Profit margins of branded apparel retailers are likely to remain under pressure during the September quarter, due to higher discounting, shift in consumers’ preferences to value-based purchases and extension of the ‘end of season sale’ period.
The June quarter was very good for these companies, but that trend will reverse in september. Branded apparel retailers, including Aditya Birla Fashion & Lifestyle, Future Lifestyle Fashions, Shopper Stop, Trent, Gokaldas Exports and Page Industries had reported a significant growth in their profit margins for the quarter ended June. Data compiled by global consultancy firm Wazir Advisors showed profit margins of Aditya Birla Fashions & Lifestyle stood at 11.5 per cent for the quarter between April and June this year as compared to 4.1 per cent in the comparable period last year.
Similarly, the margins of Future Lifestyle Fashions almost doubled to 12.9 per cent for the first quarter of the financial year 2019-20 from 6.9 per cent in the same quarter last year. Shoppers Stop and Trent reported their profit margins at 11.1 per cent and 18.3 per cent for Q1, as compared to 5.5 per cent and 11.7 per cent, respectively, for the comparable quarter last year.
Industry sources believe that both manufacturers and retailers started curtailing their production and inventory towards the end of the January-March quarter of FY19, which gradually squeezed pipeline supply in the April–June quarter.
“Retailers at the behest of manufacturers started ‘end of season sale’ early, that is, by the first week of June this year and continued (with this sale) till by August-end. Thereafter, retailers started offering massive discount of up to 60-70 per cent to attract customers this festive season. So, the actual downturn in apparel manufacturing started by March-end, worsened in August and is even continuing today due perhaps to weak economic sentiment in India. Considering all these factors, we estimate profit margins for apparel retailers would be much worse in the second quarter than in the first,” said Rahul Mehta, President, Clothing Manufacturers Association of India (CMAI).
Most importantly, online retailers such as Amazon and Flipkart offer up to 70 per cent discount on men’s and women’s apparel brands like Lee, Only, Vero Moda and Forever New. Online retailers have taken away some of the market share of offline retailers by offering huge discounts.
Meanwhile, there has been a rapid shift from unorganised sector retailers to organised in apparel retailing. In any case, the ongoing economic slowdown has reduced average ticket size of purchase.
“As against branded product purchases earlier, consumers are looking at the price range before finalising their orders. The average purchase size has declined by 15-20 per cent this year over the last,” said another retailer on condition of anonymity.
Thus, the turnover of these apparel manufacturing and retailing companies may show higher in the second quarter ending September 2019, the profit margins would certainly get impacted.
“More than the uneven distribution of the monsoon rainfalls followed by flood in several pockets, it is the economic slowdown that impacted both rural and urban apparel sales this season. Overall, festive mood is weak,” said Mehta.
Published On : 10-10-2019
Source : Business Standard
