Demonetization's Impact On Indian Retail
by Mr. Pankaj Renjhen, Managing
Director – Retail Services, JLL India
The Narendra Modi government’s demonetization move has had an
impact on several sectors, especially Indian real estate.
How could retail be far
behind? Given Indian’s propensity to deal in cash, especially when shopping in
luxury malls and high streets, retail will see short-term impact on sales.
The
media has already reported how retail sales have dwindled in the immediate
aftermath of the government’s announcement, and how millions of new users are
registering on portals offering digital payment services.
There is no doubt that demonetization is a great move
for a better future of India and its economy. It will definitely influence many
more shoppers to start using plastic money in the long-term. Already, malls see
usage of credit/ debit cards and e Wallets go up during big sales, when
banks and fin-tech start-ups offer cash backs or / discounts.
This is trend will
rise substantially in the long term as such payment methods become more
mainstream.
For now, demonetization has impacted the retail
industry due to a liquidity crunch.
As the Indian retail industry generates a
lot of cash transactions, a reduction in sales will continue in the short-term,
i.e. one-two quarters. This impact is being felt largely by small traders and
the unorganised retailing segment prevalent on many high streets across the
country, as compared to the organised retailing and malls.
Segments such as jewellery and luxury have seen a
higher impact than others, and this situation is likely to continue for a
while. These two segments will take much longer to revive, though plastic money
and online payments will help them sustain for now.
In the medium-to-long term,
however, there is no threat to these sub-segments, as the domestic consumption
recovers from the temporary cash crisis.
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| Pankaj Renjhen, JLL India |
Importantly, the fact that retailers will encourage
alternate/ digital payment solutions will help the marketplace become more
transparent and structured. The luxury segment, with its historically high
incidence of black money acceptance, will see more transactions in white than
ever before. This bodes well for this business.
Lower footfalls in shopping malls is a passing phase
and is expected to normalise in a few weeks as more of the newer currency
denominations come into circulation, enhancing the purchasing power of
consumers once again. The long-term growth scenario of Indian retail continues
to be resilient and growth-oriented.
The domestic consumption story remains
intact thanks to a strong economic base, favourable demographics and
FDI-friendly policies.
About the author
Pankaj Renjhen, Managing Director – Retail Services, JLL India
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