Will poor festive season sales take a toll on bonuses?

Muted festive season sales at consumer, electronics and e-commerce firms may erode yearly bonuses by about 15%.

“The bonus rolled out to the sales/operations teams for Diwali may not get impacted given the nature or structure of these awards, but the annual bonuses will take into account the muted sales in many sectors," said Anandorup Ghose, partner at consulting firm Deloitte India and an adviser on rewards and compensation structure. “The overall consumer sector has had a toned-down Q2 and the bonuses that come in at the end of the year may be lower than the last few years."

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Bonuses are paid at various stages to employees. One tranche, part of the salary structure, may come during the festive season, followed by the rest at the end of the fiscal. Separately, sales and marketing teams at retailers and distributors are rewarded for meeting festive-season targets—which are typically higher than the rest of the year. This leads to additional payouts over an above overtime or bonus for completing a minimum tenure. Bonuses paid at retailers and distributors are also linked to their overall sales performance.

Typically, the festival season in the run-up to Diwali accounts for a significant share of the full-year sales. This year, retailers and consumer goods makers have reported a mixed auspicious period as shoppers cut back on spending because of higher prices, hunted for better deals and relied on EMIs more than usual to buy everything from apparel to appliances.

Impact on some sectors

Staffing firms, which provide workforce to clients from thousands of employees on their payrolls, have noted the impact of muted sales in some sectors.

“The target-led incentives may go down for the FMCG (fast-moving consumer goods) sector. The sales have been flattish and the incentives will be 10-15% lower in the consumer goods sector," said Kartik Narayan, chief executive officer for staffing at TeamLease Services. This will be a dampener since the companies beefed up their workforce for the festive season from August through December.

Quick commerce, online retail and consumer firms had rolled out daily incentives, overnight additional payment and a bonus for 100% attendance during the festive season.

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An employee working in the operations team of one of the top three online retailers said the company had paid about 50-60% of its mid-year bonus last year just before Diwali. “But there has been no communication about it this year," the employee said on the condition of anonymity.

An executive employed at a third-party logistics provider, which counts several e-commerce companies among its clients, expects to receive most of the annual bonus, much like last year when nearly 70% was paid during the appraisal month.

But a logistics company executive said the firm had not paid the annual bonus last year and is unlikely to reward the staff this year too. “We’ve been told an update will be shared based on the financial performance of the company," said the executive who didn’t want to be named.

Meanwhile, the spokesperson for quick-commerce firm Zepto told Mint, “This year too, we will be giving out our annual bonuses. The process had started last month and will be concluded by the end of this month."

Good for e-comm, q-comm

According to estimates by market intelligence firm Datum Intelligence, the festival period has been good for e-commerce and quick commerce firms this year, with sales touching ₹1 trillion, but that’s not the case for the overall retail landscape, including offline sellers. “Overall volumes are up this year, but value remains flat due to muted demand," said Satish Meena, adviser at Datum Intelligence.

Four analysts, distributors and retailers that Mint spoke with said that there is considerable disparity in how the festive period played out for electronics.

Tarun Pathak, research director at Counterpoint India, said last week while India’s festive period smartphone sales volume grew in a single digit, the premiumization push contributed to retailers raking in 10-12% greater revenue over last year’s festive sales.

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According to Manish Khatri, a Mumbai-based electronics retailer, the natural upgrade cycle and the launch of inexpensive 5G smartphones offered a slim relief to retailers over the low sales seen in the past two festive weeks. “Samsung and Vivo, which have sub- ₹15,000 5G smartphones, have seen good demand—and this has also allowed retailers to at least match online deals in a bid to match the distributor channel targets that brands set," he said.

But, according to a Mumbai-based multi-brand retailer, margin pressure makes paying out bonuses tough.

“Samsung’s targets set by retailers have a sequential growth component, which varies depending on the size of a retailer. This is a key part for us to keep up with, failing which we do not get the incentives that add meaningfully to our margins," said the retailer who spoke on the condition of anonymity citing brand contracts. “Bonus payouts are invariably tied to broader margins, which were once regular in the Indian market. Now, with organic demand for electronics being lower than what we’ve seen up until 2021, festive bonuses have remained a contentious factor for most folks."