NEW DELHI: Stringent lockdowns across states have significantly hit India’s retail businesses, with sales falling 79 per cent in May as against pre-COVID levels of 2019, according to estimates by the Retailers’ Association of India (RAI).
In terms of categories, beauty, wellness and personal care saw the steepest decline at 87 per cent, followed by footwear which fell 86 per cent last month as against May 2019. The quick service restaurants witnessed a dip of 70 per cent, while spending on apparel and clothing plunged 77 per cent and purchases of sports good fell 80 per cent.
Jewellery and consumer electronics also saw a massive 76 per cent and 71 per cent fall in sales, respectively. The food and grocery segment, however, fared relatively better with a decline of 34 per cent. A sustained pickup in inflation may have also prompted consumers to limit expenditure.
Separately, retail auto sales in May was also down by 55 per cent on a sequential basis, according to vehicle registration data issued by dealer association body FADA. When compared with May 2019, sales fell by 71 per cent to just 5.35 lakh units in May this year.
Notably, there can't be an annual comparison this time since India was under complete lockdown in May 2020. Hence, all comparisons have been done with data of same period in 2019 and April 2021 (MoM).
Region-wise, the RAI survey showed that sales in southern India were down 73 per cent in May 2021 as compared to May 2019, while the decline in sales was the steepest in West and North, falling 83 per cent. Eastern region saw sales decline by 75 per cent.
"Retailers are looking forward to some improvement in the month of June with gradual unlocking. However, the retail industry needs the collective support of various government bodies to tide over the present situation," RAI CEO Kumar Rajagopalan said. The optimism comes as many of the states have now slowly begun easing restrictions in a calibrated manner.
With consumption declining steadily since the past year following COVID-led lockdowns, retail businesses have been under tremendous financial strain on numerous fronts, including rentals, salaries, electricity charges, various taxes and licence fees.
Many retailers are also now reviewing their overall financial stability under a variety of different scenarios and, if required, engaging with lenders to refinance loans. The COVID-19 virus has already forced a number of businesses to wind up, even as some took the merger and acquisition route - a strategy that could help sustain small firms.
However, one can't ignore the fact that as more people get vaccinated and the country opens up gradually, there could be a shift in spending patterns. Consumers are likely to splurge on services like restaurants, entertainment, travel and tourism and spend less on goods, at least till the festive season.
While businesses are still holding on to hope, economists have painted a grim picture of the consumption story. Last year, retailers benefitted from the pent-up demand during the festive months of October-December after the virus-induced recession diminished spending in most sectors of the economy.
But, this year could be different. "Last year, deposit growth had moved up as people turned cautious and started saving more to take care of future employment and income uncertainties. In contrast, growth in deposits with scheduled commercial banks (a proxy for household saving, having 50 per cent share in households’ overall savings portfolio), has declined starting April this year. This could be indicative of pressure on incomes and a simultaneous rise in medical expenditure given the heightened ferocity of the second wave. This, in turn, implies that the prospects of a pent-up demand could be bleaker this time," wrote economists of Crisil Ratings in a report on June 7.
Private final consumption expenditure (PFCE) is the biggest demand-side driver of India’s GDP. In FY21, PFCE contracted a massive 9.1 per cent on-year, compared with overall GDP contraction of 7.3 per cent. This meant PFCE (in real terms), at Rs. 75.6 lakh crore, got pushed back by two years to nearly fiscal 2018 levels (Rs. 73.3 lakh crore).
Thanks to some pent-up demand and optimism on account of an improvement in the pandemic situation, PFCE growth turned mildly positive (2.7 per cent year-on-year) in the last quarter of last fiscal. However, the second wave has put renewed pressure on it.
The Reserve Bank of India’s latest consumer confidence survey, conducted across 5,268 households in 13 cities, buttresses this: the Current Situation Index fell to a record low of 48.5 in May from 53.1 in March (a reading above 100 shows optimism).
Households were also not confident about the future, with the Future Expectations Index dropping to 96.4 from 108.8, after remaining positive for nearly a year since May 2020.