Value and lifestyle fashion retailers in India are expected to witness 35-42 per cent decline in revenues in fiscal 2020-21, according to ICRA, which recently said revenues in the second quarter, though improved sequentially, are expected to remain substantially lower on a year-on-year (YoY) basis, adversely affected by local lockdowns and restrictions.
A meaningful ramp up in sales is expected from the third quarter onwards, led by increased demand during the festive season and the substantial easing of restrictions under the new unlock guidelines that came into effect from September 1.Value and lifestyle fashion retailers in India are expected to witness 35-42 per cent decline in revenues in fiscal 2020-21, according to ICRA, which recently said revenues in the second quarter, though improved sequentially, are expected to remain substantially lower on a year-on-year (YoY) basis, adversely affected by local lockdowns and restrictions. #
While retail entities have embarked on stringent cost rationalisation drives, given the expected pronounced revenue decline and changing consumption patterns (with increased demand for casual wear), the operating profit margin (OPM) is expected to weaken by 300-500 basis points (bps) in this fiscal, ICRA said in a research report.
Additionally, with the gradual uptick in demand and reopening of stores, the quantum of rental savings due to renegotiations shall reduce. ICRA expects the credit metrics of the value and lifestyle fashion retailers to weaken materially in this fiscal.
The industry also remains exposed to the risk of inventory write-offs, given the overall slowdown in demand, especially for the formal wear segment.
The pandemic has highlighted the importance of having an omni-channel presence. Greater investments towards improving the integration of brick-and-mortar stores with online channels is expected as retailers attempt to attract the new millennial customer base and also counter the increasing competition from pure-play e-commerce players, said ICRA.
Amid the pandemic, the value and lifestyle fashion retailers have deferred around ₹19.7 billion worth of capital expenditure spends towards store additions in the current year.
Nonetheless, given the under-penetration of organised retail in India, offline channels are expected to remain the preferred mode of expansion and the entities are expected to resume their capex plans towards store additions, once the situation normalizes, ICRA added.
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