After more than two months, markets across the country have started opening up. While this is a positive indication that things are getting back on track, it does not in any way mean that the difficult times have passed. Both the retailers and the manufacturers are struggling to minimise losses and find ways to survive. At the international level, there was an uproar when major retailers cancelled orders and pushed payments at the onset of the global lockdown. Finally, few retailers agreed to delay production and not cancel, as also pay up at extended dates, mostly in the range of 120-150 days. Discussions with many other retailers are still on, and sadly, some have declared bankruptcy, devolving themselves of the responsibility to pay as of now.
Following a similar pattern, nearly all the retailers in the Indian market including big names like Westside, Reliance, Arvind, Raymond, M&S, and H&M to name a few that are doing the rounds have asked their vendors to keep WIP as well as inventories with them for at least 3 to 6 months, so they can first clear their existing inventory lying in their stores and warehouses. This is understandable, but few have actually cancelled orders citing the Force Majeure clause. A letter sent to the industry by one of the bigger retailers indicates that the company is not in a position to go ahead with the orders, but has committed to get back to the supplier with business on resumption of normalcy. To its credit, the letter while articulating the inability to continue with current orders apologies for the decision and seeking understanding and patience in these difficult times.
Retail analysts admit that while order cancellations are less and far between, there will be renegotiations on deliveries and payments. It is not hidden from anyone that the retailers are also in a difficult position, but sadly, the association representing the retailers is in a denial mode and more sympathetic with the difficulties faced by the retailers, so the genuine financial crunch of the manufactures is being underplayed in the name of working together. The association should, in fact, ensure that there is a commitment for full payment of current dues, no cancellations of orders where goods are ready or under production, and fair negotiations on delivery and payment terms.
Not surprisingly, almost every retailer has extended the existing payment terms from the regular 40-90 days to 100-120 and even 150 days, in some cases. While the middle, regional and smaller retailers are directly negotiating with their suppliers, the big national retailers are reportedly asking for discounts to clear dues. While the industry is openly talking about the difficulties they are facing due to the extension in payment dates, no one is ready to be quoted, as they fear backlash once the business is back on track. The Indian retail market is a promising future growth segment and no supplier wants to be projected as unsupportive, but liquidity is definitely a concern.
On promise of anonymity, one supplier shared that a few months back one of the big names in fashion retail came with a payment system where suppliers were forced to follow 18 per cent discount to get payment in one month, whereas the standard time limit to pay is 90 days. Some of the manufacturers who have major business with the retailer changed their bank limit accordingly. Now the same retailer has again changed their policy, extending the payment dates and these manufacturers are again depending on the bank limits. All this has created a lot of difficulties for the suppliers.
Industry is also worried about payment delays in the case of those retailers that have been continuously extending its payment dates. Many companies have standard payment term of 90 days, which was later extended to 120 days on the onset of the pandemic, and then further to 150 days, even now there is no clarity. No one has any doubt on the intention to pay, but the lack of clarity on the issue is making the suppliers jittery. “The main issue is that they are not giving any clarity on payment despite our repeated communications to many contacts in the company, from the accounts department to the CEO. Though they have never refused the payment, they just give a fresh timeline, on each enquiry and this has been going on for almost two weeks,” shared one of the apparel manufacturers whose more than Rs. 8 crore are stuck with a leading retailer for the last 150 days. As crores of rupees are at stake, all apparel manufactures are tight-lipped and do not wish to be named.
According to suppliers, some of the retailers have really stood by them and one such name is Max India, as the retailer has not asked for a discount and is committed to receive WIP. It has asked its suppliers to hold on to the pre-autumn productions, which they will be picking up at a later date. Suppliers of Lifestyles, also a part of Landmark Group, have similar feedback on the issue.
International brands having sourcing as well as retail operations in India have behaved more or less the same as Indian retailers. Another common factor is that retailers are not keen to talk about winter and festival season, and consequently not many orders are being placed for this season. Almost all retailers are now focused on S/S ‘21, which they hope will bring in a new wave of business.
As we wait to see when consumers get back into stores, the chain reaction of the impact of the pandemic is being felt across the supply chain and each stockholder is struggling to stay afloat.