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The Confederation of All India Traders (CAIT), an apex industry body for traders, recently pointed out that the Indian retail sector has lost Rs 5.5 lakh crore in the first 40 days of the lockdown. Besides, it is also projected that at least 20% of the Indian traders will wind up their businesses in next few months in case the lockdown persists for long. On the whole, there are nearly two crore traders (small and big as well as traditional and modern) employing nearly five crore employees directly. The contribution of this sector to India’s consumption stands at 40%.

The retail sector in India can be divided into three broad categories – organised, unorganised and informal retail. The organised segment constitutes of big traders including supermarkets, hypermarkets and departmental stores who have obtained legal permissions to undertake retail activities and are registered with sales tax, VAT, GST etc. The unorganised sector envelops general merchants and specialty stores like chemists and apparel stores. The third category which is the informal sector, consists of kinara shops, paan shops, push carts and street vendors.

Predicament

An abrupt declaration of the lockdown created problems for all three formats of retail. However, it is the organised sector - particularly the hypermarkets and supermarkets located in big malls or at prime shopping areas - which have been massively hit because of zero sales. Since 60-70% of their costs are of fixed nature like rent, salaries, interest on loans etc – the near zero cash inflow has rendered their owners vulnerable. Kishore Biyani, the owner Big Bazaar and Ezeeday stores has defaulted in terms of payment to the banks for the month of March. Many fine dining and quick service restaurant chains, apparel chains and jewellery chains are also on the verge of default.

The unorganised and informal retailers dealing in daily use goods and groceries have remained less affected. However, with their limited ability to stock items, small businessmen has encountered problems in procurement due to the choked supply chain.  

An opportunity

Rapid urbanisation, increasing disposable incomes and the changed lifestyle of the middle-class in the last one decade or so had propelled big retail chains to situate their stores in big malls even in tier – II cities like Chandigarh, Jaipur, Lucknow, Bhopal etc. Presently, there are nearly 650 malls operational across different Indian cities housing a number of hypermarkets, supermarkets and stores in them and the mushrooming of these malls had affected small businesses in the unorganised sector.

However, in the lockdown and the immediate post-lockdown phases, the organised retail segment is likely to be massively hit.  To begin with, the malls on an average contain 50 to 100 stores which give a wide range of choice to the customers. Since the footfall is expected to remain low in the next few months or even years, it will be difficult for these stores to operate viably, thereby leading them to default in terms of rent payments. Low footfall may also be associated with the lesser flow of tourists (both national and international) who hold a sizeable share in the overall shopping made in the organised sector. Even if some buyers visit these malls or stores, aspirational purchase associated with buying of branded goods impetuously may remain missing due to an overall decrease in income. Further, social distancing, which is to be followed for the next two or three years may also prohibit many from purchasing necessary goods from nearby shops or retailers.

However, the overall loss of the organised retail segment- both on the infrastructural and on the customer front may churn out to be the gain for small businesses and informal retailers. Many marketing experts believe that there is going to be a marked shift in the buying behaviour of consumers because of the pandemic. From the Chinese experience, whose markets have now completely opened up, experts state that in the days to come, customers will undertake fewer short trips to the markets. The shift will be towards planned purchases along with an emphasis on stocking up of goods for future consumption. Additionally, the would be a heightened preference for frozen foods through online payments.  This may be a win-win situation for the small retail sector in India which quickly caters to the needs of the customers without any waiting time or serpentine queues.

The business model of organised retail, based on volume discounts, will go haywire with their sales dipping because of regulated customer entry. Structural problems on the infrastructural front along with changing shopping behaviour of the customers will favour the unorganised and informal retail segment at the cost of the organised retail segment. In a nutshell, this is an opportunity for small businesses to get themselves re-established.

R. S. Bawa is the Pro-Chancellor, Chandigarh University. Rajiv Khosla is Associate Professor, Institute of Management, DAV College, Chandigarh