwear retailer Metro Brands plans to open 15 more stores in addition to the six it has opened post-lockdown. Cantabil Retail plans to add four-five new stores every month.

Some retailers are shutting down underperforming stores in the city and opening new stores at better locations. For instance, Metro Shoes plans to move its standalone store in Lucknow to one of the malls. Most landlords in Delhi and Mumbai are offering a discount of up to 25 per cent to their retailers until their sales pick up, while others have entered a revenue-sharing agreement.

Retailers are also opening stores in Tier-II cities and beyond, which are projected to recover faster than the metro cities. The company plans to invest Rs 75 lakh- Rs 1.5 crore in opening these stores. Cantabil plans to add company-owned as well as franchisee stores in smaller towns to fuel growth. Similarly, Madame has decided to open smaller 800 sqft franchisee stores as opposed to its earlier average size of 1,400 sq ft. It plans to invest Rs 50- Rs 60 lakh for stocking inventory in these stores.

However, most retailers are opening these stores in anticipation of revival and would have to close them down if consumption does not return to the prem-pandemic level.

Worth over $2.4 trillion global apparel industry, in India the industry employs millions of workers. However, the industry is plagued by various labor rights issues further exacerbated by the pandemic. COVID-19 has impacted India’s garment exports leading to order cancellations, inventory buildups and slower realization of export receivables. It has also affected domestic consumption as new store openings have stopped while existing ones are facing an inventory build-up.

Apparel prices in the domestic market are being impacted as exporters continue to dump their inventory in the domestic market. This is also leading to reduced engagement of casual labor, factory closures and subsequent return of workers to their native places.

Factory closures lead to rising unemployment

Several workplaces across the country are closing down owing to public health concerns and social distancing measures. This has left millions of garment workers jobless. Garment factories in Tiruppur had shut down even before the lockdown as orders from western countries were being cancelled. Two nearby villages – Allapuram and Mannapalayam – suffered the most as all employment in both villages ceased completely.

Garment factories in Bengaluru, Karnataka are suffering due to rising labor protests. In the first week of September, workers employed Shahi Exports’ Unit 8 in Bengaluru refused to enter factory premises as the management had refused to provide transportation services. Most workers employed in the factory cannot afford travelling expenses. Factory management decided to discuss matters with union representatives of Karnataka Garment Workers Union (KGWU) and find an amicable solution.

Promote labor rights

Indeed, it is high time the industry helps garment producers organize themselves within cooperatives. This would enable them to not only access finance and technologies but also facilitates sharing of best practices, boosts productivity and profits, and reduces poverty.

The industry needs to make more efforts towards promoting labor rights and social security, improving health and sanitation, and promoting adequate standards of living. Government intervention in the form of financial assistance, and developmental and welfare schemes can also boost the sector’s growth.

The prevailing crisis has amply manifested the plight of garment workers. In such a situation, the government needs to initiate measures to protect their livelihoods by making various supportive arrangements. The government should ensure maintenance of minimum labor standards in factories. It should trace supply chains in detail and initiate measures to mitigate the exploitation of garment laborers.

Though the pandemic has led to a 45 per cent dip in luxury sales, it has also given the $2.5 trillion global fashion industry an opportunity to tap the potential of digital shows in a post-COVID world. Last month, New York Fashion Week held it first online presentation while the London Fashion Week also live-streamed some of its collections. However, the Indian fashion industry has stuck to the digital space for now. The recent India Couture Week (ICW) was India’s first fully virtual fashion show with pre-made shoots featuring models in designer wedding wear in a sanitized environment. Starting October 21, the Lakme Fashion Week will also be held on a specially designed virtual platform.

Lowers carbon footprint and costs

Indeed digital shows might not offer the charm and glamour of physical ones but they help the industry achieve its long desired target of reducing carbon footprint. A report by fashion technology firm ORDRE and Carbon Trust highlights, every year, the fashion industry contributes 241,000 tons of carbon dioxide to the environment. It is responsible for almost 10 per cent of annual global carbon emissions. One of biggest reasons for environmental pollution is constant air travel by fashion industry professionals, points out sustainability experts. Digital shows restrict air travel hence, they have a lower carbon footprint. Digital shows require a huge energy-consuming infrastructure in the form of massive servers, computers and laptop. Yet, they are greener than physical shows and do not contribute to greenhouse gases.

Sunil Sethi, President, Fashion Design Council of India feels, lower environmental cost of digital fashion weeks is like an icing on the cake as it prevents organizers from discarding sets after the show. In fact, the FDCI recently held its first digital version of India Couture Week where top designers like Falguni and Shane Peacock presented their bridal collection.

Sole focus on product

Another advantage of digital shows is their sole focus on the product, points out Sanjay Garg, Raw Mango, which will present a collection of handwoven textiles at the upcoming LFW. The collection fuses the simplicity of embroidery with the luxury of bandhani.

The digital space can redefine the fashion industry, opines Jaspreet Chandok, Head-Lifestyle Businesses, IMG Reliance. For instance, the virtual showroom in Lakme Fashion Week enables buyers and designers to interact. It also allows buyers to purchase clothes off the ramp after seeing them from any angle. Sethi believes, the future of fashion will be a mix of physical and digital events.

Etailer Flipkart is gearing up to attract shoppers with new sellers, personalized offerings, video conferencing facilities and improved logistic services, for the upcoming festive season sale that begin from October 16, with its flagship event the Big Billion Days. Reports suggest, Flipkart expects more value-seeking buyers from small towns during its six-day sale period. To cater to their demand, the e-tailer has launched services in several regional languages including Tamil, Hindi and Kannada besides instilling a voice and natural language technology to drive adoption.

Focus on social selling and video offerings

This festive season, Flipkart plans to focus on social selling, gaming and video offerings. The platform aims to add value by introducing a wider and affordable product selection led by small local businesses, says Rajneesh Kumar, Chief Corporate Officer. It also plans to work closely with local governments to optimize safe order fulfilment amid the pandemic.

For Big Billion Days sales, Flipkart has added over 3.4 million sq. ft. space across supply chain assets1; roped in 50,000 kiranas for deliveries, partnered with 60 brands to ship goods faster, and doubled its seller base, reveals Amitesh Jha, SVP - eKart and marketplace. The e-com company has launched a new initiative, Brand Advantage, which allows sellers to store inventory in brand’s own warehouses across the country.

New categories with personalized products

To attract more sellers from small towns online, Flipkart is helping several first-time small businesses to launch operations online, says Jagjeet Harode, Senior Director, Flipkart. It is introducing new programs to enable businesses launch more categories and onboard new SMEs.

Personalization is another aspect that helps Flipkart drive sales from existing customers. For Big Billion Days sale, the e-tailer has scaled up personalized offerings through technology, value-driven shopping and expanding its assortments to customers from smaller cities. The festive sale will push the e-tailer’s active online shopper base in India to 160 million, says RedSeer Consulting.

Flipkart employees will create virtual war rooms across cities. The e-tailer will ramp up its partnerships with value brands such as Bata and Max Fashion to offer more choice to consumers at lower price points. It will also source products from local markets through the Flipkart Quick service launched in July. Merchant kiranas will help the firm provide faster deliveries to customers in metros.

Demand for fashion to rise by 40 per cent

Though electronics and smartphones will continue to dominate Flipkart’s sales this season, demand for fashion will also increase with around 40 per cent of new shoppers looking to buy more comfort and lounge wear, says Nishit Garg, Vice-President-Fashion, Flipkart.

As the furniture category will also see a surge in demand, Flipkart has doubled the total number of furniture sellers on its platform besides increasing seller count by 30 per cent. It has also doubled its warehousing capacity to reach 100 per cent serviceable pin codes, with most of them being in Tier II and III cities. To add to the convenience of its buyers, the e-tailer has launched ‘Pay Later’ products and expert chat on its listing pages, for quicker resolution of doubts, informs Manish Kumar, Senior Vice President-furniture.

The firm has partnered with international brands to launch around 320 private brands across babycare, fast-moving consumer goods, sports and fitness, electronics and other categories, adds Dev Iyer, Vice-President, Private Brands. Ankur Bisen, Senior Vice-President, Technopak says, as the pandemic has impacted imports from China, e-commerce firms will have to deal with several supply chain disruptions this year.

Nothing can dampen Indian festive spirit. Despite COVID-19 triggering an economic slump, retailers expect this year’s festive season to be a boom period of the Indian e-commerce sector. Recent reports suggest, Indian e-commerce sector is expected to clock in revenues of around Rs 51,000 crore this festive season that begins with Navratri on October 17. The sector is estimated to grow by 32.8 per cent in 2020 with online shoppers doubling to around 50 million during the festive months, says consulting firm RedSeer. To maintain this growth momentum and meet changing demands, e-commerce players would need to undertake several new initiatives, opines Vijay Bhupathiraju, Retail Analyst, GlobalData. Besides introducing consumer-specific products, they would need to ensure the safety and hygiene of their consumers.

Changing e-commerce trends

Since online shopping bounced back post lockdown in March and April, Indian shoppers have been shopping at a higher frequency and buying across categories. Festive launches and discounts are boosting demand for new products. However, an impending economic slowdown and a fear over job loss is expected to snip their expenditure on non-essential products and goods, says Rajeev Kumar K, Senior Vice-President, Market Development-South Asia, Mastercard.

To encourage shoppers loosen their purses, e-commerce firms need to study their altered consumptions patterns. For instance, social distancing and lockdowns have lowered their need for formal and party wear and boosted demand for loungewear, says Bhupathiraju. Work-from-home has also spiked demand for desk and laptops. Consumers are also shopping for kitchenware, kitchen appliances and home furnishing this year.

To meet these altered demands, e-tailers need to introduce the right product catalogue and undertake appropriate safety measures. They need to encourage digital payments, offer contact-less deliveries, and amp up safety at their warehouses.

Breaking barriers

Along with the increase in the number of online shoppers, their profile too is evolving, say experts. Now, online shoppers have diverse consumption patterns, geographical locations, languages, and levels of disposable incomes. To reach to customers, e-commerce companies are breaking language barriers and using vernacular interfaces. For example, Snapdeal has introduced services in eight languages, while Amazon services are available in six Indian languages and Flipkart is available in five regional dialects.

Flipkart and Amazon have also collaborated with banks for broader coverage of debit card EMIs, alliances with digital non-banking financial companies (NBFCs) for no-cost EMI solutions, and boosting buy now, pay later offerings.

The pandemic has helped e-commerce companies improve their delivery services to rural and areas, says Bhupatiraju. For instance, to increase its festive shipments, Flipkart has onboarded over 50,000 new kiranas while, over 100,000 Amazon-enabled local shops, kiranas and neighbourhood stores from across India are geared up to serve their customers across India.

Ratings agency ICRA has assigned a 'Negative' credit outlook on the value and lifestyle fashion retailers as it expects their revenues to decline by 35-42 per cent in FY21, with an expected decline in their operating profit margin (OPM) by 300-500 bps.

According to the agency, fashion retailers will witness a material weakening in their credit profile in FY2021, though some of the retailers have strong liquidity and/or financial support from a strong parentage. F&G retailers are expected to report 3-7 per cent revenue growth in FY2021, with increased proportion of food and staple products (vis-a-vis general merchandise) in their revenue mix, it said.

This would weaken their gross margins on a Y-o-Y basis. However, it is expected to weaken their credit metrics. To conserve cash and optimize working capital, most of these retailers have restricted fresh inventory purchase during April to October as they are looking to carry forward their spring-summer inventory till the autumn season.

Since JioMart announced its plan to venture into fashion and electronic e-commerce, experts have opined the e-tailer would find it extremely tough to make inroads into e-commerce market currently dominated by Amazon and Flipkart. As per a Live Mint report, in the past six months, Reliance has raised more than $21 billion for its digital unit Jio Platform. This month, its retail unit, Reliance Retail, bagged about $1.8 billion from private equity firms Silver Lake and KKR. This would help the company transform itself into a 21st century digital giant and India’s answer to Amazon, Facebook, Google, Alibaba and other world-class digital giants.

JioMart launched its e-services late last year. The company aims to deliver products from local kirana stores for which it will connect 3 crore kirana stores with neighborhood customers. Its entry in the online grocery market will expand the market 20 times to $29 billion 2024, says Goldman Sachs. Reliance’s partnership with Facebook will help the firm to garner market share of more than 50 per cent by 2024.

Low order value slows expansion plans

JioMart sources majority of its orders through the Reliance Retail supply chain. The e-tailer signs up with a few thousand kirana stores every month, though analysts believe, its expansion rate is slower rate than other e-tailers. The company’s average order value is lower than that of other e-grocers as its delivery costs are higher. Though Reliance plans to expand its e-grocery market to smaller cities, it may find it extremely difficult to maintain profitability in these markets.

Reliance will boost profit margins by selling more products through private labels. The company plans to sell private labels both in grocery and FMCG categories. These products form a key component of its retail and wholesale business plans However, Reliance’s focus on private labels is making large FMCG companies such as Hindustan Unilever, Marico and Dabur, wary of working with its B2B arm. To create an integrated ecosystem, Reliance will have to work with many kirana stores, brands and modern retailers across the country.

Focus on private labels

Analysts believe, though Reliance has a better chance to push its private labels in wholesale and retail markets, it may struggle to scale in electronics and FMCG categories, currently dominated by big brands, kirana stores and e-commerce firms. Particularly in fashion, it will have to tap low-priced private labels to attract customers.

Google and Facebook have invested more than $10 billion in Reliance as they plan to enter the Indian e-commerce market and expand in other sectors like payments and content. Both these companies will collaborate with Reliance in a few areas. However, they may end up competing with the firm in others

As the pandemic has made e-commerce indispensable, the government has softened its stand towards US e-commerce firms. This has encouraged Flipkart and Amazon to step up their lobbying efforts to counter growing Reliance might. However, the winner amongst these three will ultimately be decided by the consumers.