T&A Demand Set To Revive As US Retail Shows Positive Trends

The Indian textiles and apparel (T&A) sector is finally on the revival path. If one goes by the recent export numbers, the cumulative exports in September 2024 have registered a significant growth of 12.38 per cent (Y-o-Y). In fact, at around $1.1 billion, the apparel exports from the country surged by 17.30 per cent in September 2024. The cumulative exports of textiles and apparel during the first half (April-September) of the current fiscal grew 5.13 per cent as compared to the same period of last fiscal. Apparel exports during the period registered a growth of 8.51 per cent

Experts have attributed this to some of the favourable factors which are playing out lately. One of the factors is the gradual liquidation of retail inventory in the key end markets like the US and EU. Moreover, these markets are also witnessing buoyancy in demand on the retail front following improved discretionary spending.

According to the US Commerce Department’s Census Bureau, overall retail sales in the US advanced 1.7 per cent in September (Y-o-Y). Sales at clothing stores rebounded 1.5 per cent, likely boosted by back-to-school purchases. Receipts at miscellaneous store retailers surged 4.0 per cent, while online sales climbed 0.4 per cent. Gasoline prices dropped by about 12 cents per gallon between August and September, adding to the discretionary spending.

A Reuters report says, “US retail sales increased solidly in September as lower gasoline prices gave consumers more money to spend at restaurants and bars, supporting the view that the economy maintained a strong growth pace in the third quarter. The slightly stronger-than-expected rise in sales reported by the US commerce department also reflected sharp increases in receipts at clothing store outlets as well as miscellaneous store retailers. Consumers boosted online purchases and spent more at health and personal care stores.”

“Strong spending by consumers in the US in September suggests economic growth in the previous quarter was solidly above trend,” says Jeffrey Roach, Chief Economist at LPL Financial.

“The better-than-expected retail sales report in the US echoes the positive tone from recent annual revisions to consumer spending and income data, which pointed to a more sustainable pace of consumer spending supported by robust income momentum. Yet, it is important to note that with labour market trends softening, such robust momentum is likely to ease in coming months,” states Lydia Boussour, EY-Parthenon Senior Economist, Strategy and Transactions, Ernst & Young LLP.

Meanwhile, credit rating agency ICRA has projected 9-12 per cent revenue growth for Indian apparel exporters in FY2025. The growth is predicted primarily due to the gradual liquidation of retail inventory in the key end markets and a shift in global sourcing to India. This follows a tepid performance in FY2024 when exports were affected because of high retail inventory, sluggish demand from the key end markets, supply chain issues (including the Red Sea crisis) and heightened competition from neighbouring countries.

“The long-term prospects for Indian apparel exports are favourable, aided by enhanced product acceptance in end markets, evolving consumer trends and a boost from the government in the form of the production-linked incentive (PLI) scheme, export incentives, the proposed Free Trade Agreement with the UK and the EU, among others,” says the ICRA report.

With the revival in demand, ICRA expects the capex spending to increase in FY25 and FY26 and may stay in the range of 5-8 per cent of the turnover. At $9.3 billion in calender year 2023 (CY23), the US and the EU account for over two-thirds of apparel exports from India and remain the preferred destinations.

While headwinds persist in certain end markets because of geopolitical tensions and macroeconomic slowdown, there has been a gradual recovery in apparel exports from India in the current year, says the report.

Srikumar Krishnamurthy, Senior Vice-President and Co-group Head, Corporate Ratings, ICRA, states: “After a marginal decline (down 2 per cent) in FY2024, Indian apparel exporters are estimated to report a 9-11 per cent revenue growth in FY2025, benefitting from de-risking strategy adopted by various customers and replenishment of retail inventory in key end markets, especially the US and the EU regions. Nevertheless, challenges around demand uncertainty persist in a few key markets amid a subdued macroeconomic environment, geopolitical issues, etc. Despite the revenue growth, associated operating leverage benefits and softer raw material prices, the industry’s operating margins are expected to contract by 30-50 basis points (bps) on a YoY basis in FY25 with increasing labour costs, freight costs and rise in other operating expenses.”

“Apart from the benefits to be derived from the fresh capacity additions under the PLI scheme, PM Mega Integrated Textile Region and Apparel scheme is expected to strengthen India’s presence in the global apparel trade by providing scale benefits and strengthening the country’s presence in man-made fibre value chain. ICRA anticipates the culmination of these schemes to enable Indian apparel exporters to increase their share of the pie in the global apparel trade,” adds Srikumar.

Recent geo-political tensions in Bangladesh could result in capacity additions outside the country, including India. Nevertheless, the availability of labour at competitive costs and preferential duty access, given its least developed country status for another two years on exports to the US and the EU, help Bangladesh to remain competitive against most other developing countries, states the ICRA report.