Retail Business Goes For A Toss

At Gopal General Store at Gurgaon in Haryana, the first thing you notice is a sign that reads ‘Aaj Nagad Kal Udhar’ (‘cash today, credit tomorrow’). Since midnight on November 8, the entire nation seems to be chanting the Gurgaon store’s mantra, “cash today!”

Indians across the country rushed to banks and ATMs to withdraw money and many continue to queue up every day. The demonetisation of the old Rs 500 and Rs 1000 currency notes has hit both retail and wholesale transactions. The customer-to-retailer and retailer-to- distributor traffic has slowed down. Many wholesalers, who primarily deal in cash, have stopped trading altogether.

Urban India, particularly the metropolises, have been relatively less impacted by the nationwide cash crunch because of the predominance of POS (point-of-sale) devices like swipe machines for credit and debit cards. Semi-urban and rural parts of the country have been hit harder by the scant availability of cash. Demonetising the two high denomination notes has reduced the volume of transaction at retail stores and squeezed retailers’ margins.

Distributors too are not able to push volumes and are hesitant to invest further, afraid that their capital would get blocked. The Narendra Modi government’s strike on the shadow economy has also hit hard legitimate business in sectors like real estate, consumer durables, FMCG (fast moving consumer goods) and even media and entertainment.

‘Gone For A Toss’
Sunil Gadgil, director marketing at Nivea India, says sales had “gone for a toss”. “The top-end stores that have electronic payment (modes) are getting the benefit but stringency is being felt at the low-end stores. Consumer trade is struggling with the payment cycle,” Gadgil says.

Organic Harvest founder, Rahul Agarwal says, “We too are facing a slowdown of consumers’ discretionary spending and this is majorly affecting the beauty and luxury segment. We see this trend emerging for the current quarter that will impact the sales growth of the company.” The company is pinning its hopes on normalcy returning to the market once liquidity begins to flow back to it.

During the festive season, Mother’s Recipe saw a growth of around 20 per cent to 22 per cent in sales. Since November 9, it has had to educate its supply chain and traders of the use of POS devices and technology. Sanjana Desai, head business development, of Desai Brothers, which owns Mother’s Recipe, says, “We predict there would be an impact of at least 25 per cent to 30 per cent on the volumes during this sales cycle in traditional trade, which accounts for 72 per cent of overall sales for the FMCG sector.”

Media industry sources point to the diminishing visibility of FMCG advertisements since demonetisation. The sources say top media houses have witnessed cancellation of advertisements worth almost Rs 30 crore in a single day, driven by fears that consumption would plunge because of the cash crunch. Advertisements in the classifieds section of newspapers, which are usually paid for in cash, have been particularly hit by the currency crunch.

Videocon COO, C. M. Singh, admits that he was flummoxed in the first few days that followed the demonetisation of the two widely used currency notes. He was not unnerved though, since the festive shopping season was over by then. “The good part is that in the cities, 60 per cent to 65 per cent of the sales are financed and this move came post-Diwali, where we have a cooling off period,” he says.

The company has since launched a ‘Buy in 2016 and Pay in 2017’ scheme to mop up the remaining part of its sales target for the year. The scheme offers Videocon products at zero down payment and no equated monthly instalments in 2016.

Industry experts believe that the demonetisation may have also slowed down car sales by 25 per cent. Society of Indian Automobile Manufacturers (SIAM) had earlier estimated that passenger vehicle sales would touch the three million mark in the ongoing financial year. Vishnu Mathur, SIAM secretary general, says rural markets, driven primarily by cash, account for 35 per cent of car sales in the country.

In the case of two-wheelers, rural market sales are as high as 50 per cent. With demonetisation having sucked cash out of the economy, both the organised and unorganised segments of the automotive industry have been hit hard. John Paul, vice president, Federation of Automobile Dealers Association, feels that demand in the automobile sector would be in the slow lane over the the coming six months.

Devang Sampat, director, Strategic Initiatives, Cinépolis India, sees the cash crunch as a temporary phase. He says he had already begun seeing improvement in collections at movie theatres. “This move has reflected in the fluctuating sales figures, especially in Tier 2 and Tier 3 markets. However, this is expected to be a temporary phase.”

If the situation persists for long, though, it will impact the distribution channel, simply because micro retailers and small town wholesale stores depend on cash transactions and it is difficult for them to switch to the electronic payment mode overnight.

Boon For Some
An Associated Chambers of Commerce and Industry of India (Assocham) paper predicts that the immediate fallout of the November9 demonetisation would be a mushrooming growth of non-bank players like Paytm and Freecharge, as more and more retailers in the goods and services value chain shift to non-cash modes for customer transactions.

According to Reserve Bank of India data, as many as 67 banks now offer mobile phone services to 120 million customers and this number will grow significantly. “Demonetisation has come as a big opportunity for them,” says Assocham secretary general. D. S. Rawat. “It is not only during this immediate cash crisis period that the PPIs would see a huge growth, but going forward also, the system would penetrate into the very small kirana (grocery) stores as well,” says he.

Some marketers too see the shortfall in currency notes as a great opportunity that would pave the way to a cashless economy. Anurag Sharma, Director, AKAI India, thinks it would boost ethical and transparent business across the system. “The ongoing cash crunch has not impacted the industry in a massive way,” he says, “because a significant share of our business is executed through retail financing.”

Shrikant Sinha, CEO, Nasscom Foundation, gives a thumbs up to the government decision. He feels that people were supporting it. “It’s a difficult time for a market,” he says, “but on the whole it’s for the larger good of the economy and country.” Umang Bedi, managing director, Facebook India & South Asia, lauds the Indian government’s drive on black money too. “It helps drive sustainable economic growth. I won’t comment on the mechanism of how it was being executed... but it will promote digital payment and bring transparency, better governance and digital ecosystem,” says Bedi.

abid@businessworld.in