Arvind Fashions, retailer of brands such as Gap, US Polo, Sephora, Aeropostale and Flying Machine, has deferred payments of 50-80% of staff salaries for April owing to reduced sales and depleting cash flow amid the lockdown forced by Covid-19. Salary payments may be impacted for a few more months until the situation improves, said people aware of the matter.
“Arvind Fashions has currently made an on-account payment for salaries in the month of April and not a salary cut,” said Arvind Fashions CEO J Suresh. “On-account payment is done to support employees to take care of their immediate requirements. Since April is a zero sales month we are paying the advance and we will be able to pay the balance when the situation improves and things become normal. As retail is now slowly opening up our intent is to get back to normal salary levels at the earliest.”
This may take six to nine months, said an executive, who did not wish to be identified.
“The pandemic has had serious and far-reaching impact on our business and since the start of the lockdown, we have had negligible sales across our brands and channels,” Arvind Fashions said in a communique to its staff, a copy of which was seen by ET. “The economic situation continues to be grave and as an organization, we have been working hard to conserve cash, reduce costs and gear up for challenges ahead.”
The letter also said that staff reimbursements under the flexible benefit plans will be deferred.
As per the letter, employees getting a monthly salary of Rs 15,000 will be entitled to get Rs 8,000 for April while employees drawing salaries of Rs 3-5 lakh will get Rs 75,000 or 20% of net pay, whichever is higher. Similarly, salaries of top management have been slashed by 80% and capped at Rs 1.25 lakh for the month.
During 2018-19, Arvind Fashions CEO drew an annual salary of Rs 2.49 crore and chief financial officer Kannan S received Rs 1.65 crore. The company incurred employee benefit expense of Rs 407.7 crore on a consolidated basis that year.
The move to defer salary payments comes at a time when most bricks-and-mortar retailers are struggling with low sales and mounting inventory even as their fixed costs remain unchanged. Retail has been one of the hardest hit sectors due to the Covid-19 spread as stores have been shut due to the lockdown, which began on March 25 and has been extended thrice so far. The Retailers Association of India has predicted about six million jobs losses in the retail sector in the coming months due to the coronavirus impact.
Arvind Fashions had posted a net loss of Rs 191 crore for the nine months to December 2019 and it is yet to announce its fourth quarter earnings.
Over the months, the Bengaluru-based company pruned its international brands portfolio and exited four global labels – Gant, Nautica, Izod and Elle – even as it resized outlets for Gap and Aeropostale and shuttered multiple “unviable” outlets of its Unlimited-branded department chain.