Aug 12, 2022
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India’s apparel retailers to earn 21-23% more revenue in FY 2023

Aug 12, 2022

A combination of strong same-store sales, new store launches, and higher contribution from online channels will add 21-23 per cent revenue growth for apparel retailers in India in fiscal 2023, or around 500 basis points (bps) more than the pre-pandemic (fiscal 2020) level, despite elevated inflation impacting discretionary demand.


Operating margin will improve 175-200 bps on-year to 7.75-8 per cent, supported by increase in scale leading to better fixed-cost absorption, price hikes, and greater share of private labels, according to a report by analytical company CRISIL. However, higher input prices will cap the operating margin 50-70 bps below the pre-pandemic level. Among the key inputs, domestic prices of cotton almost doubled between April 2020 and May 2022. Despite some moderation since June 2022, they are expected to remain higher that what it was before the pandemic.

Balance sheets of apparel retailers were managed well during the pandemic through timely equity raising, which helped mitigate the impact of volatility in revenue and profitability. Now, given improving revenue and profitability, and therefore higher cash from operations, apparel retailers are well placed to invest in increasing stores and online presence, which will gradually benefit their credit profiles.

A study of 46 CRISIL-rated apparel retailers, which account for more than a third of the organised sector’s revenue of arund Rs 90,000 crore, indicates as much.

“Revenue growth of apparel retailers will be driven by better same-store sales and higher contribution from new stores set up in the past 2-3 fiscals. These had contributed sub-optimally during the pandemic. Additionally, rising average selling price and transaction size is helping offset in-store footfalls that continue to trail pre-pandemic levels amid high inflation,” said Naveen Vaidyanathan, director, CRISIL Ratings, in a press release.

CRISIL Ratings expects large apparel retailers to grow faster at 25-30 per cent this fiscal, compared with 10-15 per cent by their small and mid-sized counterparts. This would be on a relatively lower base as the large ones, being predominantly situated in malls and high streets, were impacted more by the pandemic-related lockdowns.

They will also lead the improvement in operating margins with around 250-300 bps expansion this time. Because of higher fixed costs, their operating margins were more negatively impacted during the pandemic. That situation will now reverse. Moreover, they typically have stronger and well-established brands that command higher gross margins compared with mid-sized apparel retailers.

Capex by apparel retailers is set to rise over 30 per cent on-year this fiscal period because of the improvement in demand. Apart from store expansions, addition of warehousing space and investment towards brand acquisitions, a significant part of the spending would be to augment tech platforms and online offerings. The share of online channels in overall revenue of apparel retailers is expected to cross 15 per cent this fiscal vs around 5 per cent in fiscal 2020, added the release.

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