Apparel retailers to stitch 21-23% revenue growth this fiscal: Report

Large players will also lead the improvements in operating margins with 250-300 bps expansion.Capex is set to rise over 30 per cent this fiscal because of the improvement in demand.

Elevated inflation will cap the operating margin of apparel retailers to below the pre-pandemic level, even though they are on course to stitch a 21-23 percent revenue growth this fiscal, says a report.

Strong same-store sales, new store launches, and higher contribution from online channels will sew a 21-23 percent revenue growth for apparel retailers this fiscal, or 500 percentage points over the pre-pandemic (fiscal 2020) levels, despite elevated inflation impacting discretionary demand, a Crisil report said on Wednesday.

The agency expects large apparel retailers to grow faster at 25-30 percent this fiscal, compared with 10-15 percent by small and mid-sized players.

However, the agency said though operating margins will improve by 175-200 bps to 7.75-8 percent boosted by an increase in scale leading to better fixed-cost absorption, price hikes, and a greater share of private labels, higher input prices will cap margin by 50-70 bps below fiscal 2020 level.

Among the key inputs, domestic cotton prices almost doubled between April 2020 and May 2022. Despite some moderation since June 2022, the prices are expected to remain elevated.

The report is based on a study of 46 apparel retailers, which account for over a third of the revenue of organized players, who net Rs 90,000 crore in annual sales, according to Naveen Vaidyanathan, a director at the agency.

The agency expects large apparel retailers will clip at 25-30 percent, while small and mid-sized players will see their top lines growing by 10-15 percent this fiscal. Large players will also lead the improvements in operating margins with 250-300 bps expansion.

Capex is set to rise over 30 percent this fiscal because of the improvement in demand. Apart from store expansions, the addition of warehousing space, and investment towards brand acquisitions, a significant part of the spending will be to augment tech platforms and online offerings.

The share of online channels in the overall revenue of apparel retailers is expected to cross 15 percent this fiscal from 5 percent in FY20, according to Shounak Chakravarty, an associate director at the agency.