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Apparel retailers to see 21-23% revenue growth this fiscal despite inflation impacting demand, Retail News, ET Retail

Apparel retailers to see 21-23% revenue growth this fiscal despite inflation impacting demand

NEW DELHI: Strong same-store sales, new store launches and higher contribution from online channels will sew 21-23% revenue growth for apparel retailers this fiscal, which is 500 basis points (bps) more than the pre-pandemic level, despite elevated inflation impacting discretionary demand, according to data analysed by Crisil Research.

Operating margin will improve 175-200 bps on-year to 7.75-8%, supported by increase in scale leading to better fixed-cost absorption, price hikes, and greater share of private labels. However, higher input prices will cap the operating margin 50-70 bps below the pre-pandemic level, noted the study.

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,” said Crisil.

CRISIL Ratings expects large apparel retailers to grow faster at 25-30% this fiscal, compared with 10-15% 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.

“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.

Capex by apparel retailers is set to rise over 30% on-year this fiscal 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% this fiscal vs 5% in fiscal 2020.

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