ADVERTISEMENT

Modi’s Currency Purge Has Retailers Worried

Retailers okay with the short term pain, say they stand to gain in the long run

 Shopping crowds fill the Metropolitan Mall in Gurgaon. (Photographer: Amit Bhargava/Bloomberg News)
Shopping crowds fill the Metropolitan Mall in Gurgaon. (Photographer: Amit Bhargava/Bloomberg News)

From high end luxury bag retailers to restaurants and small local vegetable vendors, the impact of the government’s decision to scrap Rs 500 and Rs 1,000 notes could be felt in various ways across different parts of the retail sector. For now, though, most expect the impact to be short lived.

The retail economy has always partly run on cash. With cash expected to be in short supply, the question being asked is whether consumption in the economy will take a hit. Consumer spending in the economy has been patchy, with urban demand holding up while rural demand has remained soft.

Could the government’s decision to replace high denomination currency notes hit consumer demand further?

It’s certainly a possibility.

Take, for instance, the modern retail segment. Typically, around 40-50 percent of the transactions in this segment are done in cash and could suffer until the circulation of cash normalizes.

There will be some impact on retailers in the short term, but, in the long term, modern retail will see a huge benefit thanks to this move.
Kumar Rajagopalan, Chief Executive Officer, Retailers Association of India.

The modern retail sector hasn’t had it easy for some time now. Competition from e-commerce, along with tepid demand has meant that year-on-year growth in same store sales has remained slow. In the second quarter, Shoppers Stop Ltd., one of the oldest modern retailers in the country, reported a 2.2 percent like-to-like growth. Future Retail, another large retailer in the country, is yet to report earnings.

I think, since a very large percentage of total sales comes out of cash transactions, there will be a short-term impact on retailers till such time banks can fix their logistics.
Rajneesh Mahajan, executive director of Inorbit Malls.

As a short term measure, retailers say they are looking at ways to promote non-cash transactions.

“Suddenly, people have no cash in hand to spend. We are going to promote debit card, promote digital payment. We are going to promote gift cards," Kishore Biyani, chief executive officer of Future Group told PTI.

Mall owners also fear that if availability of cash is low and customers turn wary, footfalls in malls could be hit. This, however, may be transient.

Sunil Shroff, chief executive officer at Viviana Mall base in Thane said he expects the total footfalls to dip over the next two to three days. Activity at malls will normalise after people have managed to convert their Rs 500 and Rs 1,000 currency notes into lower denominations, he said.

Other segments could see some impact too. Premium brands, high end restaurants and luxury travel could be hit if black money goes out of the system.

“A lot of premium restaurants, five star hotels, luxury travel will see an impact as these are segments which see more cash transactions,” said Arvind Singhal of Technopak Advisors.

Singhal added that any impact on broader consumer sentiment will be fleeting till citizens can exchange their old notes for new currency.

A handful of people that BloombergQuint spoke with on Wednesday, however, lamented about the inconvenience that the government’s move is causing them. This inconvenience could have some dampening impact on consumer sentiment in the short term.