Apparel Retailers To Stitch 21-23% Revenue Growth This Fiscal: CRISIL

A combination of strong same-store sales, new store launches and higher contribution from online channels will sew 21-23% revenue growth for apparel retailers this fiscal, or ~500 basis points (bps) more than the pre-pandemic (fiscal 2020) level, despite elevated inflation impacting discretionary demand, Crisil has stated.

"Operating margin will improve 175-200 bps on-year to 7.75-8%, supported by increase in scale leading to better fixed-cost absorption, price hikes, and greater share of private labels. However, higher input prices will cap the operating margin 50-70 bps below the pre-pandemic level. Among the key inputs, domestic prices of cotton almost doubled between April 2020 and May 2022. Despite some moderation since June 2022, they are expected to remain higher that what it was before the pandemic," the ratings agency has said.

Balance sheets of apparel retailers were managed well during the pandemic through timely equity raising, which helped mitigate the impact of volatility in revenue and profitability. Now, given improving revenue and profitability, and therefore higher cash from operations, apparel retailers are well placed to invest in increasing stores and online presence, which will gradually benefit their credit profiles.

A study of 46 CRISIL-rated apparel retailers, which account for more than a third of the organised sector's revenue of ~Rs 90,000 crore, indicates as much.

Says Naveen Vaidyanathan, Director, CRISIL Ratings, "Revenue growth of apparel retailers will be driven by better same-store sales and higher contribution from new stores set up in the past 2-3 fiscals. These had contributed sub-optimally during the pandemic. Additionally, rising average selling price and transaction size is helping offset in-store footfalls that continue to trail pre-pandemic levels amid high inflation."

CRISIL Ratings expects large apparel retailers to grow faster at 25-30% this fiscal, compared with 10-15% by their small and mid-sized counterparts2. This would be on a relatively lower base as the large ones, being predominantly situated in malls and high streets, were impacted more by the pandemic-related lockdowns.