Retail woes: Small businesses shut shop as profits hit rock bottom

“When people want to buy things on credit, they go to small traders. When they have money, they go to big malls. It is true that they get a better experience there. But this trend hits the retailers badly,” says R Venugopal Kurup who runs a hardware and cement agency in Chengannur, reflecting the woes of small business owners and shopkeepers across Kerala. 

Not just the shopping malls. E-commerce too. It’s such a big hit with the Internet-savvy young crowd that most of the small business establishments fear that they too will have to shut shop soon.  

If the pandemic wasn’t bad enough, worse was to follow. Lakhs of businesses downed their shutters after that, says the officials of various associations for traders and small businesses in the state. In reality, the numbers could be more than that. 

A consumerist State to the core, retail businesses had been doing well in Kerala for ages. The retail sector also contributes 10 percent to the country’s GDP. And, at least 8 percent of India's population depends on this sector for their livelihood. The figures are the same for Kerala too. So, even a small crisis in this sector will affect the state’s economy in a big way.

Problems aplenty

A number of factors contribute to the crisis in the retail sector. They may range from changes in government policies to changes happening across the social milieu. It is the retail shops and small businesses that are the worst hit whenever the State’s highways or the National Highway are broadened. They are forced to vacate their establishments when the revenue authorities acquire land for road development. They also must bear the brunt of the prices of commercial crops going down or the crises in the Gulf. Most of the shopkeepers in Kerala say they are forced to continue their loss-making businesses as they have no other alternative.

Problems also arise when people migrate to foreign countries. The number of people with purchasing power goes down, negatively impacting the business community. There may not be an immediate solution for that, but the government can take some positive steps in this regard. “The Union government should be ready to announce a retainer friendly policy. A national level committee of experts should be formed to study the problems faced by the business community and it should take on board the representatives of the business community,” says Raju Apsara, president of Kerala Vyapari Vyavasayi Ekopana Samithi (KVVES), the state’s coordination committee of the state’s traders and businessmen.

Traders and small businessmen are demanding an immediate solution to the crisis they are facing. Let's look at the top 10 problems. 

Migration of the younger generation 

Young people are migrating abroad in droves. This has led to a sharp depletion of youngsters in small villages and towns. Moreover, those who migrate are reluctant to settle in Kerala and as a result it has hit the house construction sector badly. Earlier those who went to the Gulf region used to come back and settle in the state. But those who have migrated to countries like Australia and Canada are settling there. Earlier, people used to renovate their houses ahead of marriage. That too has stopped.

Poor buying capacity

A number of factors, including the fall in prices of farm products and commercial crops have made a big dent in the purchasing power of the consumers. People have cut down on their expenditure which in turn has hit the retail sector very badly. And those who are moneyed go to far off places to shop. They go to malls in the cities which again adversely affect the traders in small towns. With everyone driving their own vehicles, distance does not matter to them. “The collapse of the agricultural sector has affected businesses in rural areas to a large extent. The prices   have increased and the purchasing power of people has decreased, said B Kumaran, who runs Five Star Enterprises at Kuttikol in, Kasaragod

Steep running costs

Running a shop is a very costly business now. The rising cost of power, increasing salaries, rent and even the payment for garbage collection, every expense has to be met by the shopkeepers from their profit. And the profit margins remain nominal.

At the mercy of big brands

Traders complain that big brands that splurge on advertisements do not give reasonable margins to make profit.  So, there is a mismatch between the expenses and the income. The big brands mostly offer only a margin of 8 to 10 percent. But the running expenses come to nearly 16 percent. So, the traders are forced to bridge this gap by depending on small brands. Sometimes the big brands entice the traders through attractive offers, and they end up placing more orders than required. But a lot of these products remain unsold and become dead stock and must be sold off through distress sales.

“For the first time, an organization of distributors and traders has been formed in Kerala against the exploitation by big brands. The Kerala Consumer Forum has issued notices to 20 companies to increase the margin for traders and distributors. At least a 20% profit has been demanded for the traders and a 50% increase for the distributors from what they are getting now,” said Ziauddin, General Secretary, Supermarket Welfare Association of Kerala.

Entry of e-commerce

E-commerce has now made its way to every corner of the country. According to official estimates, three-fifths of the total orders received on e-commerce platforms are from small towns. A bulk of it, nearly 70 percent, is in the form of electronic and textile goods. India has become the second largest Internet user with a base of 900 million people. This was reflected in the UPI transactions in 2022, worth Rs 125.94 lakh crores. It is the small businesses that are getting adversely affected as online transactions gain momentum in the country. As Venugopal Kurup said, people rely on rural businesses only to borrow goods. When they have money, they eye malls or go for online shopping. Those who do trading illegally without any official sanction are also posing a grave threat to the legitimate businesses.

Lack of good salespeople

Another area of concern is the lack of getting a good salesforce. Consumers are now very choosy and highly aware of what they want. So,they don’t feel satisfied if their queries go unanswered. So, small businesses and traders need a well-trained workforce. They need to invest a lot on training the salesforce. The risk is that the trained salesperson will leave the moment they get a better offer. So, the traders are forced to retain workers at higher wages.

Capital depletion

Retailers are forced to dig into their working capital to meet the daily expenses as the profit margins continue to go downhill. They meet the various charges and other payments by this way, depleting their working capital. In this situation the repayments get delayed resulting in poor credit score and also result in a situation where future loans get blocked.

Adverse FTAs

The coordination council of traders say that Indian markets have been opened for foreign competition due to the 13 free trade agreements that India has signed with hundreds of countries. It says that this led to the fall in prices of agricultural products and that the fall of the agriculture sector directly affects the retail sector.

Role of banks

The retail sector is also adversely affected by the negative attitude of the banks, traders say. The industrial sector gets loans at an interest rate less than 10 percent while it is at 12-13% for traders. Their grouse is that even during the Covid-19 pandemic, no concession was given on the interest component, apart from allowing   20% more loan. The restrictions on unsecured loans have also put an end to loans based on mutual guarantee. 

Introduction of GST

The business community was under the impression that taxes would come down with a cascading effect on the prices of products. However, contrary to this, the prices have increased. Retailers believe that the actual beneficiaries of the GST are the manufacturers who are monopolistic. Moreover, the retailers must be aware of more than a dozen laws and also maintain about 15 registers of accounts.
 
Siddique, owner of Century Fashions, Kannur added: “There is a provision that if the cost of the products is not paid to the supplier within 45 days, the trader should pay income tax on that amount, causing great difficulty. The tax liability is 30% of the amount.”  

As shopping malls and e-commerce continue to boom across Kerala, retailers appear to be facing a downward spiral of decreasing profits, with no signs of recovery in the near future.

    With inputs from K. Ajayan

                                           This article was earlier published in Dhanam magazine