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Low consumer confidence and credit squeeze likely to hit Apparel, Restaurants & Footwear

By Retail4Growth Team | July 03, 2020

According to a report, limited social interactions and increased WFH trends may also play a huge role to impact apparel, quick service restaurants (QSR) and footwear players.

COVID-19 will have an impact across the board on discretionary categories in the retail sector as limited social interactions and increased WFH trends may hit apparel, quick service restaurants (QSR) and footwear players.

Slow demand recovery will aggravate cost pain for companies. Strong growth case built on both store expansion and will pause. Over a longer period, industry consolidation will benefit stronger players though COVID could potentially wipe out the next 2 years’ earnings growth.

The report said macro pain would aggravate post-COVID. Consumption growth had started to slow down even pre-COVID. While job creation was slow, an increase in credit (cards, personal loans) supported consumption. Banks have already started to cut credit card limits and lifestyle spends accounted for 12 percent of overall credit card spends. Pay cuts and job losses have accelerated and retail credit availability has been squeezed. Cost-cutting and broader slowdown will also impact various SMEs and self-employed. In addition, the 10 cities accounting for 50 percent of revenues are slowest to recover, delaying recovery and pain.

The higher costs of sanitization and staggered store timings would increase operational costs. Cut in rentals and employees and other costs may not be good enough to turn green in FY21. Slower store rollouts and even slower retail space developments would hurt medium-term growth, the report said.

The consumer confidence index is at a decade low. Spending on grocery has increased the most while lifestyle/ apparel have been worst affected. Consumer debt on credit cards has grown at 29 percent CAGR over FY15-20, the report said.

 

 

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