According to a note issued on Wednesday by rating company Crisil, offline clothes retailers are expected to achieve 7-8% revenue growth in FY24, aided by festival and marriage season demand and a step up in store development.
Crisil examined 39 organized garment stores, which accounted for one-fourth of the industry’s 1.9 lakh crore sales last fiscal. Meanwhile, it added that reducing material costs would help balance the effect of rising marketing spending, keeping margins consistent.
Last fiscal year, retailers grew 38% on a low base, fueled by pent-up demand after the pandemic depression and greater realizations following a sharp rise in raw material costs, which were passed on to customers.
“Demand from the premium segment is rising gradually with consumers increasingly preferring branded garments, driven by return to office and buoyant corporate activity. This is helping offset muted-to-low demand from the economy and value segments (60% of total revenues) because of changes in discretionary purchasing decisions, including due to rise in food inflation, in the recent past. With continuous store expansion, and the onset of the festive and wedding season, demand should improve materially in the third quarter (~35% of annual revenues) and a part of the fourth quarter, supporting revenue growth,” said Anuj Sethi, senior director, Crisil Ratings.
Meanwhile, according to the analysis, the rate of retail area growth will return to pre-pandemic levels of 2.2 million square feet in fiscal 2024, down from 3.7 million square feet last fiscal. According to the research, operating margins are likely to remain rangebound at 8% this fiscal year, as an improved product mix in favour of the premium category and reduced input prices balance the effect of increasing marketing spending.
“Operating margin is seen at previous year’s level of 8% despite significant reduction in prices of key raw material i.e. cotton; it has corrected 20% in the first four months of fiscal 2024, over average of fiscal 2023. This is largely due to continuing aggressive marketing strategy including various offers to boost consumer sentiment and revive discretionary spend,” the report added.
Furthermore, Crisil anticipates that the percentage of online sales in total revenue will stabilize this fiscal year as customers combine online and offline purchasing. Crisil anticipates investment in store expansions to be close to the previous year’s levels of 2,000 crore this fiscal.
