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Recovery trends impacted

Cost focus and liquidity remains key

We hosted various stakeholders from the Apparel market – such as a) brand owners (major brands), b) CMAI (clothing association), and c) mall developers – to get their individual perspectives on the current situation on the ground and the outlook for the Apparel market.

Here are the key takeaways:

* Brand retailer Major Brands believes that although the second wave has displaced recovery trends, the large brands would come out of the pandemic stronger – as productivity in operations, e-commerce sales, and inventory clearance would play a key role.

* The CMAI painted a grim outlook – understandably – due to its representation of smaller players. It indicated that a large proportion of smaller players are closing down their businesses, plagued by an uncertain outlook, stretched working capital / liquidity, and rising RM cost.

* Mall developer R Retail Venture highlighted that the market was surprised by the pace of recovery from the previous lockdown. Therefore, it may not offer rental waivers across categories, but largely focus on rent deferment – Grade A malls have ~95% occupancies and stand strong, with major growth in small cities/towns, against the high liquidity woes of Grade B/C malls.

Key takeaways from our meeting with Major Brands – Tushar Ved 

* Revenue recovery: Sales reached 70% LTL of pre-COVID levels in Oct/Nov/Dec’20 and 85–90% in Jan/Feb’21. The fresh lockdown has once again had an impact; sales are expected to reach 60–70% of 2019 levels in Aug’21 and 85–90% of 2019 levels in Oct/Nov’21 – owing to the festive season. The brands that can ride out the pandemic are likely to capture a larger share in the markets going ahead as many weaker brands are shutting shop.

* Productivity: An increase in productivity would be reflected with the return of revenue as conscious cost measures have been adopted by retailers. Talks of rental negotiations have been initiated for the ongoing lockdown but this is yet to be decided.

* E-commerce growing exponentially: E-Commerce sales surged 300% in FY20, accounting for 30–50% of total sales across categories. Over the next 2–3 years, online should form 30% of the overall business and could reach 50% in some categories. However, margins are currently impacted due to higher sales of discounted products.

* Resorting to inventory clearance: Retailers would need to resort to offering discounts to clear out the summer spring inventory; inventory for the autumn/winter season may be manageable as there is enough time to plan for it.

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