A Look into the Consumer Retail Space through Covid Days

Retail companies expect gradual recovery from the second quarter with pent-up demand and easing of restrictions

A Look into the Consumer Retail Space through Covid Days
A Look into the Consumer Retail Space through Covid Days
Titlee Sen - 07 July 2021

Demand for retail products decreased internationally during the Covid-19, and companies in India faced a difficult two years. The pandemic resulted in a slowdown of the retailer's function as consumer rates decreased. Retail revenue fell by 20 per cent on average year over year in FY2021. Most firms' income steadily recovered over the year. Throughout the year, cost-cutting initiatives were implemented to help manage cash flow. The majority of firms' gross margins decreased. Companies stated that some talks are underway over the limits imposed during the Covid-19 second wave, which began in mid-march 2021. However, significant cuts from already low levels look improbable.

From Quarter 4 FY2021 onwards, most firms have resumed salaries and do not foresee a major drop in this expense category. However, a 20 per cent drop in the number of permanent workers in Trent's FY2021 annual report had been noted. Companies also cut back on other non-essential costs like travel, advertising, and marketing. Other expenditures were cut by an average of 17 per cent year over year in FY2021.

Companies anticipate a return to former levels of advertising and marketing spending in the near future. Some savings (travel, for example) may persist while limitations are in place; however, the majority of these expenditures will return in FY2022.

Quarter 4 of FY2021 was recently announced, and consumer retail growth appears to be gradually rising. The working-capital cycle (on sales) improved by 20-51 days for all firms compared to FY2020. Throughout the year, the firms continued to increase their contact points and distribution networks. The rate of increase was faster. Demand is expected to continue, according to management, as a result of the rising movement toward new consumer trends.

Restrictions and regional lockdowns prompted by Covid-19 slowed the recovery at the end of Quarter 4. Plans for expansion are on pace for FY2022. In FY2021, network growth slowed substantially, with investment falling by 40 per cent on average year over year. The majority of firms stated that retail growth will be expedited in the near future.

With pent-up demand, the festival season, and the relaxation of restrictions, most firms predict a steady rebound from Quarter 2 of FY2022.

With new products being released and pent-up demand, merchants saw near-normal customer behaviour in Quarter 4. Revenue recovery and expense rationalisation helped the company achieve a cash-positive quarter. Companies' operating performance improved as their operating leverage increased. Costs have crept back up to prior levels for the majority of businesses. Some people continue to talk about future structural savings.

Optimisation of the cost structure. Despite considerable expense reductions, most firms saw decreases or losses in FY2021 due to decreased operational leverage. Fixed rentals, which are a key expense for most shops, decreased by 33 per cent year over year. Employee and other expenditures (advertising, travel) were significantly reduced, with year by year decreases of 12 and 17 per cent, respectively. The majority of these will return once operations resume.

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