Report, Retail News, ET Retail
Mumbai: Fashion retail, one of the sectors most affected by COVID-19, is starting to breathe again thanks to increasing vaccination and normalization of economic activities and could end the year with revenue growth of 23 to 25 cents if there is no third wave, according to a report. The sector has been hit hard since the start of the pandemic last March, with shopping malls and other outlets remaining closed.
Two other reasons for optimism are the massive 55% drop in rentals in the first quarter of fiscal 2022 and the increased adoption of online retail with over 50% increase in volume in one year, Icra Ratings said in a report, adding to expect better. Salvage retailers are also likely to increase their capital spending by at least 45 percent during this fiscal year. Consequently, the agency maintains its negative outlook for the sector and does not expect a full recovery until the second quarter of the next fiscal year.
However, the report warns that if there is a third wave, which virologists still do not rule out, it can potentially reduce income by up to 40%. And even if the sector closes the year with 25% growth, it will still be 20% lower than pre-pandemic volumes.
The fashion retail segment is expected to grow 15-17% year-on-year from July 2021 to March 2022, translating to 23-25% annual revenue growth for fiscal 22, provided it does not ‘there is no third wave, Icra said.
Our channel checks suggest that in July-August, the segment saw a healthy recovery to 70-85% of sales to pre-pandemic levels. Although the average ticket size has decreased from FY21 levels while remaining above pre-pandemic levels, attendance has increased, suggesting that this time around, consumers are more at home. comfortable with repeated visits.
This ongoing recovery contrasts with a relatively moderate recovery (up to 48-50% of pre-pandemic sales) in the second quarter of FY21 after reopening after the first wave, according to the report.
According to Sakshi Suneja, sector head at the agency, with improved immunization coverage, fashion retail is expected to drop 15-17% from the second quarter, resulting in annual revenue growth of 23- 25% during the year until March 2022.
This must, however, remain up to 20% lower than pre-pandemic sales, and the agency therefore maintains its negative outlook on the segment and expects it to revert to pre-pandemic sales. than in the second quarter of fiscal 23, she added.
Besides material costs, retailers typically have three main cost components – rents, salaries, and marketing / promotion expenses – which account for around 30 percent of the total cost.
Although operating profit margins are expected to improve during FY22 due to revenue growth, they will still be around 450 basis points lower than pre-pandemic levels, he said. she declared.
The pandemic has boosted online retailing, with most retailers reporting a sales increase of more than 50% in FY21.