Salary cuts more feasible than job cuts, say experts; peg recovery period for retail at 9-12 months after lockdown ends
The short-term impact of the coronavirus pandemic on retailers in the country will be severe, but retail sales recovery period for India is expected to kickstart from the first week of May subject to the lockdown not being extended further,
Post-lockdown, unemployment rates are set to soar, reveal surveys. According to CMIE, estimates on unemployment shot up from 8.4 percent in mid-March to the current 23 percent. "The employment rate fell to an all-time low of 38.2 percent in March 2020. The fall since January 2020 is particularly steep - almost spectacular. It seems to have nosedived in March after having struggled to remain stable over the past two years. Then, there is a precipitous fall,” CMIE said.
— CMIE (@_CMIE) April 7, 2020
The short-term impact of the coronavirus pandemic on retailers in the country will be severe, but retail sales recovery period for India is expected to kickstart from the first week of May subject to the lockdown not being extended further, a report by Capillary Technologies said.
The retail sector employs 40-50 million people directly. Of this, modern trade employs more than 6 million equaling to almost 12 percent of the total retail consumption of the country. The industry has more than 15 million retailers, both small and big, traditional and modern trade.
"There are over 15 lakh modern retail stores in India generating a business of almost Rs 4.74 lakh crore and employing over 60 lakh people. Due to the COVID-19 pandemic, by end-February, business had dropped to as much as 20 percent to 25 percent. In the past one and a half months, it has further reduced to 15 percent,” said Kumar Rajagopalan, CEO, Retailers Association of India (RAI).
RAI had conducted a survey of 768 retailers, which employ 3.92 lakh people across India, to gauge their view on the impact of COVID-19 on their business and manpower.
"Small retailers are expecting to layoff 30 percent of their manpower. Going forward, this number falls to 12 percent for medium (sized) retailers and 5 percent for large retailers. On the whole, retailers who responded to the survey expect layoff of about 20 percent of their manpower," RAI said.
The expectation of retrenchment of 20 percent of employees by those featured in the survey amounts to 78,592 people.
The Retailers Association of India in partnership with the Trust for Retailers and Retail Associates of India (TRRAIN) had organised a webinar on The Impact of COVID-19 on Indian Retail. Moderated by BS Nagesh, Founder TRRAIN, Chairman-RAI and non-executive Chairman-Shoppers Stop, the webinar had a discussion with Rajagopalan; Anuj Puri, Chairman, Anarock Consultants; and Pinakiranjan Mishra, Partner and sector Leader, retail and consumer products, Ernst & Young India.
Job losses or salary cuts
Job cuts should not be on the agenda of the management post-lockdown. With talks about salary cuts in the prevailing environment, Pinakiranjan Mishra, Partner and sector Leader, retail and consumer products, Ernst & Young India said job cuts may be lower. "People will go for salary cuts than job cuts. Earnings will go, but there will be cushions," he said.
Salary cuts can be managed and is better than job cuts, said BS Nagesh, Founder TRRAIN, Chairman-RAI and non-executive Chairman-Shoppers Stop. "People will be compassionate about it as it is coming from health point of view," he said.
The sector experts and analysts felt CEOs should focus on growth and cutting costs. Nagesh pointed out to what the focus should be for organisations: Managing key talent is very important, he said. He said when job cuts were opted for during the 2008-09 financial crisis, organisations lost key talent who were subsequently hired and paid better compensation.
With people working from home and many tasks being done digitally now due to the outbreak of coronavirus and the government announced lockdown, organisations have new learnings from this experience. The retail sector will have realised it may not need as many people as they did earlier. "CEOS will try and manage people with salary cuts and sit out 2-3 quarters," believed Nagesh.
Another lesson for CEOs and managers would be to cut down on discretionary spends. Anuj Puri, Chairman, Anarock Consultants said this would be demonstrated best by top leadership who could consolidate office space, curtail travel costs, entertainment budget, etc.
Another way for CEOs would be take salary cuts. "It is top leadership that can take pay cuts in graded percentage and tenures and progressively the middle and lower rungs. Don't touch the bottom rung at all," Puri said. In 2009, the financial crisis led to wealth erosion, but in 2020, the lockdown has led to loss in productivity. Hence, there is a need to conserve cash and not lose talent, he pointed out.
When organisations are able to recover from this crisis, Puri said they should be consider returning the cut in salaries to its employees. Organisation should not be opportunistic, he said.
Around 70 percent of retailers expect business recovery to happen in more than 6 months, 20 percent expect it to take more than a year, revealed a survey by RAI.
Given the losses that stare at the sector with many stores, malls being shut and workers sitting idle, the sector would require capital infusion to recoup. Retailers want the government to provide employer support, waive off rentals; relief on GST, taxes and loans; relief on electricity and other utilities. It would turn to the government for a stimulus package, if one is announced, the participants of the survey said.
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