Over 7 lakh small stores may have shut shop due to lockdown

India has about 10-12 million small retail outlets selling grocery and other FMCG products.

MUMBAI: Leading consumer goods companies said over 600,000 kirana outlets may have closed during the lockdown, hurt by a liquidity crunch or the return of owners to their villages, and fear that most of them may not reopen.

The stress is also felt in the handset sector, with the All India Mobile Retailers Association estimating that close to 60% of the 150,000 stores selling smartphones haven’t opened after the sale of non-essentials was allowed.

Industry executives said small outlets are also feeling the pinch because distributors are dealing in cash and not offering 7-21 days of credit as before. The industry fears these closures may further delay the recovery of the market.

Parle Products said almost 10% of the 58 lakh small kirana stores that used to sell tea, paan, operate from homes and roadside corners shut down in April and May. Parle category head B Krishna Rao said distributors have lost money from these outlets whose owners barely break even.

“Most of these outlets may have shut down permanently. Even 1-2% of the bigger 42 lakh kiranas have shut down, with owners having gone back to villages and this may remain so for the next 5-6 months. While some of these may reopen, still the closure of small kiranas will affect the reach of companies,” said Rao.

Britannia Industries managing director Varun Berry said that a large part of the store closures may be temporary and they may come back progressively as the lockdown eases, although there might be some long-term reduction of kiranas.

Sunil Kataria, Godrej Consumer Products CEO-India & SAARC, also expects store closures to be a temporary phenomenon, even though the duration is uncertain.

“The reopening of these shops would be dependent on factors like controlling the Covid-19 outbreak in cities, which will provide a sense of safety and availability of labour to run these shops,” he said.

India has about 10-12 million small retail outlets selling grocery and other fast-moving consumer goods but a large number of them are fragmented and located in the hinterland.

In the smartphone market, AIMRA president Arvinder Khurana said several store owners have been hit by liquidity issues, extremely low supplies from brands in the sub-Rs 15,000 segment, absence of consumer finance and very few footfalls.

“Amid these challenges, operational costs have more than doubled, which can lead to permanent closure of several thousand stores,” he said.

Smartphone tracker IDC India research director Navkendar Singh said some stores will close down. However, handset companies may support stores in the smaller towns, where penetration is low, in their own interest.

In-store shopping accounts for almost 62% of smartphone sales in India. In FMCG, kirana stores account for about 20% of the industry sales by value, according to estimates.

As per sales tracker Nielsen, there has been 34% decline in FMCG industry growth rate in April as compared to last year, led by a 38% decline in sales in smaller stores which were largely shut even as modern trade growth rate went up by 5%.

Within metros, the contribution of traditional trade has fallen to 68% during the January-March quarter from 73% a year ago, according to Nielsen.

Viren Shah, president of the Federation of Retail Traders Welfare Association, which represents over 350,000 shops in Maharashtra, said that while shopkeepers can’t use local transport for travel, most kirana shops are also burdened with rent.

“As a result, they would rather shut their shop than have issues including fixed costs, delivery hassles and migration of their staff,” Shah said.