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Recurrent lockdowns threaten apparel brands’ near term growth, profitability

 

Recurrent lockdowns threaten apparel brands near term growth profitability

 

Lockdowns continue to spell doom for clothing companies that witnessed business upsurge in January and February owing to ‘end of season sales’ and declining COVID cases. However, a report by ICICI Securities expects rising COVID cases and subsequent restrictions to again delay recovery. The report estimates, apparel brands and retail companies will report low single digit revenue growth year-on-year in Q4FY21 despite low base implying 80-85 per cent pre-COVID recovery.

Sales drop by half during festival season

Retail sales are expected to fall by 20-25 per cent in April, reports Live Mint. Sales of non-essential goods are likely to be affected more, it adds. According to Siddharth Bindra, Managing Director, Biba, apparel sales had started recovering last year, when lockdown restrictions were eased. However, he now expects sales to drop by 50 per cent around festivals like Gudi Padwa, Ugadi and other spring festivals. The brand has temporarily closed 35 stores in Maharashtra in line with the state government’s orders.

Bindra believes, there is a direct correlation between surge in cases and the apparel business. A surge in COVID cases and partial lockdowns dampens consumer spirit, resulting in low sales. People hesitate to step out impacting footfalls at malls and high streets, he adds.

Lockdowns affecting summer sales

Akhil Jain, Managing Director, Jain Amar Clothing and owner brand Madame, says, night curfews are affecting footfalls as shoppers avoid visiting malls after 8 pm. They are also not upgrading their summer wardrobes owing to full lockdowns on weekends. Jain expects his brand’s sales to drop by 20 per cent in April 2021 as compared to March 2021.

Consumers’ growing preference for casual wear is further adding to the woes of apparel retailers. Owing to the second COVID-19 wave, consumers are cutting back on discretionary purchases, restricting apparel sales to 85 per cent of 2019 instead of the expected 95 per cent, says Sundeep Chugh, Managing Director and CEO, Benetton India. The company had planned its inventory assuming a second COVID wave. However, it could face a potential inventory challenge if sales drop lower than expected, adds Chugh.

Most retailers have welcomed the current vaccination drive in the country. Chugh says, this will help speed up recovery in the apparel sector. He expects the sector to start recovering from the third quarter of current financial year.

Rationalizing fixed costs helps strengthen balance sheets

The ICICI Securities report expects temporary shutdown of malls and stores in Maharashtra and various restrictions imposed by different state governments to impact near-term growth and profitability of companies. However, it says, over the last 12 months, many companies have been able to rationalize their fixed costs and strengthen balance sheets. These companies are currently in a much better position, the report concludes.

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