Retailers in smaller cities are likely to see business recovery sooner than those in metros thanks to the limited impact of the lockdown, migration to smaller cities and better rural income, Motilal Oswal Financial Services said.
Demand in smaller cities could return to normalcy by the festive season in October-November, the broking firm’s analysts said in a report. However, overall revenue in FY21 could be lower by 20-30%. Retailers expect a full recovery over the next six to nine months.
“Demand in smaller towns is recovering faster. Smaller towns are less impacted by the lockdown and retailers are expecting normal demand by the festive season in Oct-Nov’20 due to reverse migration," said the report, compiled after interviewing multiple regional retailers to gauge demand in non-metros.
In fact, regional retailers in smaller towns cities are seeing footfall at 50-60% of pre-covid levels. In cities where the coronavirus cases were limited, consumers are returning to stores, indicating pent-up demand. The report said sales were already in 60-70% of pre-covid levels “as now, only serious buyers are turning up".
Currently, customers are purchasing low ticket size essential products. However, the kidswear segment has seen a spike in sales, while demand for wedding clothes has dropped sharply.
India is opening up at a time when the cases of covid-19 are rising steadily, particularly in its largest cities Delhi and Mumbai. As a result, several companies are betting on the rural markets. The government’s fiscal stimulus announced in May promised several measures to support income among rural households. “With the implementation of agricultural reforms and healthy rainfall, farmers will have higher disposable income, thus supporting demand," the report said.
Rating agency Crisil Ltd said in a separate report that the overall apparel retail market could see business dip by 30-35% this fiscal “because of temporary store closures, restricted mobility and low-income visibility for consumers". However, value fashion retailers could be insulated from this slump in business as a greater presence in tier 2 and 3 cities could help them arrest some loss in business.
Crisil’s analysis was based on a sample of 60 apparel retailers and modelled on a staggered easing of the lockdown, and the majority of stores reopening in June. Crisil said demand is expected to recover to pre-lockdown levels only during the October-December festive season.
“In a lot of the tier 2 and 3 cities, business is at 70-80% of last year," Siddhartha Bindra, managing director of clothes retailer Biba said in an earlier interview with Mint. The retailer said it is now hoping to capitalize on the festive season and expecting some recovery in demand to emerge by then.