Faced with muted consumer demand amid a slowing economy, India’s top value-fashion retailers are holding off expansion plans.

Players such as the Gurugram-based V-Bazaar and Delhi-based 1-India Family Mart, which operate mostly in tier-2, -3, and -4 towns, have indicated opening fewer stores in 2020 than planned earlier.

“The slowdown in the Indian economy has impacted the growth and expansion of value fashion retailers in smaller towns,” said Hemant Agarwal, chief managing director at V-Bazaar. The firm plans to open 22 stores this year, scaling down its initial plan of 27 store launches. “Given the current economic environment, we are scaling-back our expansion.”

1-India Family Mart, which calls itself the Zara of small-town India, is in a similar predicament. “We are witnessing good footfalls, but I don’t see that converting into sales. That shows people are being conservative in their spending. We are, therefore, cautious about opening new stores,” said JP Shukla, the firm’s CEO.

The crisis

Value retailers are bearing the brunt of India’s economic woes, as the consumption slowdown is more pronounced in rural areas, where they mostly operate. Here, declining incomes have forced consumers to cut down on even essential spending.

“Our primary consumer base comprises those earning monthly income between Rs 15,000 and Rs 25,000. Many small-town workers employed in big cities have lost their jobs,” said Shukla.

Value retailers mostly cater to smaller cities in Uttar Pradesh, Bihar, Madhya Pradesh, Jharkhand, West Bengal and Odisha, from where most of the migrant workers come. 1-India Family Mart, which operates 100 stores, mostly across UP, Bihar and MP, witnessed sales degrowth of about 10% in 2019.

At rival V-Bazaar, which retails mostly in UP, Bihar, Jharkhand, Madhya Pradesh, and Odisha, sales fell 14% between July 2019 and September 2019. The firm has subsequently revised its revenue target for this financial year from Rs 360 crore to Rs 320 crore.

Another small-town seller, the Delhi-based Citykart saw its average ticket size dip by 0.5% year-on-year in 2019, the company said. “Average ticket size is getting impacted because of less disposable income in the hands of consumers,” said Sudhanshu Agarwal, director, Citykart. The retailer operates a network of 53 stores in UP, Bihar, Nagaland and Assam.

Wary investors

With falling sales, the investment pipe too is drying, which poses a hurdle to expansion. “Foreign direct investment has dried up in [the] retail sector, and so has private equity,” said Shukla of 1-India Family Mart.

The ongoing crisis in India’s shadow banking sector has also cut off credit to the value retailers. “Small developers in tier-2, -3 and -4 towns largely depend on banks and non-banking financial companies to finance their projects,” said Anuj Kejriwal, managing director and CEO at Anarock Retail, a Gurugram-based real estate services company. “Going forward, there will be a decline in the supply of retail malls in smaller towns owing to liquidity crunch and crisis facing NBFCs.”

Cautious funding will have an impact on the expansion of retailers, Agarwal of Citykart added.

Future play

Experts, however, are confident that the long-term outlook for value retailers, who cater to the burgeoning middle-class in smaller cities, is still intact.

“Even though small retailers like V Mart and 1-India Family Mart witnessed a slowdown this year, they continue to enjoy huge potential growth in tier-2, -3, and -4 cities in the country,” said Kejriwal of Anarock Retail. “These are largely underserved markets with high consumption levels. These are fashion-conscious markets which are growing. Moreover, retailers like V-mart...have little to almost no competition in the smaller towns with fairly lower-priced goods,” said Kejriwal.

Value retailers are hoping the government will soon take measures to arrest the slide in the economy. “The government needs to pump money in the economy. This would help boost consumption among consumers and encourage them to make purchases including clothing,” said Shukla of 1-India Family Mart.

In the interim, his team is driving efficiency on every front to fight the crisis. During a slowdown, “retailers have to prudently liquidate inventories through discounting, or move it from one store to another within the same city or in another market,” said Shukla.

Also, players can look at sourcing inventories from suppliers in smaller batches, minimising losses for both the parties, he said.

Meanwhile, V-Bazaar has been building on customer relationships to attract more footfalls. “We are focusing on motivating buyers to visit our stores more frequently. For this, we have tied-up with EazyRewards, a firm specialising in promoting loyalty programmes, and DI Retail, a marketing company specialising in retail and sales solutions. The idea is to reach out to more buyers and boost sales,” said Agarwal of V-Bazaar.

On the product front, the company is offering more designs and discounts to buyers – hoping to move inventories faster. Value retailers are also looking to drive sales with the onset of the wedding season beginning this month and lasting up to June.

“Traditionally, retail spending mostly on clothing goes up during weddings,” said Agarwal of V-Bazaar. The brands may have a lot going for them once they get past the current slowdown blues.

This article first appeared on Quartz.