Covid-19: Threat to Modern Trade

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Modern trade is an organised and physical store where a customer can visit. Modern trade generally sounds like our online shopping, but it's not, where shopping online refers to e-commerce, Modern Trade refers to our Malls, Mass merchandise stores, and IT and lifestyle stores. 

Modern trade involves a more planned and organized approach to distribution and logistics management. Modern trade includes larger players such as supermarket chains, mini-markets (Indonesia), hypermarkets, etc. Modern trade is more structured and strategically planned to meet promotional demands. Customer interaction is high, where customers can pick and choose the items and then proceed to check-out. This adds the benefit of choice to the customer, where they can evaluate multiple products side-by-side. 

We all know how this COVID-19 has disrupted our lifestyle, where the concern and fear in a customer's mind have impacted most commercial transactions. Nielsen has stated that this lockdown period, traditional trade has witnessed the sharpest decline, followed by modern trade, cash and carry stores, and then e-commerce. Grocery essentials such as flour, rice, pulses, oil, ghee, personal hygiene items, laundry products, hand sanitizers, salty snacks were some of the products which consumers found out of stock.

 

Let's see the impact on some key segments-

  1. Kirana store and small stand-alone stores-
    The impact on their operations might be minimal, and may even be positive to an extent. Supply chain constraints might not hit them very hard as manufacturers always focus on penetration to this segment since it constitutes a significant majority of the retail sector. The only significant downside they might face is cash flow. Kirana stores are known to offer rotational credit. Even if they reduce this during this period, their cash flow might be affected because of the simple fact that many of them have to go and pick up stocks. 

  2. Mass Merchandise stores-
    Hypermarkets could face the brunt of the shutdown because most of them are located in malls. Standalone stores need to focus on the food and FMCG categories. As hypermarkets tend to have much higher inventory levels, there is going to be a serious issue on this front. In the food segment, many packaged products with a shorter shelf-life, such as juices and other beverages, would have expired and will have to be written off. Even if they are returned to the vendors, the net loss remains as it is only a question of whose pocket the money comes from.

  3. Consumer durables and IT Products-
    These stores will also be hit hard. First is the loss of sales from the seasonal high of certain categories linked to summer, such as air-conditioners. Next, is the shopper behavior of postponing high-ticket purchases in a period of uncertainty.

  4. Apparel and Lifestyle stores-
    One of their biggest challenges will be excess stocks. Physical stores would have to liquidate stocks of the previous season to stock newer styles. Offers including end of season sales and massive discounts may have few takers, given the mood of cautious buying. Any retailer holding inventory of products bought from China may take a significant hit in sales. The apparel category may be spared such a situation to some extent as a chunk of products is sourced from Tirupur, as also countries like Bangladesh and Taiwan.

  5. Online Stores-
    Online retail is not one single segment, and most of the points made about the various categories and segments would apply to different online retailers. Besides, they will face the challenge of resuming their sourcing from various smaller vendors. Medium and small-scale enterprises, hit hard by the lockdown, form a significant chunk of the vendor base for various non-food categories, and this will impact the businesses of online retailers.

 

The Online v/s Offline dilemma

Buying sentiment is not negatively affected, there is likely to be a shopping surge post-crisis, in physical/offline stores. After the lockdown experience, shoppers will be influenced and may feel a strong, compelling need to go out. So, the experience would become a key aspect of shopping and, hence, the appeal of physical stores would be greater than online purchases, at least for the medium term. Functional purchases, or known brand purchases driven by discounts, would continue to be online-driven. If retailers start to cut down on store staff as a means to reduce costs due to Covid-19, it would be a short-sighted approach. The shopper would look out for the interaction and experience at the stores. That is the key differentiator, and any physical retailer who compromises on that front would lose out to others or online retail. 

The government will support only for 3-4 months but cannot run the business for entrepreneurs for 9-12 months. Most retailers will hesitate to take fresh stocks till the festive season. Shopper's behavior is a key element in this revival. Retailers need to earn trust back of customers and eventually it will turn wheel churning back to revival. 

 

Written by - Soham Upadhye

 Editted by - Bushra Makhdoomi

 

 

 

 


Covid-19: Threat to Modern Trade Covid-19: Threat to Modern Trade Reviewed by Bushra M on June 21, 2020 Rating: 5

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