Sales of clothing and accessories experience a decline.
Consumers are exercising caution before purchasing clothing and accessories, as higher prices of daily goods are constraining their discretionary spending, said industry insiders.
According to companies, industry associations, and analysts, retail sales was lacklustre in April-May. Consequently, companies have started early end-of-season sales due to mounting inventory. Ratings agency ICRA expects fashion retailers to report a 10% growth in revenues this financial year, slowing from a 51% increase in FY23.
“Almost every lifestyle company indicated that the demand scenario continues to remain soft across product categories, price ranges, and geographical regions. While April-May 2023 has possibly seen a more pronounced impact of the higher base of last financial year, clearly footfalls have been weak. Although revenue trends have been better in June, it continues to remain modest,” analysts at Motilal Oswal Financial Services said in a report on Monday. The brokerage hosted a retail investor day on 17 June inviting firms to share their views on both demand as well as the business environment.
The Retailers Association of India (RAI), too, issued its latest data on Monday, to report 7% growth in retail sales in May from a year ago, and 6% in April. “Jewellery and apparel showed moderate growth at 9%, while sportswear showed 2% growth, which is the lowest since the pandemic. As consumers are now getting into their normal business routines, we are witnessing moderate growth over the previous year. However, we are also aware that April and May 2022 saw extraordinary growth at 23% and 24% respectively compared to pre-pandemic period (April -May 2019),” said Kumar Rajagopalan, chief executive, RAI.
Demand pressures on fashion retailers are likely to persist in the fiscal first half and may improve only with the onset of the festive season, ICRA said. Fashion retailers are set to report moderate revenue growth in FY24 amid inflationary headwinds, it added.
“After reporting a stellar 51% year-on-year revenue growth in FY23, revenue growth of fashion retailers is set to moderate in the current fiscal amid inflationary headwinds. According to ICRA’s recent industry analysis, revenue growth of 11 listed retail entities in its sample set will moderate to 10% in FY24. Their operating profit margins are also expected to decline by 100 basis points to around 5.7%, given the demand softening and continued high advertisement and promotion spending expected during the year,” ICRA said.
In fact, demand has been tepid since the festive season 2022. High raw material costs forced retailers to pass it to consumers. Prices for Spring-Summer 2023 collection is also high due to higher cotton prices last year. However, cotton yarn prices are currently softening.
Retailers advanced discount sales by a week to shore up demand and liquidate stock after the sluggish April-May period, they said. “April and May were slow. Last year was a really phenomenal growth year, so there is a base effect; we’re also seeing consumers spending a lot more on experiences, we are seeing food and beverage sales going up. Perhaps the wallet share is moving from apparel to experience-led expenses. Overall, the footfall in stores is also seeing a drop—by 7-8% across the country,” said Devarajan Iyer, executive director and CEO at Lifestyle.
