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Business News/ Industry / Retail/  Apparel retail revenues to fall 40-45% in FY21: Ind-Ra
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Apparel retail revenues to fall 40-45% in FY21: Ind-Ra

Agency forecasts a more promising Q3 for overall retail sector as mobility normalizes

The covid lockdown affected several retailers, but those in the apparel business were hit the hardest (Mint)Premium
The covid lockdown affected several retailers, but those in the apparel business were hit the hardest (Mint)

India Ratings and Research (Ind-Ra) maintained its sombre outlook on the retail sector with apparel retailers closing FY21 with a 40-45% decline in revenues, while food and grocery retailers are likely to report a 5-10% dip, it said in a note on Monday, while estimating a demand recovery for the sector in the second half of the year and well into FY22.

The agency also estimates a threefold jump in online sales for retailers in the current fiscal.

India’s lockdown affected several retailers, but those in the apparel business saw a severe slump in demand as stay-at-home consumers felt little need for formal and occasion wear. Lockdown and, later, restrictions on store operations crushed summer season sales. It is only now that the clothing segment is clawing back on the back of festive and wedding season sales.

“Ind-Ra expects the demand recovery to continue in 2HFY21 and FY22, primarily driven by the festive season demand, strong performance by the online channel, and share gain by the organized segment at the expense of the unorganized sector. The agency, however, maintains the full-year revenue decline to 5-10% for food and grocery retail, while apparel retail could witness a 40-45% decline in revenues for FY21 because of covid-19 led business disruptions and general economic slowdown," said Prateek Goyal, the note’s author.

The note signalled a more promising third quarter for retailers as mobility normalized and pent-up demand led to increased consumption for some categories, even as it flagged concerns around social distancing norms and a slowing economy.

For the third quarter, Ind-Ra, a part of the Fitch Group, expects apparel sales to touch 80% of pre-covid levels, with food and grocery retail hitting more than 100%.

The note, meanwhile, predicts an obvious significant shift in consumer shopping habits with more consumers buying goods online. Ind-Ra expects sales made through the online route to increase by a factor of more than three in FY21.

Companies have focused on a strong digital footprint with increased investments in developing their own websites and mobile apps, while also partnering with online channel partners to fuel growth, the agency said.

As a result, business via own websites or through online marketplaces is expected to increase to 10-15% of total sales by FY22, up from 2-4%, faster than the earlier five-year timeline predicted to reach this volume, it added.

Online retailers are establishing more partnerships with offline retailers as both seek to leverage consumer demand, which is moving online. Sportswear retailer Puma India expects to sell goods worth 500 crore by the end of next year on fashion portal Myntra, it said in a recent interview.

Walmart-backed Flipkart has also been investing in fashion retail in the country.

However, Ind-Ra hasn’t predicted the demise of offline retailers just yet. Despite footfall in malls still not increasing sufficiently, the ratings agency is bullish on retailers expanding beyond metros.

However, store sizes could be rationalized, it said.

“The brick-and-mortar presence of large retailers will continue to grow, as there are several untapped markets available outside tier-1 cities, given the low penetration of the organized market. Omni-channel presence may lead to the rationalization of store size and numbers, given high rental expenses," it said.

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ABOUT THE AUTHOR
Suneera Tandon
Suneera Tandon is a New Delhi based reporter covering consumer goods for Mint. Suneera reports on fast moving consumer goods makers, retailers as well as other consumer-facing businesses such as restaurants and malls. She is deeply interested in what consumers across urban and rural India buy, wear and eat. Suneera holds a masters degree in English Literature from the University of Delhi.
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Published: 30 Nov 2020, 07:01 PM IST
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