The Central Government has announced unlock phases. Shops are now allowed to open in most parts of the country. People have started stepping out, though cautiously. Gradually, we are learning to live life in this new normal.

However, there is time before we start crowding markets without fear. We are going to be wary of wandering outside. Most of the times, if possible, we would like things to be delivered at home. And this is the new ecosystem in which the retail businesses will now have to operate. It will stay this way because customers will get accustomed to it and will continue with their habits, where convenient, post corona also. Understanding and adapting to this new ecosystem, is what will give retailers their new edge over competition.

The new ecosystem

Customers not visiting shops means that retailers will have to give their customers alternate ways to reach out to them. So, the strategy should be focused on increasing the touch points with the customers, particularly digital ones. It is the ability to continue reinforcing your connection with customers that will make a difference.

Some ideas on how to increase connections with your customers:

1. WhatsApp or Telegram groups: By now, most of the businesses have already started using these groups to get in touch with their customers. Depending on the nature of your business, you can have one group for all your customers or different groups for different areas. Many businesses have also tied up with a person in every society / residential area to run the group and pass on the orders received from customers. SME retailers need to get innovative with the use of these groups as they are the easiest way for their customers to communicate with them.

2. List on platforms like Amazon and Flipkart: There is no explanation needed here. We all know the pros and cons of these platforms. If they suit your business, consider listing your products on these platforms.

3. Tie up with hyper local delivery services like Dunzo: Services like Dunzo pick up goods from your shop and deliver them to your customers. You can list your shop on Dunzo or combine the delivery service of Dunzo with your other digital touch-points. Such services are now there in most of the metro cities. In other places you can keep transnational or part time delivery boys to deliver consolidated orders to areas.

4. Digitize your stores: This is relevant for bigger retailers. They can use AR and VR technologies to give a better virtual experience of stores to customers. There are businesses like Vntana and Radius8 that are helping big retailers to digitise their physical stores and provide an AR/VR shopping experience to their customers. For example, Ikea is letting their consumers virtually place products within their home before buying. This has reportedly led to about a 30 percent increase in their revenues. Further, ideas like virtual personal stylist, individual video-shopping sessions are being tried by bigger businesses to give customers a unique experience.

The above are just a few ideas. I am sure, much more can be done to get connected with your customers. If you have come up with other ways to connect, we will love to know about them and share. Please reply to this email to get in touch with me. In case you want to know about our products for SMEs, you can write to us at support@tofler.in.

We are writing this article to help small and medium sized businesses like us to deal with the adverse economic effects of COVID-19 situation. As we all realize, we are living in vulnerable and uncertain times. The 21-day nationwide lockdown is unprecedented in our history. There is already an anticipation that it could be extended. Our Prime Minister has also asked states to prepare for a longer partial lock down state.

The adverse economic effects of this situation would naturally extend in the future. Their gravity and duration are somethings that we all will have to wait and see.

To help SMEs, we have decided to research on the actions we could possibly take to deal with the economic impact of this situation. We do not have answers to all the questions ourselves. But we are listening to inputs from industry experts and consultants across the world. We are brainstorming on how they could be applied to SMEs. We will keep sharing these with you to prepare for what might come.

Broadly, this situation may pan out in two possible ways:

Scenario 1: This paints a picture where damage to the economic cycle is short term. The lockdowns are effective, and the spread of the virus is contained to safe levels. The restrictions are lifted as scheduled, and the economies gradually return to normalcy. Caution would still be required but business activity will start to spring back. This will happen across the world and international trade etc will be restored to earlier order.  In such scenario, global economic impact should be short term and normal situation should restore in about 5 – 7 months. This can be seen happening in China and South Korea.

Scenario 2: The second scenario paints a gloomier picture and expect the situation worsening. The lockdowns might continue for longer, or there is an extended period of significantly reduced commercial activity. This will dramatically impact the consumption and demand of goods and services in the country and for longer time. Offices and factories will keep operating at much reduced scale. With zero or very low revenues, businesses will find it hard to continue to pay employees, service debt and pay rents, etc. It will start having its ripple effects too. The working capital would be stuck in businesses. Interest costs will accumulate. A natural consequence could be bad debts, unemployment and management challenges of inventory, cash etc. The recession in this case could extend to 2-3 years.

The above would seem scary. Honestly, I think that India is more likely to experience Scenario 1 because of the strict lockdown implemented. Countries like USA and Italy could go through Scenario 2 which will affect the world trade. This will impact the export driven businesses like IT, BPO/KPOs, goods export businesses and others. The Indian domestic businesses will do better. However, in any case, the subdued activity will continue for some time atleast.

In such situations, the common questions and concerns for businesses like us that need to be addressed are:

1. How to deal with fixed salary expenses if the business operates at lower output for extended time?
2. How to deal with other fixed expenses like building rent, leased machines, interest cost, etc?
3. What to do with the inventory lying ideal in the warehouses? What about raw materials and work in progress?
4. How to address the near-term cash management challenges?
5. How to increase the resilience and strength of your business to survive through this?
6. How to return your business to scale when the normal order is restored?

And more….

Broadly speaking, credit rating is an assessment of the creditworthiness of a business. A good credit rating means strong financials and a high likeliness of paying off financial obligations timely.

There are about 6 credit rating agencies in India that provide ratings to businesses. These ratings can be provided to a business as a whole or on a specific financial obligation ‘technically called instrument’ of the business. The duration of these financial obligations vary and are typically categorized as long term and short term. Either way, they denote the financial health and creditworthiness of the business.

These ratings are typically categorized into long term and short term along with the type of the instrument for which the rating is issued. These are usually denoted in alphanumeric symbols. Having more letters in the rating is generally better than fewer letters, and being earlier in the alphabet indicates higher quality.

Without getting into nuances of credit ratings, this article provides you a guideline on how to interpret any credit rating issued to a business:

Note: A plus (+) or minus (-) sign may be appended to the above ratings to indicate relative standing within each rating category. Example: AAA+ is a higher rating than AAA.

While talking about credit ratings, we can’t skip the concept of ‘Investment grade ratings‘. This term denotes companies with strong financial strength and capacity to pay back their financial obligations. All ratings equal and above BBB- are categorized as investment-grade ratings. For example, specific debentures of Tata Motors are rated as ‘AA’ (investment grade rating). However, instruments of Jet Airways have been rated as ‘D’.

I often wonder about the new economy, new kinds of businesses, massive funding rounds for some of them and valuations. Infact, we all do. Are we missing something? How did these young companies become the world’s biggest companies so soon? Is this temporary?

I am an advocate for businesses that are profitable at the net level (not just with profitable unit economics). I believe they are an asset to the society as they generate an economic surplus, they are sustainable, and they help in creating economic balance by pricing output appropriately.

However, we can’t ignore the new businesses that have cropped up, who scale with funding, have huge valuations and are running in massive losses. Many people wonder if it’s a bubble economy or how it works?

Here is why I think, we need them and why do they operate this way – There is a niche of businesses for whom scaling/growing is more important than sustaining in their initial phase. Their moat is their scale. Example – all the social platforms like Facebook, Twitter, Instagram, LinkedIn. For these companies, the scale and the need for everyone to be on the platform are quintessential to creating value for them and their users. Similarly, for companies like Uber and Ola, it is important that they achieve scale before they focus on sustainability. The scale is essential for them to operate effectively. Cab drivers at Uber and Ola, benefit from a continuous stream of passengers and that would happen only when a lot of users are on the platform. This creates an incentive for drivers to sign up on Uber and Ola, and thus creating easy availability for users to find cabs nearby when needed.

If these businesses will focus on sustainability early on, without growing, then these businesses will lose the benefit of scale and will not create value for anyone – themselves, drivers or passengers. Therefore, they are required to spend significantly on acquiring customers first. Hence, huge losses in the beginning. Hence, the need for funding. As more people sign up on the platform, their valuation increases. Because that is their moat! Hence, investors are ready to give more funds to them to get more users.

However, this must end when the company has gained scale. There is no justification for a business to keep producing massive losses even when they have gained monopolistic status with their scale.

Besides, this doesn’t mean that all the businesses that get funded fall in the above category. For example, I have always believed that co-working spaces shouldn’t be allowed to operate at losses at the net level. Every single unit of these co-work offices should be profitable because the scale is not going to help here. Similarly, hotel chains like Oyo should also focus on being sustainable as the scale is not going to change their economics. When businesses whose scale doesn’t change their economics, raise massive funds, become huge and still lose money, then I think that’s an example of a bubble or investor misjudgment. I am not saying that they should not raise funds to scale, but that, they should have a focus on sustainable operations.

Many businessmen also ask this question. Should you focus on profits or valuation? Should you try to raise funds? In my opinion, it again depends on the nature of your business. Would growing change your business’ economics? If yes, sure. I would suggest starting with having a couple of conversations with investors. Get their opinion. If not, then grow nevertheless, but keeping the focus on profits would help :)