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New Delhi: Apparel retailers could see their revenues soar past pre-pandemic levels of FY20, growing at a healthy 21-23% year-on-year in FY23, according to ratings firm 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," the agency said in a note on apparel retailers on Wednesday.

Crisil analysts studied 46 apparel retailers that account for more than a third of the organised sector’s revenue at 90,000 crore.

Apparel retailers are well placed to invest in increasing stores and online presence given improving revenue and profitability, they added

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 report said.

“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," said Naveen Vaidyanathan, director, Crisil Ratings.

The ratings firm expects large apparel retailers to grow faster at 25-30% this fiscal, compared with 10-15% growth projected for small and mid-sized retailers. 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, the note added.

Meanwhile, the ratings firm estimates that apparel retailers could expand their capex by over 30% this fiscal due to improved demand.

“Apart from store expansions, addition of warehousing space and investment towards brand acquisitions, a significant part of the spending would be to augment tech platforms and online offerings. The share of online channels in overall revenue of apparel retailers is expected to cross 15% this fiscal versus 5% in fiscal 2020," the note added.

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