Elevated inflation will cap operating margin of apparel retailers to below pre-pandemic level, even though they are on course to stitch a 21-23 per cent 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 per cent 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 per cent this fiscal, compared with 10-15 per cent by small and mid-sized players. However, the agency said though operating margins will improve by 175-200 bps to 7.75-8 per cent boosted by increase in scale leading to better fixed-cost absorption, price hikes, and 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.
The report is based on a study of 46 apparel retailers, which account for over a third of the revenue of organised players, who net `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 per cent, while small and mid-sized players will see their top lines growing by 10-15 per cent this fiscal.
