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Published on 4/05/2021 1:00:46 PM | Source: ICICI Securities Ltd

Branded apparels Sector Update - Va tutto bene #18 By ICICI Securities

Posted in Broking Firm Views - Sector Report| #Sector Report #ICICI Securities

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Exactly a year ago, we wrote ‘Andra tutto bene’ (everything is going to be alright!) in which we analysed the likely changes to consumption, industry structures etc post the coronavirus outbreak. We revisit the thoughts, look beyond the noise, and present potential changes in operating environment and likely beneficiaries – Va tutto bene (everything’s fine!). A root-cause-analysis of every trend indicates that it’s a consumer / customer behaviour change.

“Andra tutto bene #16” is here - link Top long-term trends for apparel brands/retail companies include: (1) companies would cautiously expand distribution network as the market is still hugely underpenetrated (especially beyond metros / tier-1 cities) and also to lock-in favourable long-term rentals (in metros / tier-1 cities); (2) companies would invest further to strengthen their online capabilities, given greater adaptability & acceptability of ecommerce as a channel, (3) value-fashion retail, women wear, kids wear, casualwear, athleisure, sportswear are expected to grow faster, (4) companies have been able to variablise / rationalise many of the fixed costs and strengthen balance sheet (albeit via equity dilution) over the past 12 months and are in a much better position to operate in the current pandemic-hit environment – hence, the increased focus on cost control and cash conservation would continue, and (5) higher industry consolidation. Key risks: Lower discretionary spending and increasing online competition

 

Key beneficiaries:

TRENT, V-Mart and ABFRL. See our previous reports in the series (link) – Consumer, Agriculture, Pharma, Real Estate, Telecom, Power, Dairy, Capital Goods, Cement, BFSI, Building materials, Oil & Gas, Logistics, Defence, Diversified Financials, Metals, Autos

 

* Cautiously expand distribution network: After a halt in H1FY21, companies resumed store additions from Q3FY21 and are likely to cautiously expand distribution network as the market is still hugely unpenetrated (especially beyond metros / tier-1 cities) and also to lock-in favourable long-term rentals (in metros / tier-1 cities). ABFRL may add 300-400 EBOs and >30 Pantaloons stores p.a.; Trent may add >25 Westside stores and >70 Zudio stores p.a., while V-Mart may add >50 stores p.a.

* Companies to invest further to strengthen their online capabilities given greater adaptability and acceptability of e-commerce as a channel: E-commerce gained traction and grew fastest over the past 12 months and most companies more than doubled their share of online sales. This momentum is likely to be accelerated further as consumers may still want to avoid crowds in the wake of rising Covid cases.

* Value-fashion retail may gain momentum given the gradual economic revival and the muted consumer sentiment / confidence. Consumer may defer the purchase of relatively high-priced products / categories till improvement in overall sentiment resulting in overall downtrading.

* Lifestyle brands seek to make WFH fashionable: Companies have introduced WFH wear as a new category which provides all-day clothing for remote working, conference calls /virtual meetings. This may help reduce huge unsold inventories.

* Women wear, kids wear, casualwear, athleisure, sportswear are expected to grow faster than the relatively matured formal menswear market.

* Companies have been able to variablise / rationalise many of the fixed costs and strengthen balance sheet (albeit via equity dilution) over the past 12 months and are in a much better position to operate in the current pandemic-hit environment. Hence, the increased focus on cost control and cash conservation would continue.

 

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