CMAI Q3 Apparel Index: High inventory impacts small brand’s profit

The CMAI’s Apparel Index for the third quarter from October to December 2014, once again revealed the low sentiment among Small Brands, those with turnovers of Rs 10 to 25 crores. They witnessed practically no growth at 0.55 points due to high inventory pile up. On the other hand, Giant Brands, with a turnover of above Rs 300 crores, topped the Index growth at 10.29, followed by Large Brands at 9.28 having turnover of Rs 100-300 crores and Big Brands, brands with turnover of above Rs 25 crores were at 8.02 points.

Small brands who constitute the larger section of the market, have not had a good run so far and their pessimism persists despite a change in government at the Centre. However, bigger brands have been able to manage their business better and have clocked in higher growth rates in Q3.

High inventory has an adverse impact

An increase in Inventory Holding period has had an adverse affect on the performance and profitability of brands. The quarter saw negative impact of high inventory holding on most brands, which also brought down the apparel index value. Small Brands have been the worst hit and this has had a deep negative impact on their bottomline, making them the worst performers.

The Apparel Index Value of Small Brands shows that Inventory Holding is almost double that of Sales Turnover increase. Almost 87.5 percent of Small Brands increased Inventory Holding, with most of them reporting 21-40 percent rise, losing 4.25 points. Almost 61.66 percent Big Brands also said that their inventory holding increased, resulting in a loss of 1.67 points, which however is much lesser compared to the performance of Small Brands.

CMAI’s Apparel Index aims to set a benchmark for the entire domestic apparel industry and helps brands in taking informed business decisions. For investors, industry players, stakeholders and policymakers the index is a useful tool offering concrete and credible information, and is an excellent source for assessing the performance of the industry.

Positive trend of other parameters

With high inventories, the quarter also saw almost all brands reporting a rise in Sales Turnover with 70 percent brands reporting improved Sell Through and an increase in investments to create improved facilities and infrastructure. All Giant Brands surveyed have registered growth, with 71.4 percent of them growing between 21-40 percent. Almost 95.6 percent of Large Brands surveyed reflected growth in turnover, half of them grew between 1-20 percent. Interestingly, 57.5 percent of Small Brands too have shown growth, most of them grew between 1-20 percent. And 88.3 percent of Big Brands (with turnover of above 25 crores) registered growth, indicating the quarter has been good for Sales Turnover growth. Only 10 percent brands have responded by saying same level of sales turnover, whereas another 14 percent have responded that the sales have gone down.

Nearly 70 percent of the brands surveyed have improved Sell Through. Maximum improvement was shown by Large Brands (87 percent), half of them saw between 21-40 percent, indicating a remarkable improvement in contribution to profits. For 15 percent, it remained the same and for the rest 15 percent Sell Through went down indicating that they had to further increase discounts to clear their stocks. Among Small Brands only a few have their own brand retail stores, others generally do not in practice to discount their goods, 62.5 percent of Small Brands said Sell Through improved with considerable growth between 1-40 percent.

Players have realized the need to invest to grow their businesses, which also shows their confidence in the market. On the whole 78 percent of the brands surveyed said that they increased their investments, one third of them to the extent of 21- 40 percent or more. Part of these investments is also used to build inventories before the season to scale up sales. All Giant Brands increased their investments during the period surveyed, in comparison to the same quarter previous year. Nearly 85 percent of Big Brands and 67.5 percent of Small Brands increased their investments by 1-20 percent.