The Business of Fashion
Agenda-setting intelligence, analysis and advice for the global fashion community.
Agenda-setting intelligence, analysis and advice for the global fashion community.
Last week, malls and markets in Delhi began re-opening after almost two months of lockdown. Other cities and some states, too, are now beginning to emerge from the worst of their battle with India’s devastating second wave of Covid-19 infections, but questions remain about the appetite for consumption in the wake of such an acute humanitarian disaster.
Indian consumers did show a propensity to leave home and spend money following the country’s initial Covid-19 outbreak last year, with many of the country’s major retailers reporting revenues returning to pre-pandemic levels by the fourth quarter of India’s fiscal year, from January to March 2021, and Retailers Association of India (RAI) data showing a February return to 93 percent of pre-Covid sales. But not everyone is sure there will be a repeat of this bounce back.
“It will be different, we don’t know exactly how,” says Suparna Mitra, chief executive of the watches and wearables division at Indian accessories and hard luxury group Titan Company Limited.
According to Mitra, the crisis last year was more of an economic one, following six weeks of national lockdown which squeezed incomes for India’s burgeoning lower middle class of consumers. Indeed, India’s economy was one of the world’s worst affected in 2020, contracting 7.3 percent in its fiscal year ended March 31.
This year, the crisis has so far been more of a humanitarian one, impacting people of all income levels from all corners of the country. Compared to the first wave peak, which saw over 97,000 cases per day in 2020, this year’s second wave peak hit more than 350,000. Daily death rates that topped 1,200 during last year’s wave rose to over 6,000 earlier this month. In all, over 380,000 are now known to have died from Covid-19 in India, with many believing deaths have been drastically undercounted as hospitals and morgues in states around the nation were overwhelmed.
“There is a certain mood difference because it’s not something that is very distant. People have seen the pandemic at very close quarters, in their families, losses of human life have been very close and it has unnerved people,” Mitra said.
Consumer Confidence at Record Lows
Data released last week by the Reserve Bank of India confirms consumer confidence is at record lows. Its consumer confidence index fell to 48.5 in May from 53.1 in March (100 is the level that divides pessimism from optimism).
Abheek Singhi, who leads Boston Consulting Group’s Asia-Pacific consumer practice, says its research also shows consumer confidence in India is lower now than it was as the country re-opened in 2020.
“Consumers are hesitant to resume non-essential activities until the situation becomes normal,” he added.
Retail in India is on the back foot as of now. The second wave is ebbing, but a third wave is expected.
Clearly, such non-essential activities include shopping for discretionary items like fashion and beauty.
For the month of May, India’s retail sales dived 79 percent compared to pre-pandemic levels. The chief executive of the Retailers Association of India, Kumar Rajagopalan, has estimated retailers lost between $25 and $30 billion cumulatively in April and May.
“Retail in India is on the back foot as of now. The second wave is ebbing, but a third wave is expected. As all this happens, the one sector that is hit most is retail,” said Harish Bijoor, a brand expert and consultant based in Bengaluru.
The broader macroeconomic environment is likely to be causing concern for retailers in India, with both inflation and unemployment rates rising since the latest rounds of lockdown began in April.
At this point, India’s government is sticking to its forecast of economic growth at 10.5 percent in the fiscal year that started on April 1, but last month, the State Bank of India — the country’s largest lender — lowered its growth forecast to 7.9 percent from 10.4 percent.
“GDP growth of less than 10 percent will be a — I won’t use the word disaster, but it will not be very beautiful,” SBI’s chief economist, Soumya Kanti Ghosh, told Reuters.
All this said, there are some glimpses of hope on the horizon.
Brand Leaders Recalibrate Expectations
Although India’s overall retail market is huge, the fourth largest on earth according to a report released by Deloitte and the Retailers Association of India, which also estimated pre-pandemic that it would be valued at $1.2 trillion this year, the proportion of organised physical retail remains small.
In 2017, only 9 percent of the total retail market was composed of organised physical retail — meaning activity undertaken in high streets, malls and department stores — as opposed to markets and stalls, according to India Brand Equity Foundation (IBEF) data.
We will have to recalibrate expectations for the first half of this fiscal [year] for sure.
That share is set to have doubled to 18 percent this year, IBEF added, and will be further propelled by a desire from post-pandemic shoppers for tidier and more hygienic environments in which to shop, given their recent, and often disquietingly personal brush with a dangerous virus. Though how quickly they’ll return to any kind of store is an open question.
Arvind Fashions, which operates 28 brands in the Indian market, including Tommy Hilfiger and Calvin Klein, said in its recent earnings statement that its fourth quarter results to March 2021 exceeded the same period a year earlier, with revenue rising 14 percent year-on-year. Tommy Hilfiger recorded sales 25 percent higher than a year earlier and Sephora’s sales rose 14 percent year-on-year. The firm is not expecting to see a similar performance in upcoming quarters.
“We will have to recalibrate expectations for the first half of this fiscal [year] for sure,” said Kulin Lalbhai, director at Arvind Fashions and executive director at Arvind Limited. “[But we will also] need to be nimble on costs and inventory so that we can quickly react if the markets pick up in the second half.”
Similarly, major Indian retailers, including Shoppers Stop, Aditya Birla Fashion & Retail, Relaxo Footwear and V-Mart have indicated in their respective quarterly earnings reports, released since the second wave hit, that they don’t expect normalcy to return in the first quarter of this fiscal year through the end of June, even as stores begin re-opening, because consumer spending will remain subdued. They indicated that the recovery may start from the second quarter (which runs July to September), as the festive season starts.
Subdued Recovery Starting in Festival Period
Starting with Onam in August and Ganesh Chaturthi in September, India’s festive season peaks during Diwali in November and continues until Christmas. It’s traditionally the busiest period for the country’s retailers.
“We expect recovery to start from Q2 and progressively get better in Q3 and Q4. This year, Diwali and Dussehra are early, so this would also help in bringing back the business on track,” Venugopal Nair, chief executive and MD of Shoppers Stop, which operates 84 department stores, as well as 127 specialty beauty stores for brands such as MAC, Estée Lauder, Bobbi Brown and Clinique, told investors on a recent earnings call.
Perhaps even more than organised physical retail, e-commerce, too, will be a beneficiary in this new era of Indian retail. From 3 percent of the retail market in 2017, IBEF estimates it will account for 7 percent this year.
Over the last two weeks, large states like Maharashtra and Karnataka began allowing the sale of non-essential goods online, and Amazon India country head Amit Agarwal says its customers have responded by shopping online in much the same way they did before the second wave hit.
Pre-Covid [the] contribution of the online channel was 15 percent, and it has gone up to 25 percent of the business.
“This is … not a very long-drawn lockdown, like 55 days last year. We are beginning to see customers, as things open up, shop for the kind of things they shopped for before,” Agarwal told India’s Economic Times last week.
Fashion retailers have seen huge growth in sales via online channels over the past year. Arvind Fashions saw e-commerce sales grow 230 percent in 2020, according to chief executive Shailesh Chaturvedi.
“Pre-Covid [the] contribution of the online channel was 15 percent, and it has gone up to 25 percent of the business,” said Kulin Lalbhai, of Arvind. “We believe this level will hold as customers are becoming very comfortable with online purchases.”
India Market Expansion Plans on Track
Meanwhile, some international brands that had been planning Indian market expansion prior to the pandemic, say their plans remain unchanged in spite of the second wave.
International brands, including Levi’s, Benetton and Mango have all reiterated they plan to open more stores this year, with particular focus on covering tier-two and tier-three cities around the country. Benetton India already has a network of over 850 points of sale across the country. This year, the retailer has opened 12 stores with plans to open another 30 to 40 by end of the year.
All new [store] openings continue to be on the pipeline.
“We have experienced with many other countries that after lockdowns people are willing to go out and dress up, so we believe that … [India’s retail market] will be able to achieve great results after the pandemic,” Mango’s head of retail, Daniel Lopez, told BoF.
“All new [store] openings continue to be on the pipeline and the expectations for the recovery are the same or better than before [the second wave],” he added.
Of course, India is a huge and hugely diverse market, and the retail recovery is going to be an uneven affair across different states, some of which entered the second wave earlier than others and therefore have been able to come out the other side earlier too.
Even as Delhi begins opening up, and states such as Uttar Pradesh (which lifted its Covid-19 lockdown restrictions last week) Gujarat (which began relaxing lockdown restrictions on June 11) and Maharashtra open for business, others have not emerged from their restrictions. Eleven of the 30 districts in Karnataka remain under lockdown until June 21, for instance.
Vaccination rollouts are also likely to continue to be uneven, and take time to make their way across the country, adding to a longer timeline for retail recovery in some areas compared to others. The greatest danger at this point is a rush to reopen before vaccinations become widely available, leading to a third wave of infections.
As of June 3, India’s Ministry of Health and Family Welfare (MoHFW), reported that, of the country’s 1.38 billion people, only 45.1 million have been fully vaccinated — about 3.26 percent of the total population.
After a bumpy start, there are hopes India’s vaccination drive will gain pace. The government has announced 120 million doses will be made available this month, a sharp increase from the 79 million doses that were available in May. This could be the greatest difference between the economic recovery scenarios of the first and second waves, suggest industry leaders.
According to Suparna Mitra, in conjunction with the fresh bruise of India’s latest battle with Covid-19, comes the knowledge that a potential solution is now on the horizon.
“This is the second time around, so the uncertainty about what would happen was very acute last year, it was an unimaginable situation,” she said. “Whereas this time around … people don’t feel as helpless because you have vaccinations now, there is a light at the end of the tunnel.”
However, other industry leaders are quick to point to the likelihood of a third wave of infections coming before a critical mass of the population have been fully vaccinated. This, they fear, could mean the end is not yet in sight.