Apparel retailers set to clock 8-20% revenue growth in FY ‘25: Report

PTI Mumbai: Festive and wedding season and increasing preference for fast fashion are expected to help the organised retail apparel sector log 8-10% revenue growth this financial year, a report said on Tuesday. The organised retail apparel sector will clock a revenue growth of 8-10% this fiscal riding on higher demand stemming from a normal monsoon, easing inflation, festive and wedding season, and increasing preference for fast fashion, which is inexpensive, trendy clothing that mimics high fashion designs and popular styles, Crisil Ratings said in a report.

"The mass market segment accounts for 60% of total sales now, compared with 56% before the pandemic, due to the rising popularity of fast fashion, which is expected to be the primary revenue driver this fiscal. The likely increase in demand for premium clothing during the upcoming festive and wedding seasons will also contribute to overall revenue growth of 8-10% this fiscal," Crisil Ratings Senior Director Anuj Sethi said. However, revenue growth will be slower than the compound annual growth rate of 11-12% seen between fiscals 2018 and 2023, making retailers cautious at opening new stores, the report noted. Instead, retailers will focus on enhancing efficiencies at existing stores, controlling costs and limiting reliance on external debt, which will help maintain their operating margin at 7.2-7.4 per cent despite continued high marketing expenses, thereby ensuring stable credit profiles, it added.

In the apparel retail business, the mass market is the largest segment, followed by premium and luxury. Fast fashion, a growing subset of the mass market, offers the latest trends, frequently updated throughout the season with a shorter lead time to reach customers quickly. The report said that retailers are adjusting business strategies, enhancing supply chain efficiency and focusing on new trends - particularly in fast fashion - to meet the evolving consumer behaviour. With consumer spending shifting towards travel experiences and luxury goods in major urban locations, retailers will be cautious at store expansion there, while continuing to expand in tier II and III cities, which are transitioning towards organised retail. The report said that the area will be lower year-on-year at 2.2 million square feet compared with 3.6 million square feet last fiscal year as store sizes will be smaller.

Meanwhile, Crisil Ratings further said that revenue density is expected to remain flat at Rs 11,900 per square foot due to muted growth in same-store sales and will restrict significant improvement in profitability. "The marginal increase in profitability this fiscal will be driven by apparel retailers streamlining existing stores and opening new stores only as necessary, given that demand has not fully recovered.