Lower margins, reduced sales, inventory pile up, the dilemmas of Indian apparel retail

01 February 2024, Mumbai

Indian apparel retailers are facing a complex challenge: unsold inventory, obsolescence, and a shifting consumer landscape that is used to discounting. To cope with the evolving situation apparel retailers are adopting various strategies to navigate the complex retail maze.

Discounting dilemma

Retailers are running extended discount periods, but even deep slashes aren't clearing all the unsold stock. This impacts margins. Shoppers Stop, for instance, incurred a 60-bps gross margin hit due to write-offs. This trend is likely to continue, with upcoming sales further fueling the discount game. Shoppers Stop’s Kavindra Mishra, the CEO, admits to Rs 9 crore in unsold inventory write-offs. They're now sourcing closer to the season and discounting heavily.

Moreover, over-discounting causes consumers to expect sales always, making them less likely to pay full price, impacting profitability. Then there is the ‘sale fatigue’ phenomenon, with consumers waiting for the next markdown before purchasing, creating a vicious cycle of discounting.

Inventory blues

With demand not picking up, retailers are grappling with unsold inventory becoming obsolete. To cope with the situation, they are shortening sourcing periods. Reducing lead times from 120–150 days to 60–90 days allows more agile sourcing closer to the season, minimizing obsolescence risk.

Lifestyle International is a prime example. Devarajan Iyer, CEO, of Lifestyle International points out that they have cut sourcing periods from six to seven-month orders to two to three months for an agile response to real-time demand. This helps avoid inventory bloat and obsolescence.

On similar lines, V-Mart Retail’s Lalit Agarwal, MD says they now plan 20 percent of their inventory for just 45 days, allowing quick adjustments based on market fluctuations and fast fashion trends. This approach helps retailers react to changing trends and adjust inventory accordingly, preventing stock from getting stuck for long periods.

Shifting consumer’s priorities

The pandemic's impact on spending habits is evident. Consumers are now prioritizing experiences like travel over simply buying new products.

This trend further contributes to the slowdown in apparel sales. Moreover, higher awareness about sustainability and ethical fashion choices is leading to a shift towards fewer, better-quality purchases. The rise of online shopping has changed the buying journey, with consumers researching extensively before committing to a purchase.

Navigating and moving ahead

So how do retailers move ahead in the current market scenario? One way is adapting to the changing consumer landscape to survive and thrive.

Developing innovative marketing strategies to cater to the experience-driven consumer will be crucial for future success. This involves personalized marketing, understanding individual preferences, and offering targeted recommendations that foster brand loyalty and encourage full-priced purchases.

Omnichannel presence and integrating online and offline experiences seamlessly is key to cater to the evolving customer journey. Moreover, sustainable and ethical practices and embracing eco-friendly and responsible production align with changing consumer values and attract conscious shoppers.

Striking feature

The other important change retailers need to make is embracing technology for better inventory management and demand forecasting. Agile inventory management will lead to shorter lead times, real-time demand forecasting, and data-driven insights, which are crucial to preventing obsolescence and stockpiling.

Changing landscape: Indeed, Indian apparel retailers must adapt to the shifting sands of consumer behavior. Discounting alone won't suffice.

Embracing the experience economy, offering personalized services, and building brand loyalty through sustainable and ethical practices will be the keys to navigating the retail maze and emerging stronger in the experience-driven future.