According to a research released on Tuesday by credit rating agency Crisil, apparel retailing in India is expected to expand by up to 23% in revenue in the current fiscal year ending March 2023, owing to high same-store sales, an increase in online sales, and aggressive store expansions. This 500 basis point (bps) increase over the pre-pandemic (fiscal 2020) level occurs “despite increased inflation hurting discretionary demand,” according to Crisil.
According to the survey, apparel retailers’ operating margins would expand by 175-200 basis points year on year to 7.75-8%, owing to increased scale, better fixed-cost absorption, price increases, and a bigger share of their private labels. However, the higher input costs for brands and merchants will be a minor setback. “Higher input prices will limit growth.”
The credit rating agency also stated that clothes retailers managed their balance sheets well during the pandemic by timely obtaining equity, which helped them offset the impact of revenue and profitability volatility. “Now, with improved revenue and profitability, and hence increased cash from operations, clothes retailers are well positioned to invest in expanding store and online presence, which will eventually boost their credit profiles,” according to the report. According to Crisil, the anticipated increase in demand will push clothes retailers to increase capital investment, or Capex, by more than 30% this fiscal year. “Aside from store expansions, storage space additions, and investment in brand acquisitions, a large portion of the spending would be to improve tech platforms and online capabilities.”.