Aditya Birla Fashion scales down Forever21, cuts costs
Mumbai: Aditya Birla Fashion and Retail Ltd (ABFRL), the licensee of American fast fashion brand Forever21, is downsizing the brand’s stores and cutting costs as sales from the fast fashion business decline, a top company executive said.
ABFRL reported a loss of Rs23 crore in the fast fashion business during the quarter ended December 2017, even as sales from the business declined 14% from a year earlier to Rs114 crore (net sales value, or NSV). Loss widened because Forever21 took a one-time inventory hit, Ashish Dikshit, managing director of ABFRL’s Madura Lifestyle business, said in an investor call on Friday. However, NSV comparisons were also affected by changes in GST rates.
“The Rs23 crore loss in fast fashion is mostly because of Forever21, Rs15-16 crore is a one-time inventory markdown after rationalizing the business,” Dikshit said in the conference call.
“Assumptions have changed for the Forever21 business,” Dikshit added. “We recognize that the current business needed significant restructuring—store resizing, a new store model, renegotiations.”
ABFRL has reduced the sizes of its oldest stores and will now focus on opening new but smaller stores, he said. Most of these are stores opened by the brand before ABFRL acquired the licence for Forever21 from previous partners DLF Brands and Diana Retail.
“Size, cost, and competition impacted legacy stores in Forever21, they were much bigger than the business model deserves,” Dikshit said. “The cost was much higher than it deserved.”
Fast fashion brands including Zara and H&M usually operate stores of 25,000-50,000 sq. ft around the world and in India. ABFRL did not specify how small the new stores will be.
“We are at 22 stores, will continue to remain reasonably conservative, moderate for some time to ensure every new store is on a tight commercial model,” Dikshit added. “We will open 6-8 stores a year at this time in a model driven by revenue share models and capital investment from builders. This is unlike a year back where we were investing a lot and focusing on growth.”
“Our internal assumptions for growth were very high in this business, but the profitability requires deeper correction and we realized that we had built up a lot of inventory which we needed to know what do with it,” Dikshit added.
ABFRL is expecting the fast fashion business to turn around by the next quarter, driven by high double digit like to like growth in sales. Like to like refers to growth in sales from stores that have been open for the same period of time. The firm has been focusing on cost cutting to help boost margins, primarily through renegotiating rents and reducing store sizes wherever possible including for Pantaloons, the firm’s departmental store chain.
Forever21’s flailing performance and restructuring comes at a time when fast fashion peers Zara and H&M are doing brisk business in India. Swedish fast fashion retailer H&M doubled its annual sales in India (for the year ending November 2017) to worth Rs957 crore, Mint reported on 1 February. It also increased its store count from 15 to a total of 27, led by new stores in tier II cities including Indore, Coimbatore, and Amritsar.
Meanwhile, Spanish fast fashion retailer Zara closed FY16-17 with Rs1,023 crore in sales and 20 stores, according to the latest available data. Parent Inditex SA operates Zara stores in a joint venture with Trent Ltd, a Tata Group company. Zara also launched its own e-commerce website in India in October last year.
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