MSMEs are pulling out all the stops as they brace for the festive season rush

The festive season is a period of heightened demand—from both seasoned customers who plan in advance and last-minute shoppers–resulting in a whirlwind of opportunities and challenges for businesses. 

For micro, small, and medium enterprises (MSMEs) in India, this is not only a season of joy but is also one of the busiest times of the year, as, with great opportunity come great complexities, particularly in managing working capital and inventory. 

Working capital challenges

According to a report by Redseer Strategy Consultants, this year’s festive season will attract over 140 million shoppers online. The online gross merchandise value for the season is projected to be around ₹90,000 crore, up 18–20% from last year’s festive sales. 

Working capital, the lifeline of any business, takes centre stage during this time. While the season offers a significant revenue boost, operational costs too go up, and businesses must ensure they have enough cash on hand to cover this. 

Managing finances becomes crucial during this period, involving cash-flow management and advance planning, and this has prompted MSMEs to look at various financing options. 

Santosh Nag Pathikonda, Founder of Hospet-based Vini Toys, which makes tricycles, bicycles, kick scooters, and other toys for children, prefers banks for financing. He says there is a growing interest from banks in supporting toy companies like his, as the toy industry is a sunrise sector. Besides, the government has been supporting Indian manufacturers in a bid to counter Chinese imports, he adds. 

“While approaching NBFCs may be an option, it tends to come at a higher cost compared to banks, albeit with fewer collateral requirements,” says Pathikonda. 

He anticipates a 50% increase in demand in October over regular months due to heightened consumption during the holiday season, especially with schools being closed.  

Delhi-based Ledure Lightings gets 30% of its annual revenue from the three-month festive season, starting in October. 

Pranav Aggarwal, Co-founder of Ledure Lightings, highlights the significance of the Navratri and Diwali festivals for his business, when there is increased demand for lighting solutions from home renovation projects and shop inaugurations. 

Aggarwal is exploring various financing options, including temporary overdrafts from banks and leveraging bill discounting, as Ledure supplies to many public sector undertakings. 

On the other hand, Nitu Singh, Founder of Scentiments Global, a small-scale manufacturer of decorative candles in Delhi, says it has not been easy for her to obtain bank overdraft. 

Scentiments had applied for an overdraft limit from a bank a few months ago, but, despite completing all the paperwork, the loan request was denied, says Singh. 

“No specific reason was given. Such experiences are common among women entrepreneurs,” she says.

Scentiments has been witnessing a five-fold increase in demand over the non-festive months. However, the challenges around working capital loom large, points out Singh. 

The entrepreneur is now relying on loans from personal connections. She says obtaining financing from formal institutions or government schemes within the limited time frame is not possible, since Diwali is just a month away.

Amidst these challenges, NBFCs, new-age funding platforms, and fintech firms catering to MSMEs are keen to cater to businesses looking for quick capital deployment. They are predicting a 40-50% increase in MSME loan sanctions this festive season over regular days.

“Lenders that can provide a shortened TAT (turnaround time) to these business owners are in a better position to help. Typically traditional financing options can take months to close. New-age funding options ensure that disbursal can happen in less than a week,” says Karun Arya, Chief Growth Officer of alternative funding platform GetVantage.  

Nirav Choski, Founder and CEO of digital banking platform Credable, says over 10 lakh loan applications are expected during the festive season on the platform, resulting in a two-fold growth in disbursals. 

Digital MSME lender FlexiLoans too expects over 10 lakh loan applications from MSMEs this festive season, with loan disbursements worth Rs 1,500 crore. 

Disparity in payment cycles

Managing working capital also involves contending with disparity in payment cycles.

Singh from Scentiments Global says that, in their business of white labelling, they usually need to deliver finished products to brands well in advance, often with a 30- to 60-day credit period. Unfortunately, when purchasing raw materials, they do not enjoy similar credit terms from the vendors or suppliers of raw materials. 

This disparity in payment cycles has made it difficult for MSMEs to manage working capital effectively, despite an expected increase in demand during the festive season. Delayed payments from buyers (large corporations/brands) also strain the working capital of MSMEs, affecting their ability to meet their commitments promptly.

Pankaj Jathar, VP and Country Head India of ecommerce platform Etsy, says, with the aim to support small businesses in maintaining a stable cash flow for inventory development, Etsy is initiating seller payments upon sale of a product on its platform, even prior to order delivery. 

“This festive season, for the first time in India, Etsy has announced discounts for new buyers. Etsy will fully fund this offer, on behalf of our tens of thousands of active sellers in India, to give them an extra boost in sales and reach a wider audience,” says Jathar. 

Managing inventory

As consumers open their wallets to buy gifts, decor, apparel, and electronics, businesses have to ramp up their inventory to meet the demand.

MSMEs must also accurately forecast and prepare for demand fluctuations or risk losing out on potential sales due to inventory shortage or overspending on excess stock. This means striking a delicate balance between meeting surging demand and maintaining liquidity.

Umang Aggarwal, Co-founder of Ledure, outlines the company’s proactive inventory planning approach, starting with a six-month projection in April.

"We provide our vendors with monthly projections, and we refine these forecasts each month, aligning them with product trends. This enables vendors to adjust their raw material production accordingly. Simultaneously, it aids us in estimating the funds needed to fulfill demand, prompting us to approach banks for support," he says.

Lalit Arora, Co-founder of electronics brand Ubon, says for manufacturing companies collaboration with suppliers is key. Manufacturers must establish strong relationships with suppliers to ensure a seamless supply chain. 

Varun Poddar, Founder of the audio electronic brand GOVO, points out that demand for GOVO is likely to surge six to eight times during this season over regular days. 

"It is essential to strike a balance between forecasting and actual sales to minimise stockouts and optimise fund utilisation,” he says. 

GOVO is working closely with its online and offline partners, including Amazon and Flipkart, to analyse historical data and anticipate the magnitude of sales spikes.

Manoj Kumar Sharma, Founder of Vasai-based Ashnam Retails, expects an increase of 25% to 30% in demand during this festive season over the last year’s festive season. 

Ashnam, a manufacturer of polyresin artifacts, supplies its products to Royal Oak, Home Centre, Home Town, Shoppers Stop, and The Bombay Store. The production for the festive season demand, Sharma says, happens from March to May. 

“We refine our products and prepare for their distribution to various retail locations across India … to ensure they are ready for the nationwide festive season from September until December,” he says.  

Marketing strategies

During the festive season, brands and retailers engage in strategic product launches to align with the heightened consumer demand and enthusiasm and maximise impact. 

For instance, Amritsar-based textile brand Taroob has launched a festive collection of shawls and capes to take advantage of the rising customer demand. For the upcoming winter season, it is coming up with a collection of long coats.  

GOVO has launched the 'GoSurround 950' soundbar system and is planning to launch a new Dolby home theatre system. 

Businesses are also leveraging digital marketing and social media platforms to build anticipation and buzz around their new offerings. 

Gifts retailer Archies has planned collaborative marketing campaigns and promotions with smaller brands that it works with to reach a wider audience during the festive season, says Varun Moolchandani, Executive Director of New Delhi-based retailer Archies. 

The success of MSMEs during the festive season hinges on careful planning, innovation, adaptability, and their ability to overcome challenges with resourcefulness. 

(The copy was updated to correct the name of GOVO's launch.)