Festive demand high, but apparel retailers yet to recover

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December 15, 2020 12:15 AM

Cantabil Retail, which has a large presence in tier II, III, and IV towns, claimed a 25% growth in sales in November as compared to the same period last year. V-Mart, too, claims to have secured double-digit growth compared to 2019 due to small town sales.

Some importers from the US, Europe, Australia and New Zealand have decided to source textiles from Indian suppliers instead of China, Pakistan and Turkey.

Although festive demand and the early onset of winter have given apparel retailers a fillip, complete recovery is still a while away. Retail majors V-Mart Retail, Cantabil Retail, United Colors of Benetton and Lifestyle International have reported sales recovery to the same levels as last year, if not more, in November.

Cantabil Retail, which has a large presence in tier II, III, and IV towns, claimed a 25% growth in sales in November as compared to the same period last year. V-Mart, too, claims to have secured double-digit growth compared to 2019 due to small town sales. Lifestyle International, with its urban mainstay, reported that its festive sales remained at 75% of last year’s levels.

United Colors of Benetton witnessed a 90% sales recovery in metro cities, but in tier II, III, and IV markets, which contribute about 40% of its business, the company claims to have grown over the last year. “High streets are performing consistently but business in malls remains on the lower side,” says Sundeep Chugh, MD, and CEO, Benetton India. Its stores in airports are also underperforming.

Moreover, the demand for categories like formal wear and ethnic wear also returned in the third quarter due to the onset of the marriage season. A recent survey by brand loyalty programme Payback of 3,000 respondents saw a 41% growth in preference for occasion wear and 16% for formal wear. Kids wear, fitness apparel and winter wear are other categories that are witnessing growth.

According to experts, products in the lower price bands (below Rs 1,000) have been most impacted due to the pandemic but mid-premium (Rs 1,000-2,000) and premium (upwards of Rs 2,000) have been faring well.

The growth witnessed in recent months, however, is not going to make up for the loss of revenue in the first and second quarters. For FY21, companies will see a dip of 25-40% in revenue.

Cantabil Retail, for instance, which is projecting to match up last year’s festive sales of Rs 107 crore in the third quarter (Q3), is expecting a drop of 30-35% for its FY21 revenue as compared to FY20. The company had reported a revenue of Rs 340 crore last fiscal.

“The first quarter was completely wiped out due to the lockdown and hence it will have an impact on our overall revenue for the year,” says Shivendra Nigam, chief financial officer, Cantabil Retail.

According to Siddharth Jain, partner, Kearney, India’s apparel market is sized at Rs 4,20,000 crore, of which urban India has a two-third share. Due to the impact of the pandemic, the overall market will decline by 25%, while the urban segment will witness an even higher fall of 35%. Earlier, India Ratings and Research, too, had estimated that apparel retailers would close FY21 with a 40-45% decline in revenues.

Heading into the next year, managing inventory is going to remain challenging for these players, says Jain, as demand remains uncertain. Inventory for this segment needs to be planned five-six months in advance.

Similarly, the surge in e-commerce presents yet another challenge for retailers. Abhishek Malhotra, partner, McKinsey & Company says that while online channels contributed about 10-12% of sales to the apparel segment in the pre-Covid period, several players have doubled their sales from the channel in the last few months.

Offline majors that have a large store footprint may struggle with selling their wares online, considering that apparel particularly has a high return rate — 30-40% — on e-commerce.

All hopes are now on 2021’s spring-summer season. “Last year, consumers hadn’t purchased spring-summer stock, so we expect the demand for apparel to be high in February and March,” says Vineet Jain, COO, V-Mart Retail.

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