Indian Fashion Retailers’ Margins To Slip 120bps In FY’24
Fashion retailers will report 120 bps slip in margins mainly due to offering higher discounts and hike in advertisement spends, despite expectations of 13 percent revenue growth in fiscal 2024.
An ICRA analysis also informed that the industry is poised to face this margin squeeze primarily due to amplified discounting and escalating expenditures on advertising and promotions, in a bid to increase revenues.
The analysis expects a moderation in operating profit margins to 5.2 percent in the current fiscal, which will result in margins slipping 120 bps. ICRA however has maintained a stable outlook for the sector.
ICRA analysed operating profit margins of 11 publicly listed garment retailers who collectively account for 23 percent of the Indian fashion industry revenues.
The Indian apparel retail industry has been facing a demand slowdown since the third quarter of previous fiscal due to inflationary challenges, which continued into the fourth quarter of earlier fiscal.
However these retailers reported a sales growth of 13 per cent in the first quarter of present fiscal, which came from expansion of store network and early commencement of end-of-season sales.
The report added that the value fashion sector has mainly borne the brunt of the slowdown as against the premium fashion segment and is yet to reach its pre-pandemic average sales per square foot.
The report foresees a relatively steady quarter-on-quarter revenue growth for fashion retailers in the second quarter of current fiscal, primarily due to ongoing inflationary pressures.
The shift of festive season to the third fiscal quarter is expected to curtail growth in the ongoing fiscal quarter, with substantial revenue growth forecast to begin from the third fiscal quarter.
“In line with our expectations, fashion retailers escalated their levels of discounting in fiscal 2024 to stimulate sales, which had been under duress since the previous festive season,” Sakshi Suneja, Vice President & Sector Head – Corporate Ratings, ICRA said.
“Retailers are pinning their hopes on a demand resurgence during the festive season, which has prompted them to continue their aggressive spending on advertising and promotions,” Suneja added.