Revenue up, margins down

22 September 2023, Mumbai

Fashion retailers are expected to face profit margin pressure in FY2024 due to higher discounts, increased advertising and promotion expenses, and a demand slowdown, according to an analysis conducted by ICRA.

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An overview

Fashion retailers to face profit margin pressure in FY2024 due to higher discounts, increased advertising and promotion expenses, and a demand slowdown, but revenue growth is expected to continue. Retailers need to be proactive in managing their costs and focusing on customer needs in order to remain successful.

Data points

Despite an estimated 13% year-on-year (YoY) growth in revenue for the year, driven by the expansion of their network, the operating profit margins of 11 listed retail entities, constituting 23% of the industry's revenue, are projected to decrease by approximately 120 basis points (bps) to 5.2% in FY2024.

Outlook; While the rating agency currently maintains a stable outlook on the retail sector, the pressure on profit margins could impact the profitability of individual retailers and lead to consolidation in the industry.

Pre-empt

Proactiveness; Fashion retailers can mitigate the pressure on profit margins by focusing on cost optimization, improving product mix, and enhancing customer experience. 

They can also explore new opportunities, such as expanding into online retail and offering value-added services.

Prognosis

Overall, the outlook for the fashion retail industry in FY2024 is mixed. Revenue growth is expected to continue, but profit margins could come under pressure. 

Retailers need to be proactive in managing their costs and focusing on customer needs in order to remain successful in this challenging environment.

Driving efficiencies

Additionally, fashion retailers can focus on operational efficiency and supply chain optimization to reduce costs. They can also explore new revenue streams, such as private labels and collaborations with influencers.

By taking these steps, fashion retailers can navigate the challenges of FY2024 and emerge stronger.

ICRA analysis on fashion retailers in India: A bird's eye view

• Revenue growth to continue: 13% YoY growth expected
• Profit margin pressure: Higher discounts, increased ad spend, demand slowdown
• Outlook stable: But pressure on profit margins could impact profitability
• Proactive measures: Cost optimization, product mix, customer experience
• New opportunities: Online retail, value-added services
• Driving efficiencies: Operational efficiency, supply chain optimization, new revenue streams

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