Bangaluru/Mumbai: After a tough year by way of sales and margin growth, apparel retailers are hoping for a rebound in 2018 as consumer demand picks up.
Still, with the modern, organized retail landscape shifting and adjusting to an omni-channel way of doing business, like-for-like sales growth could be under pressure. Omni-channel offers customers a combination of shopping online and at physical retail stores.
While these retailers benefited significantly in the April-June quarter from pre-GST (goods and services tax) sales, they took a hit in July immediately after GST was implemented as consumers temporarily clamped down on spending. An early Diwali that nearly overlapped with end-of-season sales meant the recovery in the December quarter was also not as strong as expected.
But things are looking better now.
“The whole brick-and-mortar growth story is intact. This year at a company level, i.e. Lifestyle, Home Centre and Max Fashions, we will close with revenue of almost Rs8,000 crore. We are growing at a 20-23% five-year CAGR. We expect that CAGR rate to be at least 18-20% going ahead," said Kabir Lumba, managing director of Lifestyle International Pvt. Ltd. CAGR stands for compound annual growth rate.
Lifestyle has been posting double-digit, like-for-like sales growth for four consecutive years and there is no change in that broad trend, despite supply chain disruptions in July-August and a 10-15% lower-than-expected Diwali sale, according to Lumba.
Like-for-like sales measure sales growth excluding any effects of expansion or acquisitions that artificially enlarge a company’s sales.
Fast-fashion brand Splash is also positive that 2018 will be good, provided there are no more policy changes.
“There are a lot more activities and interventions happening at malls, which is getting the customer to come back and experience brick-and-mortar," said Abhinav Zutshi, Splash India’s chief operating officer.
Total revenue from the organized retail sector, across categories, is expected to catapult to $166 billion by FY25 from $55 billion in FY16, Edelweiss Securities wrote in a research report on 8 January. Apparel, food and beverage and jewellery will benefit the most over the long-term from India’s growing shift to modern, organized retail, Edelweiss said.
Within apparel, the industry is expected to continue to bet heavily on women’s wear. Indo-western women’s wear, in particular, will come of age, said Jitendranath Patri, vice president of marketing at Central, Future Lifestyle and Fashion Ltd’s department store chain.
The main reason behind the optimism among analysts and industry executives is that underlying consumer demand remains strong. “Our channel checks suggest that consumer demand has not been impacted at all because of GST implementation," analysts at PhillipCapital wrote in a report published on 5 January.
Policies like the Maharashtra government’s December decision to allow shops and restaurants that don’t serve alcohol, cinema halls, salons and hyper malls to be open 24/7 will also boost brick-and-mortar retail and put it on equal footing with e-commerce.
But some caution that margins could come under pressure as retailers adjust to an omni-channel business model, which requires additional expenditure and resources. For instance, some apparel retailers offer free home delivery service. While that may not work out to a huge amount on an individual order basis, collectively, it puts pressure on margins. And that is playing out against a backdrop of an ever-increasing number of brands entering the market.
Consumers are also not changing their shopping habits as easily as they used to before despite a big push from retailers, according to Govind Shrikhande, managing director of Shoppers Stop Ltd.
“Just because there are more players, suddenly customers will not double their demand. There are a lot more companies vying for that share of the wallet now, even as consumer demand is growing at a normal pace. Like-to-like growth will be under pressure because a bulk of the growth will be through new stores," said Vasanth Kumar, executive director at Max Fashions.