Startups face slump in sales for the first time amid lockdown

Startups in fast-growing consumer categories such as fashion, beauty and furniture are struggling with a slump in demand as consumers pare discretionary spending while the ongoing nationwide lockdown disrupts operations.

The 21-day lockdown by the government to contain the outbreak of the novel coronavirus has upset the supply chains of e-commerce and other companies that are slowly starting to resume normal business. Only essential products such as groceries and medicines are currently being sold on most platforms.

“With the entire country shut for business, startups have to pray for the best, but plan for the worst,” said Mohanjit Jolly, partner, Iron Pillar, a technology-focused venture capital fund. “Assume fiscal Q1 revenue is zero, with a very slow ramp up during the rest of the year. I would not consider business as normal returning in even 12 months,” he said.

Even the two biggest online retailers Flipkart and Amazon India are likely to see a drop in sales this quarter because of weak demand for mobile phones, electronics and fashion, the three categories that make up a majority of their business. Both have temporarily halted sales of all consumer goods other than essential items amid government restrictions.

“Discretionary spends have drastically come down because of demand and supply issues. On the one hand, consumer demand for goods in these categories is down because of the low mood of the nation at this time and the economic hurt coming our way, but we have genuine obstacles in India’s workforce being able to report for work and carry out their work due to lockdown restrictions,” said Anup Jain, managing partner, Orios Venture Partners.

Some startups have even moved to delay payments to vendors and cut jobs, said entrepreneurs and investors.

Earlier this week, online cosmetics and fashion retailer Nykaa informed vendors that it has suspended operations because of the lockdown. Nykaa has temporarily shut retail stores and offices, it told the All India Online Vendors Association. It also informed vendors that its cash flow and income have been impacted and would therefore delay payments of outstanding invoices. Nykaa, which has just raised ₹100 crore from existing investor Steadview Capital, has also said that for now, it will focus on daily essentials such as personal hygiene. Premium workwear brand FableStreet has closed its office, manufacturing facility and retail store, which has deeply impacted its operations and revenue. “From a business perspective, the lockdown has put us in a zero revenue situation and we’re focusing on conserving the current cash and outflow, while minimizing any impact on our partners,” said FableStreet founder Ayushi Gudwani.

Tanvi Malik and Shivani Poddar, co-founders of fashion e-tailers FabAlley & Indya said their brands are present across 31 stores and 450 shop-in-shops and 95% of them were shut because of state directives even before the lockdown was announced.

“While our online sales were close to normal then, we have stopped taking orders on our webshop since the prime minister’s announcement. The near future remains uncertain because of the unpredictability around containing the outbreak and experts claim that the slump will last for at least two quarters. To tide over this tough time, fashion retail brands such as ours are focusing on minimizing inventory losses by slowing production for the summer season, massively cost-cutting across all functions and refraining from any further expansion,” said Malik.

Categories of essential goods such as groceries and medicines will see advance purchases while demand for several others could get pushed out or even truncate, said Abhiraj Bhal, chief executive, Urban Company.

“Second, over time products and services delivered at home (such as e-commerce and at-home beauty) will see a surge in demand, compared to those where the consumer has to step out (malls, gyms, cinemas, physical shopping),” he said.

Urban Co. has resumed a few essential services such as those of electricians and plumbers in a few cities such as Gurugram and Noida.

The impact will be huge for those selling products not considered essential such as apparel, furniture, furnishing and toys, said analysts.

“If there is no income at all, these entities can’t pay salaries and the first hit there will be contract or temporary workers, as well as their suppliers and vendors,” said Prasanto K. Roy, a policy consultant.

Meera Vankipuram from Bengaluru and Nandita Mathur from New Delhi contributed to this story.