The report stated that recovery will be led by improved consumer financial health, driven by an increase in income levels and lower inflation which would result in a higher disposable income
After witnessing lower store additions and negative same-store sales growth (SSSG) in the first half of the current financial year (H1FY25), the retail apparel sector is expected to recover in the H2FY25 and next fiscal year (FY26), according to a report by India Ratings and Research (Ind-Ra). The report added that the lower growth is owing to tepid consumption demand and a high base effect due to revenge shopping post-COVID-19.
As per the report, the recovery will be led by improved consumer financial health, driven by an increase in income levels and lower inflation which would result in a higher disposable income. A higher number of auspicious days for weddings (2.5 times in 2H vs 1H) resulting in a higher clothing demand and the favourable monsoons driving demand in Tier-2 cities and beyond will contribute to the recovery.
Ind-Ra stated that certain segments will outperform the broader apparel industry. These include fast fashion, on the back of social media influence and Gen Z preference, ecommerce channels, on the back of increasing penetration of the internet or smartphone, luxury, due to rising consumer aspiration and affluence and ethnic, value and Tier-2 and beyond segment, due to the shift of customers to the organised industry.
As per the report, the earnings before interest, tax, depreciation and amortisation (EBITDA) margin across the apparel retail space to remain flat in FY25, followed by a moderate improvement in FY26, due to the benefits of cost optimisation measures. The agency added that controlled capex and steady profitability will keep the credit metrics at comfortable levels in FY25, with an improvement expected in FY26.
Organised retailers’ steps to rationalise stores, undertake controlled expansion coupled with a focus on segments with relative outperformance such as fast fashion, luxury and ethnic fashion will support their credit profiles,” stated Adarsh Gutha, Associate Director, Corporate Ratings, Ind-Ra.
While there will be a slight dip of four per cent year-on-year (YoY) in the inventory days in FY25, Ind-Ra has expected them to remain elevated until FY26, owing to the controlled expansion plans and retailers’ focus on a shorter cycle fast fashion segment.
