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Indian fashion retail sees encouraging early recovery trends: ICRA

27
Sep '21

Pic: Shutterstock

With an improvement in vaccination coverage, the fashion retail segment in India is expected to witness a 15-17 per cent year-on-year (YoY) growth from July this year to March 2022, according to rating agency ICRA, which said fashion retailers in its sample set are expected to increase their capital spending towards store additions by over 45 per cent in fiscal 2021-22.

That growth will translate into an annual revenue growth of 23-25 per cent in this fiscal.

The extent of rental concessions in the first quarter of this fiscal was markedly lower by up to 55 per cent than those seen during the first wave of the pandemic.

The pandemic spurred the adoption of online retailing in India, with most retailers reporting more than 50 per cent jump on a YoY basis.

A third wave peaking in the months of October-November 2021 could potentially shave up to 40 per cent of the segment’s revenues from ICRA’s base case during the third quarter of this fiscal.

ICRA’s channel checks suggest that during July and August this year, the segment witnessed a healthy recovery of up to 70-85 per cent of pre-COVID level of sales.

This current recovery is in contrast to a relatively muted recovery (up to 48-50 per cent of pre-COVID sales) reported during the second quarter of the last fiscal following the reopening after the first wave.

Besides material costs, retail entities typically have three key cost components—rental, employee cost and selling/promotional expenses—which account for around 30 per cent of their total costs. While the rental negotiations during the first wave were chalked till March 2021, fashion retailers again invoked the force majeure clause in the rental agreements and renegotiated rents for the current fiscal following the second wave and lockdowns.

The extent of rental concessions in the first quarter of this fiscal were, however, markedly lower by up to 55 per cent than those seen in first wave, ICRA added.

Fibre2Fashion News Desk (DS)

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