• What will the upcoming season look like for the retail sector?

Regardless of race or religion, the festive season in Sri Lanka is a highly anticipated one, which, in the past, saw indulgence and spending without hesitation. However, Sri Lanka’s retail sector has been severely impacted over the last few years due to the Covid-19 pandemic and the economic crisis. 

The collapse of the retail sector would mean that the larger ecosystem that depends on retail, which penetrates deep into the length and breadth of the country, would be greatly affected. Financial and social consequences would be unparalleled and loss of employment would pose an even greater threat. 

Approximately 30% of the national GDP is accounted for by the local retail sector (as of 2022), with 10% of Sri Lankan households dependent on employment in the sector, which includes sales, cashiers, and lower mid-segment jobs – roles that are important to keeping the country’s economy afloat. 

The past years saw the closing of numerous small and medium-scale businesses while their larger peers navigated through the turmoil under stress. Increased interest rates meant that funding was difficult to obtain, with import restrictions and inability to bring in adequate foreign exchange to the country effectively worsening the situation. 

Consumer spending in Sri Lanka increased to Rs. 14,973,295.30 million in 2022 from Rs. 11,814,865 million in 2021. Consumer spending averaged Rs. 1,861,384.16 million from 1950 until 2022, reaching an all time high of Rs. 14,973,295.30 million in 2022 and a record low of Rs. 2,992 million in 1950. 

Online purchasing gained popularity during the pandemic, with retailers having to work 24/7 to arrange and dispatch orders on time. The abrupt shift meant that they were not geared to handle the large volume of deliveries and online orders, with customers facing difficulties in navigating placing orders online. Staff faced challenges as some had to be trained to handle the new method of working. 

Furthermore, the import bans in place caused major issues in supply and demand, leading to customer disappointment. In addition to the challenges in maintaining a smooth supply chain, hygiene was also a grave concern. Post-pandemic, malls and retail stores were still viewed as potential carriers of the virus, which discouraged footfall. The import ban in Sri Lanka posed threats to various product categories, disabling the ability to manufacture and source raw materials, leading to a decreased supply of goods. 

With the upcoming festive season, there is optimism surrounding spending patterns, quantities, and habits, although uncertainty prevails. Retailers are exploring various strategies in pricing, analysing consumer behaviour, and considering the impact of the surge in living cost, in addition to attractive price reductions. 

Is consumer confidence set to increase during this festive season or will caution be exercised in this relatively unstable environment? 

Scaled-down celebration

Sri Lanka Retailers’ Association (SLRA) Chairman/President Hussain Sadique shared that retailers were well prepared to navigate the season. 

“As businesses, we have prepared ourselves. As far as products are concerned, since the restrictions were lifted, 80% availability is expected. Our only concern with this current economic situation is buying power and whether it will be as we anticipate. However, we still need to wait and survey the situation and the next 10 days (from 22 November) are crucial in determining this. 

“I think as a whole, people have completed part of their purchasing. They are aware that imports have come in and products are available. From a consumer’s point of view, I do believe pricing is artificial, but goods are available if you are willing to pay. 

“However, even though we are anticipating a positive impact on purchasing behaviour, consumer spending will still be at a cautious stage. Consumption and buying power has come down and people will not borrow money for their purchases. If they have the money or if they are given year-end bonuses, they will make purchases. It also depends on the private sector. 

“From a retail point of view, while I do believe there will be some success, I don’t think there will be an increase in purchasing as compared to the last few years. But there will be some kind of celebration since there is an element of comfort – There are no more queues for anything and products are available, which is a positive sign.

“The food sector will definitely witness an increase in demand, followed by gifting, as there will be price reductions. However, people are still focused on only purchasing the essentials regardless of the time of the year. It will be a restricted, scaled-down celebration.

“As retailers, I think we are prepared. The next week is very critical to analyse trends. The weather is also a concern as it plays a part in footfall to shops.”

People still hesitant 

Oshan Samaranayake, a former retailer whose businesses were severely impacted due to the pandemic, also opined that people would be too apprehensive to spend liberally. 

“I don’t think people will spend, although there will be more spending compared to the Covid-19 years. But I don’t think it will be more than 2019, which was the last Christmas before Covid. People are still hesitant because of the financial crisis and the rupee depreciation. The spending power of the middle class has reduced, so they will certainly be cutting down on expenditure. 

“As a retailer, I would make use of the stocks that I brought down before 2019. I won’t import as much, cutting down by about 20-30% of what I brought in 2019. Spending on food has increased so the food sector will thrive, but retail is not food and will definitely decline. 

“Products that are priced lower will recover faster and luxury goods will definitely move as people who fall into that category have not been impacted in a similar manner to the rest, so retailers selling high-end goods will perform the same.”

Predictions difficult 

The depreciation of the rupee from 200 to 360 in 2022 led to supply disruptions and 12-month inflation rising to 73%, which resulted in smaller basket sizes of consumers at supermarkets. 

Although retailers share a positive outlook for the retail sector this festive season, retailers and consumers remain apprehensive about sales and spending. Trends of essential and non-essential goods are expected to vary, with the former being affected by different consumption patterns and number of household members. 

In comparison to supermarkets, smaller convenience stores are expected to face a smaller impact, perhaps even experiencing growth. Measures such as offering greater value for money, staff training, and strengthening the supply chain can prove beneficial in uplifting Sri Lanka’s retail sector. Non-essential consumer goods can benefit from influencer marketing strategies and local manufacturer and entrepreneur empowerment. 

Despite the nation’s eagerness to purchase new commodities such as apparels, IT products, and consumer durables, the sector may still not return to its former glory. Retailers also face the issue of styles going out of fashion, resulting in loss on seasonal sales and liquidating stocks through massively discounted prices. 

Purchasing power also plays a vital part. The recession in the global economy, job cuts, and pay cuts make it challenging to predict consumer behaviour. While it is difficult to predict retail trends for the 2023 festive season, the unfolding of events during this period will be beneficial in helping to determine the tone for the upcoming year.