Home / Industry / Retail /  Fashion retailers to see 8% dip in FY22 revenues amid covid wave, says report
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NEW DELHI: Fresh curbs on operating hours for malls and non-essential stores and mobility restrictions amid India's third covid wave could shave off an estimated 8% of fashion retailers' revenues in the current financial year, credit rating agency Icra Ltd said on Tuesday.

The agency lowered its revenue forecast for fashion retailers for the current fiscal, expecting retailers to touch 70-72% of their pre-pandemic revenues in FY22 as against the earlier projection of 78-80%.

​“This is based on an estimated 20% decline in store-operating hours during the fourth quarter vis-à-vis rating agency’s earlier expectation, leading to a commensurate decline in Q4 revenues. The restrictions are expected to be limited to Q4 FY2022 and estimated to be around six to eight weeks. Strong rebound in sales is, however, expected upon lifting of restrictions, akin to that witnessed post the second wave," Icra said.

ICRA has a “negative outlook" on the segment. It expects fashion retailers to return to pre-covid levels by the second quarter of the next financial year, assuming absence of any fresh wave of infections.

The recent surge in covid cases, especially of the Omicron variant, has once again brought with it localised restrictions in the form of night curfews and timing restrictions. Delhi is currently observing weekend curfews as well.

Aa a result, retailers are now stuck with excessive stocks and face a greater risk of significant inventory markdowns.

“Typically, January and February are the months of the end-of-season sales (EOSS), where retailers attempt to liquidate their (winter stock) inventory, prior to the launch of fresh spring-summer collections. With restrictions on mobility, retailers face a great risk of inventory markdowns as they are expected to resort to higher levels of discounting to attract customers," said Sakshi Suneja, assistant vice president and sector head, Icra.

While the third wave will dent profitability in Q4 FY22, the credit profile of large, listed entities is expected to remain adequately supported by strong balance sheets, Suneja said.

Fashion retailers are sitting on 2,500 crore of cash and liquid investment balances vis-a-vis total debt of 2,100 crores as on 30 September 2021, said Suneja.

These retailers reported strong recovery during Q3 FY22 nearing pre-covid level in terms of sales.

A sluggish January and higher input costs--cotton yarn and manmade fibres--are likely to impact gross margins and rental negotiations.

Retailers that have a greater share of stores in malls are expected to see a bigger impact on business as recovery in malls is typically delayed.

Meanwhile, those with omni-channel presence are better placed to tide over the third wave. The ratings agency expects the share of online sales to double to 7-8% in FY22 from 3-4% pre-covid.

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