The country has entered into phase 3 of the lockdown and the nation is divided into three zones – green, orange and red. Even as the new guidelines by the Ministry of Home Affairs (MHA) allow opening of shops and operations of online firms in districts categorised as green and orange zones during the period of Lockdown 3.0 that began 4 May and will run for 2 weeks, they are still restricted to sell only essential items in red zones, where their biggest markets are located. Kumar Rajagopalan, CEO, Retailers Association of India (RAI), appreciated the move, “The new notification by the MHA is a good start to getting the economy moving. We look forward to clarifications from the States and how they would like to adopt these new guidelines. We hope the Government does recognise the safe space that malls provide for shoppers and opens them up in a regulated manner. The retail industry is still awaiting fiscal aid and policy support to allow it to be able to survive this pandemic.”
A number of online firms have said that they are witnessing a steady growth in traffic after the new directive from the MHA. This enables the firms to sell non-essential items such as phones, laptops, electronic devices, apparel and other appliances, which bring in the majority revenue to the e-commerce platforms like Flipkart, Amazon and Snapdeal, among others. Meanwhile, even as the retailers in green zone are preparing to open their stores after getting a go ahead signal from the Government, the entire process from gearing up to the new market to strategising to survive and then revive themselves will be a long process and would require a new and effective plan of action in place.
The effect and the recovery proposals
The retail leaders need to understand various aspects of business like inventory management, cash reserves, shareholder outlook, adoption of technology and more, in the light of the current crisis. “The challenge to the retailers would be to ensure that they adhere to the new safety norms because when it comes to consumerism, going ahead, health will be the big motto. We will be seeing very low footfalls coming in due to fear in consumer’s mind. Even as a retailer, if we get some footfall, we will have to see and ensure how we regulate the traffic coming in to the stores. Window shopping experience that we have been used to in malls is probably going to go away. We will have to see how we can use the tech platforms in the best possible way to ensure that we keep on servicing the customers as per their requirements. We have not been thinking about shop by appointment till now but probably that is going to be the new norm apart from wearing gloves and masks at the floor,” said Ajay Kapoor, President – Retail, FabIndia, while speaking at a webinar organised by RAI.
India, like other countries, has been living with social distancing for around 1.5 months now and this will continue for quite some time. While the world will overcome the crisis over the next few months, people will emerge with new ways of doing things, especially when it comes to consumption. It will definitely not be the same and the retail brands have realised the fact and are adapting to what will be the new normal. “We have to unlearn what we had learnt earlier and adhere to the new norms,” asserted Ajay. Post the lockdown even as the footfall will remain extremely low in the malls, the initial shoppers would include the millennials going for revenge buying, discounts, bargains, etc. In this phase, it would be extremely important for the malls and retail stores to set an environment of safety amongst the shoppers in order to lure more of them in the coming days. Also, shopping malls and retail brands would try to avoid long-term contracts and will most probably, enter into revenue sharing model. Amit Kumar Sirrohi, Head – Retail Business, Raymond Ltd., averred “Brands will take tough calls and close down its non-performing stores. On one hand, there will be supply that will come up, and on the other hand, new malls will also not come up.” Mall owners and retailers will have to understand and appreciate each other’s concerns in order to move ahead and bring the business back.
Sumit Dhingra, Managing Director – India, Sri Lanka and Nepal, Crocs, maintained “Organisations should start modelling various scenarios and that is the way to go forward. In our stores in Korea and China, the demand bounce back has been pretty rapid, it is better than what we planned for and what we expected, but it is backed by promotions as well. Going ahead, it is important that every retailer plans small things for customers, as they will still indulge in shopping because it is a form of recreation, people feel good when they shop and at the same time, they want to be smart with their money. Promotions will become more critical than ever in recovery plan.”Although all businesses are fighting the same war, every retail business needs their own custom-made strategies in order to remain afloat and relevant in the times to come. Going forward, margins will get diluted even further even with the business running, as discounts will be used to ignite demand in the days to come and promotions will become critical in the recovery story.
What’s the ultimate mantra?
The COVID-19 crisis has changed the way shareholders and organisations will now look at cash reserves. While retail leaders are looking at ways to bounce back, among other measures, health and ensuring safety are going to be the primary differentiators. As the country entered the third phase of the lockdown with relaxations from the Government on retail of non-essentials, some brands like Amazon have maintained that it will take staggered approach and will start taking order only for priority products such as work-from-home and be-at-home essentials and then will go on to the product categories that have been most searched by the consumers lately. While Amazon is to follow a demand-led model in the coming days, others and especially the offline retailers are looking at slew of strategies that would work for them. Raymond, for example, has its own plans in place for different phases of opening of the business. “When you begin, business will be very minimalistic, but the decline will gradually reduce as you reach phase 2. Internally at Raymond, we have put it into four phases – complete lockdown, partial lockdown, moderate degrowth and high double-digit growth, and after that actual growth,” informed Amit.
One of the trends that is working for most of the retail brands will be to adopt omnichannel strategy. E-commerce will be the new trend since a majority of consumers would hesitate in stepping out for a long time. Ajay said, “We have always been talking about a conflict between online and offline. This is the time to marry the two now and see the benefits we are going to get out of it. Online is going to grow because it is going to take time for the customer to start having the faith that they are safe and they can actually move out, but that is going to take time. Brands will have to learn how to get maximum from the minimum inventory and how to use online to the best optimum way.”
Furthermore, retailers become cognizant of the fact that footfall will dwindle post COVID-19 and they will have to instill a sense of safety among consumers. Going an extra mile to woo consumers back while complying with the norms on hygiene and social distancing will be the way forward now. Along these lines, shopping by appointment will be the new norm. Ajay said that regulating the traffic coming to its stores while adhering to the social distancing norms will be the biggest challenge and that the brand is working on the concept of shop by appointment.
Also, going forward, as we see further relaxations by the MHA in the coming months, the retailers have already started mulling over whether to go for an end of season sale (EOSS) or rather re-launch the inventory the next year. In any case, the EOSS this time will be about liquidating excess inventory and not pursuing excess sales. Amit explained, “In this EOSS, most of the brands will be entering into it from two perspectives, they will have two conflicting objectives – one objective is of releasing their cash fast and maximising the real value. This is in the context of the obsolescence of the category they are operating. Some brands are already planning to carry the range to the next season also, so that retailers do not go for rampant discounting in the current season.”
Sumit agreed as he said that the amount of discounting and sales would differ from brand to brand. “EOSS depends on how much inventory you are carrying, what your urgency to convert that inventory into cash is and what your cost structure is. The brands which can control their incoming inventory in the next 6-7 months would not go on a very high sale. Second, it will also depend on the speed of recovery. I expect margins will get diluted because of higher discounts and brands will use discounts to ignite demand,” he added. However, the point of contention remains that if fellow brands will go for heavy discounts for an extended period, others will not be in a position to lose market share to that and will have to follow the same trend.
Overall, the trend will dictate the brands to have a differentiating factor and also to create better experiences for whatever limited consumers they are getting at their stores, and this will only help them survive the crisis in the long run.