The festive and wedding seasons, along with a growing preference for fast fashion, are expected to drive the organised retail apparel sector to achieve revenue growth of 8-10% this financial year, according͏͏ to͏͏ a͏͏ report.
Drivers͏͏ of͏͏ Growth:
According͏͏ to͏͏ a͏͏ report͏͏ by͏͏ Crisil͏͏ Ratings,͏͏ the͏͏ organised͏͏ retail͏͏ apparel͏͏ sector͏͏ is͏͏ projected͏͏ to͏͏ achieve͏͏ revenue͏͏ growth͏͏ of͏͏ 8-10%͏͏ this͏͏ fiscal͏͏ year,͏͏ driven͏͏ by͏͏ increased͏͏ demand͏͏ due͏͏ to͏͏ a͏͏ normal͏͏ monsoon,͏͏ easing͏͏ inflation,͏͏ the͏͏ festive͏͏ and͏͏ wedding͏͏ seasons,͏͏ and͏͏ a͏͏ rising͏͏ preference͏͏ for͏͏ fast͏͏ fashion—affordable,͏͏ trendy͏͏ clothing͏͏ that͏͏ imitates͏͏ high͏͏ fashion͏͏ designs͏͏ and͏͏ popular͏͏ styles.
Continue͏͏ Exploring:͏͏ India’s͏͏ fast͏͏ fa͏͏sh͏i͏on industry͏͏ set͏͏ to͏͏ reach͏͏ $50͏͏ Billion͏͏ by͏͏ FY31:͏͏ Report
Shifts͏͏ in͏͏ Market͏͏ Dynamics:
Crisil͏͏ Ratings͏͏ Senior͏͏ Director͏͏ Anuj͏͏ Sethi͏͏ stated,͏͏ “The͏͏ mass͏͏ market͏͏ segment͏͏ now͏͏ represents͏͏ 60%͏͏ of͏͏ total͏͏ sales,͏͏ up͏͏ from͏͏ 56%͏͏ before͏͏ the͏͏ pandemic,͏͏ largely͏͏ due͏͏ to͏͏ the͏͏ growing͏͏ popularity͏͏ of͏͏ fast͏͏ fashion,͏͏ which͏͏ is͏͏ anticipated͏͏ to͏͏ be͏͏ the͏͏ main͏͏ revenue͏͏ driver͏͏ this͏͏ fiscal͏͏ year.͏͏ Additionally,͏͏ the͏͏ expected͏͏ rise͏͏ in͏͏ demand͏͏ for͏͏ premium͏͏ clothing͏͏ during͏͏ the͏͏ forthcoming͏͏ festive͏͏ and͏͏ wedding͏͏ seasons͏͏ will͏͏ further͏͏ support͏͏ overall͏͏ revenue͏͏ growth͏͏ of͏͏ 8-10%͏͏ this͏͏ fiscal.”
However,͏͏ revenue͏͏ growth͏͏ is͏͏ expected͏͏ to͏͏ be͏͏ slower͏͏ than͏͏ the͏͏ compound͏͏ annual͏͏ growth͏͏ rate͏͏ of͏͏ 11-12%͏͏ observed͏͏ between͏͏ fiscals͏͏ 2018͏͏ and͏͏ 2023,͏͏ leading͏͏ retailers͏͏ to͏͏ exercise͏͏ caution͏͏ in͏͏ opening͏͏ new͏͏ stores,͏͏ the͏͏ report͏͏ highlighted.
Instead,͏͏ retailers͏͏ will͏͏ prioritise͏͏ improving͏͏ efficiencies͏͏ at͏͏ existing͏͏ stores,͏͏ managing͏͏ costs,͏͏ and͏͏ reducing͏͏ dependence͏͏ on͏͏ external͏͏ debt.͏͏ This͏͏ approach͏͏ will͏͏ help͏͏ maintain͏͏ their͏͏ operating͏͏ margin͏͏ at͏͏ 7.2-7.4%,͏͏ despite͏͏ ongoing͏͏ high͏͏ marketing͏͏ expenses,͏͏ thereby͏͏ ensuring͏͏ stable͏͏ credit͏͏ profiles,͏͏ the͏͏ report͏͏ noted.
In͏͏ the͏͏ apparel͏͏ retail͏͏ sector,͏͏ the͏͏ largest͏͏ segment͏͏ is͏͏ the͏͏ mass͏͏ market,͏͏ followed͏͏ by͏͏ premium͏͏ and͏͏ luxury͏͏ segments.
Fast͏͏ fashion,͏͏ an͏͏ expanding͏͏ segment͏͏ of͏͏ the͏͏ mass͏͏ market,͏͏ provides͏͏ the͏͏ latest͏͏ trends͏͏ that͏͏ are͏͏ frequently͏͏ updated͏͏ throughout͏͏ the͏͏ season,͏͏ with͏͏ shorter͏͏ lead͏͏ times͏͏ to͏͏ ensure͏͏ quick͏͏ delivery͏͏ to͏͏ customers.
The͏͏ report͏͏ indicated͏͏ that͏͏ retailers͏͏ are͏͏ adapting͏͏ their͏͏ business͏͏ strategies,͏͏ improving͏͏ supply͏͏ chain͏͏ efficiency,͏͏ and͏͏ concentrating͏͏ on͏͏ new͏͏ trends—especially͏͏ in͏͏ fast͏͏ fashion—to͏͏ align͏͏ with͏͏ changing͏͏ consumer͏͏ behaviour.
Changing͏͏ Consumer͏͏ Behaviour:
As͏͏ consumer͏͏ spending͏͏ increasingly͏͏ shifts͏͏ towards͏͏ travel͏͏ experiences͏͏ and͏͏ luxury͏͏ goods͏͏ in͏͏ major͏͏ urban͏͏ areas,͏͏ retailers͏͏ will͏͏ exercise͏͏ caution͏͏ in͏͏ expanding͏͏ stores͏͏ there,͏͏ while͏͏ continuing͏͏ to͏͏ grow͏͏ in͏͏ tier͏͏ II͏͏ and͏͏ III͏͏ cities͏͏ that͏͏ are͏͏ moving͏͏ towards͏͏ organised͏͏ retail.
The͏͏ report͏͏ stated͏͏ that͏͏ area͏͏ additions͏͏ will͏͏ decline͏͏ year-on-year͏͏ to͏͏ 2.2͏͏ million͏͏ square͏͏ feet,͏͏ down͏͏ from͏͏ 3.6͏͏ million͏͏ square͏͏ feet͏͏ last͏͏ fiscal,͏͏ as͏͏ store͏͏ sizes͏͏ will͏͏ be͏͏ smaller.
Meanwhile,͏͏ Crisil͏͏ Ratings͏͏ noted͏͏ that͏͏ revenue͏͏ density͏͏ is͏͏ projected͏͏ to͏͏ remain͏͏ flat͏͏ at͏͏ INR͏͏ 11,900͏͏ per͏͏ square͏͏ foot,͏͏ attributed͏͏ to͏͏ subdued͏͏ growth͏͏ in͏͏ same-store͏͏ sales,͏͏ which͏͏ will͏͏ limit͏͏ substantial͏͏ improvements͏͏ in͏͏ profitability.
Crisil͏͏ Ratings͏͏ Associate͏͏ Director͏͏ Anil͏͏ More͏͏ stated,͏͏ “The͏͏ slight͏͏ increase͏͏ in͏͏ profitability͏͏ this͏͏ fiscal͏͏ will͏͏ stem͏͏ from͏͏ apparel͏͏ retailers͏͏ streamlining͏͏ their͏͏ existing͏͏ stores͏͏ and͏͏ opening͏͏ new͏͏ ones͏͏ only͏͏ as͏͏ needed,͏͏ as͏͏ demand͏͏ has͏͏ not͏͏ fully͏͏ rebounded.͏͏ Additionally,͏͏ the͏͏ necessity͏͏ to͏͏ provide͏͏ higher͏͏ discounts͏͏ and͏͏ increase͏͏ marketing͏͏ expenses͏͏ to͏͏ attract͏͏ customers͏͏ will͏͏ constrain͏͏ the͏͏ overall͏͏ improvement͏͏ in͏͏ operating͏͏ margin͏͏ to͏͏ 7.2-7.4%,͏͏ compared͏͏ to͏͏ 7%͏͏ in͏͏ fiscal͏͏ 2024.”
The͏͏ report͏͏ indicates͏͏ that͏͏ improved͏͏ inventory͏͏ management͏͏ and͏͏ stable͏͏ input͏͏ costs͏͏ will͏͏ help͏͏ avoid͏͏ significant͏͏ inventory͏͏ write-offs,͏͏ unlike͏͏ last͏͏ fiscal͏͏ year͏͏ when͏͏ sharp͏͏ cost͏͏ fluctuations͏͏ reduced͏͏ profitability͏͏ by͏͏ 100-110͏͏ basis͏͏ points.
Steady͏͏ cash͏͏ flow͏͏ and͏͏ minimal͏͏ reliance͏͏ on͏͏ debt͏͏ for͏͏ funding͏͏ store͏͏ expansion͏͏ will͏͏ result͏͏ in͏͏ strong͏͏ debt͏͏ metrics.
The͏͏ interest͏͏ coverage͏͏ and͏͏ total͏͏ debt/EBITDA͏͏ (earnings͏͏ before͏͏ interest,͏͏ taxes,͏͏ depreciation,͏͏ and͏͏ amortisation)͏͏ ratios͏͏ for͏͏ apparel͏͏ retailers͏͏ are͏͏ projected͏͏ to͏͏ be͏͏ 6.2͏͏ times͏͏ and͏͏ 1.7͏͏ times,͏͏ respectively,͏͏ in͏͏ 2024-25,͏͏ consistent͏͏ with͏͏ last͏͏ fiscal͏͏ year,͏͏ the͏͏ report͏͏ added.
However,͏͏ the͏͏ report͏͏ cautioned͏͏ that͏͏ changes͏͏ in͏͏ commodity͏͏ prices,͏͏ inflation͏͏ trends,͏͏ consumer͏͏ spending͏͏ behaviour,͏͏ and͏͏ retailers’͏͏ ability͏͏ to͏͏ maintain͏͏ momentum͏͏ in͏͏ the͏͏ fast͏͏ fashion͏͏ segment͏͏ should͏͏ be͏͏ closely͏͏ monitored.
