Consumer caution hampers fashion retailers: ICRA

22 June 2023, Mumbai

Cautious optimism; Cautionary consumer behavior, and lackluster sales impact fashion retailers as prices rise. Retail sales have been weak, prompting early end-of-season sales. Analysts anticipate slower revenue growth of 10% this year, down from 51% in the previous year.

Softening demand currently but H2 is to pick up

Demand for lifestyle products remains soft across categories and regions, though June shows modest improvement. Retailers Association of India reports 7% sales growth in May, with moderate growth in jewelry and apparel but lowest in sportswear since the pandemic.

ICRA expects demand pressure to continue in H1, improving during the festive season.

Headwinds

However, inflationary headwinds will moderate revenue growth in FY24, with listed retail entities projected to see a 10% decline in revenue and a 5.7% drop in profit margins. Since 2022, tepid demand persisted due to high raw material costs passed to consumers.

Spring-Summer 2023 collection prices remain high due to previous cotton price increases, but cotton yarn prices are softening. Retailers offer advanced discount sales to stimulate demand and clear inventory. Footfall decreased by 7-8%, potentially due to consumers prioritizing experience-led expenses over apparel.

Consumer Spending and Overall Footfall

Consumers may be shifting their spending from apparel to experience-led expenses like food and beverages, resulting in a decline of 7-8% in overall footfall across the country.

Bottom-line

The combination of cautious consumer behavior, lackluster sales, inflationary pressures, and shifting spending patterns poses challenges for fashion retailers.

The industry expects a moderate growth rate for the current financial year and anticipates improved demand during the festive season.

Retailers are adjusting their strategies by offering discounts and managing inventory to navigate these challenging market conditions.

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