Organised apparel retailers to see 8-20% revenue growth in FY25
The addition of retail space is projected to be lower year-on-year, at 2.2 million square feet compared to 3.6 million square feet in the previous fiscal, with smaller store sizes being a contributing factor.
The festive and wedding season, along with an increasing preference for fast fashion, is anticipated to contribute to an 8-10 per cent revenue growth in the organised retail apparel sector this financial year, according to a report by Crisil Ratings. The report indicates that this growth will be driven by heightened demand due to a normal monsoon, easing inflation, and the affordable and trendy nature of fast fashion, which imitates high fashion designs and popular styles.
Crisil Ratings Senior Director Anuj Sethi noted that the mass market segment currently constitutes 60 per cent of total sales, up from 56 per cent prior to the pandemic, primarily due to the rising popularity of fast fashion, which is expected to be the main revenue driver this fiscal year. He mentioned that the anticipated increase in demand for premium clothing during the upcoming festive and wedding seasons would also aid in achieving the overall revenue growth of 8-10 per cent.
However, the report pointed out that revenue growth would be slower than the compound annual growth rate of 11-12 per cent observed between fiscals 2018 and 2023, leading retailers to exercise caution in opening new stores. Instead, retailers are expected to concentrate on improving efficiencies at existing locations, managing costs, and minimizing dependence on external debt, which will help sustain their operating margins at 7.2-7.4 per cent despite on-going high marketing expenses, thereby ensuring stable credit profiles.
The apparel retail market is characterized by the mass market segment being the largest, followed by premium and luxury segments. Fast fashion, a growing subset of the mass market, presents the latest trends that are frequently updated throughout the season, with a shorter lead time for reaching customers.
The report highlights that retailers are adapting their business strategies, improving supply chain efficiency, and focusing on emerging trends—particularly in fast fashion—to align with evolving consumer behaviour. As consumer spending shifts towards travel experiences and luxury goods in major urban areas, retailers are expected to remain cautious about expansion in these locations while continuing to grow in tier II and III cities, which are moving towards organized retail.
The addition of retail space is projected to be lower year-on-year, at 2.2 million square feet compared to 3.6 million square feet in the previous fiscal, with smaller store sizes being a contributing factor. Additionally, the report forecasts that revenue density will remain flat at Rs 11,900 per square foot due to subdued growth in same-store sales, limiting significant improvements in profitability.
Crisil Ratings Associate Director Anil More indicated that the marginal increase in profitability this fiscal will result from apparel retailers optimizing their existing stores and opening new ones only when necessary, given that demand has not yet fully rebounded. He added that the necessity to offer higher discounts and spend on marketing to attract customers will restrict the overall enhancement in operating margin to 7.2-7.4 per cent, compared to 7 per cent in fiscal 2024.
Furthermore, the report stated that improved inventory management and stable input costs are expected to prevent significant inventory write-offs, unlike last fiscal when sharp cost fluctuations reduced profitability by 100-110 basis points. With consistent cash flow and limited reliance on debt for funding store expansion, adequate debt metrics are anticipated. Interest coverage and total debt/Ebitda ratios for apparel retailers are expected to remain at 6.2 times and 1.7 times, respectively, in 2024-25, consistent with the previous fiscal year.
However, the report concluded by noting that changes in commodity prices, inflation trends, consumer spending behaviour, and retailers’ ability to maintain momentum in the fast fashion segment will need careful monitoring.
