The impact of COVID-19 and the subsequent lockdown has been huge and its effects on all the sectors are likely to be seen and felt for a long time. The Indian retail industry, and in that, fashion retail sector, is one of the most affected with consumption pattern going for a toss since consumers stopped spending on non-essentials for the entire duration of the lockdown. These and many other impacts of the pandemic resulted in one of the worst nightmares of the country becoming a reality – job losses.
With immense pressure on the overall retail industry, a survey by the Retailers Association of India (RAI) said that around 80,000 jobs are expected to be cut by various retailers due to the ongoing crisis. The industry body had conducted a survey on 768 retailers employing 3,92,963 people across India. RAI maintained, “Small retailers are expecting to layoff 30 per cent of their manpower going forward, this number falls to 12 per cent for medium (sized) retailers and 5 per cent for large retailers. On the whole, retailers who responded to the survey expect layoffs of about 20 per cent of their manpower which amounts to 78,592 people.” It also said that more than 95 per cent of retailers dealing in non-essential commodities had to shut completely during the lockdown and had practically no revenues and while the country is now reopening businesses, they expect to earn only about 40 per cent of the previous year’s revenue in the next 6 months.
However, Harminder Sahni, Founder & Managing Director, Wazir Advisors, expects normalcy to return soon to the fashion retail industry as he maintains, “Indian economy has been badly hit for last 3 months, so it will have an impact on the overall GDP growth numbers for the FY. Fashion industry is dependent on discretionary spending, but within that it is least discretionary as the clothes wear out, seasons and fashion change. Also, the unit cost of apparel being low as compared to electronics, jewellery and vehicles, etc., the consumer spend will come back in fashion much sooner. Apparel also is a personal hygiene product, and within that, innerwear and comfortwear are more likely to recover fully very soon.”
While the job loss came out to be the most severe impact of the COVID-19 pandemic, which segment in the industry faced the strongest hit? Apparel Resources, in conversation with some of the most insightful retail consultants across the country, finds out.
Where did it hit the strongest?
According to a survey conducted by the Indian Society of Labour Economics (ISLE) on 520 of its members in May, loss of employment was considered as the most severe impact of the crisis while lower economic growth and rise in inequality were the long-term impacts. The lockdown has affected retail business so much that there could be a 20-25 per cent layoff in the sector. The overall scenario with the accompanying fear of retrenchment has left the overall retail industry in distress. According to a report by Forrester, global retail sales will decline by an average of 9.6 per cent in 2020 leading to a loss of US $ 2.1 trillion and in such a situation, the survival strategy would be to reduce cost of operations to the minimum and one of the biggest components of cost is paying the salaries. This decline in revenue generation is leading to job losses.
While it started with the gravest impact on the front-end staff at retail stores, the increasing days of no operations or partial operations started affecting employees across all departments of retail – from designing to buying to sourcing to merchandising and even marketing. “We are expecting significant losses, to the tune of 20-30 per cent jobs being lost and majority of these at the front-end. Front-end loss of jobs could be 50 per cent this year. However, with the opening of businesses, these jobs will immediately come back. So it is a temporary loss of jobs that we should account for. The maximum impact has been on the front-end and probably at head offices. The back-end like manufacturing and warehouses are running at lower capacity, as the labourers have left for their villages. So there’s no job loss there, but business loss in the range of 60-80 per cent due to lack of labour and underutilisation of capacity due to social distancing norms,” informs Harminder Sahni.
The ongoing crisis will result in a number of retail firms that will be pushed into liquidation while many others will be forced to downsize their store numbers which will further reduce the requirement of a lot more employees, and therefore, downsizing the workforce. Also, a number of offline retailers will move online which would cut down jobs at brick-and-mortar stores. While for mall owners, the present crisis is leading to loss of productivity of assets, it is not opening of shops for the retailers. Managing the loss of productivity for the next few quarters will be the most challenging for the sector. Even as furloughs at both shopping centres and retail brands are being said to be temporary, and it’s being said that that the furloughed or redundant workers would then return to their employers, many fear the risk of this pandemic inflicting a ‘reallocation shock’. This entails lasting damage to the firms and even entire sectors that leads to lost jobs never returning, thereby elevating unemployment.
Anuj Kejriwal, MD & CEO, ANAROCK Retail, adds, “The supply chain for several categories, especially non-essentials including fashion, etc. have seen major disruptions due to the pandemic-infused lockdown, right from sourcing of raw materials to labour issues, etc. More than anything, consumer behaviour has changed and with social distancing becoming the new normal, fashion is no longer on the top of the priority list of consumers. It has been sidelined by various essential product categories. If we talk about recovery time, within the fashion category, value fashion will recover sooner while branded fashion may still take a while to recover. The overall revival in terms of demand is expected to be anywhere between 6-12 months from now.” Furthermore, leasing activity in shopping malls is also going down. ANAROCK research anticipates leasing activity in malls to slip down to 3.1-4.3 million sq. ft. area in 2020, which is a yearly drop between 49-64 per cent. This signals to a considerable rise in mall vacancies which will ultimately lead to further job losses at the shopping centres.
Moreover, after front-end, it is the sourcing side of the retail business firm that is facing the worst layoffs. There also have been few job cuts in the buying teams, but not as much as the sourcing teams. It is worth mentioning that while buying teams are responsible for the most critical jobs of buying and in most cases they can do sourcing as well, in the times of crisis, retail brands will furlough the sourcing professionals in an endeavor to stay afloat. Even as the industry is witnessing huge layoffs in sourcing side of the business, retail experts are of the view that sourcing teams are critical to operations and once the business is on track, they will be the first ones to be brought onboard.
The past 2-3 months saw a number of retail brands letting go off their employees. Fashion e-commerce company Koovs sacked about half of its staff or around 140 people in March which entails virtually sacking of whole teams of buying and merchandising and marketing. Blackberrys (Mohan Clothing Company), one of the leading Indian formalwear brands, axed its 120 employees in May. Raymond has laid off hundreds of employees across the board since February. Now, Shoppers Stop too is planning to lay off over 1,100 people and the company has reportedly asked around 15 per cent of the 7,500 staff strength, mostly comprising junior and mid-level workers, to resign. Arvind Fashions, retailer of Gap, US Polo, Sephora, Aeropostale and Flying Machine, has meanwhile deferred payments of 50-80 per cent of staff salaries for April and maintained that this may be impacted for a few more months.
What will be the way back?
Job losses have become an issue of concern not only in India but globally. A Bloomberg Economics research highlights that in the US, about 50 per cent job losses come from the combination of lockdown and weak demand, 30 per cent from the reallocation shock and 20 per cent from high unemployment benefits encouraging workers to stay home and the nation is working on different policy reforms to make the situation better. If the situation keeps worsening and temporary job losses become permanent, skills will be lost and higher unemployment will become entrenched – a concept economists call ‘hysteresis’.
So, what really can be done by retail firms to avoid this situation while also staying afloat in the times of crisis? Harminder Sahni enlightens, “Most importantly, retailers should not get into discounting the stock under pressure because while there have been no sales, there is no production either. So there is no point in discounting the limited stock. Consumers too are not going to buy more than required even if there is a lot of discounting. I would also recommend that the companies should take this year as an exception and not alter their long-term goals and stay on course. This year should be all about survival and holding onto customers, cash and capacity.” He further adds that the coming months will see manufacturing sector offer huge opportunities since more and more companies are willing to source locally and not import. Also with sanitisation requirements, even the physical stores and warehouses will bring in job opportunities for more people than before.
While the overall industry is struggling with heavy losses – both financially and in terms of manpower, there is an urgent requirement of some kind of support from the government in order to keep this industry floating. According to RAI, two out of three retailers employing substantial workforce want employee salary and rent support to manage their fixed costs and limit manpower downsizing and without this, they are looking at 20 per cent manpower reduction. Also, the retail firms are expecting concessions and relief on GST, taxes and loans to ensure business continuity in the face of the revenue downfall and heavy losses.
“More than anything, the Government urgently needs to address concerns on the demand side. No doubt, consumer behaviour has significantly altered post the pandemic, but due to prevailing uncertainties amidst the fear of job losses, consumerism has taken a severe beating. Unless this issue of demand is resolved, focusing on supply will not help,” avers Anuj Kejriwal. However, Wazir Advisors maintains that the industry should plan better to stay afloat and not expect Government support during the times of crisis.
Even as the outbreak in India seems to be better controlled than in some other nations, it has definitely crippled economic growth – estimated at 1.9 per cent by IMF to being negative as per RBI. Anuj Kejriwal asserts, “The pace of recovery will depend primarily on measures taken to maintain public health and the ability to restart production, protect jobs, generate employment and consumption. Fortunately for India, inflation was tamed at 5.84 per cent in March 2020 – the lowest in last 4 months. This provided enough room for the Government to provide Rs. 20 lakh crore economic stimulus during lockdown to ensure continuity of economic activities. The objective was to reduce the impact of the pandemic on agriculture and provide necessary impetus to MSMEs to resume production. To stimulate consumption and ensure liquidity, repo rates and CRR were also lowered to decadal lows of 4 per cent and 3 per cent respectively. As of now, economic growth is anticipated to be reinstated in the coming years with growth predicted to touch 8.7 per cent in 2022.”
The months to come will decide how things pan out for the retail brands and how soon the pandemic is controlled. “Many retailers used the lockdown period to work on new strategies to minimise losses via cost optimisation and also adopted measures to stay afloat. Having an omnichannel presence post lockdown may be considered by many to stay afloat and remain relevant,” concludes Anuj Kejriwal.