Rating agency ICRA has stated the COVID-19 outbreak is credit negative for India’s retail industry in the short-term amid shutdown of malls as well as closure of non-essential stores across most states in the country. With consumers forced to defer discretionary spends, revenues and profitability, will be adversely impacted in the short-term, which in turn affect credit profile of the Indian retail industry. While consumer sentiments are likely to remain weak in an adverse economic environment, uncertainty around employment prospects is also likely to result in lower purchasing power.

Lifestyle and fashion retailers, primarily those having higher contribution of apparels, consumer durables, jewellery, accessories and footwear, among others, will be impacted the most because of these restrictions and overall curtailment on the movement of people, resulting in demand pressures over the short-term. However, the food and grocery retailers have witnessed a sudden spurt in demand as consumers have started panic buying around uncertainties of stock-outs and closure of these stores as well,

This impact is however, expected to be mitigated in the long-term driven by healthy demand outlook for the industry supported by favorable demographics, rising disposable income and low penetration of organized retail, said the rating agency.

Many retailers may invoke major clauses in their agreements so that they do not have to pay rentals during this period of shutdown, limiting the impact on their profitability. The present scenario, however, provides a favorable opportunity for e-commerce food and grocery players. The outbreak of the Coronavirus has led to a sharp surge in online grocery retailing as consumers are wary of stepping out of their homes. These platforms are witnessing increased demand not only from the existing consumers, but also from new consumers. This could also possibly alter the way Indian consumers buy groceries and spruce up the adoption of online retailing for groceries.