Q4 Apparel Index rises 7 points, big brands do well, small brands lag

The CMAl's Apparel Index for the fourth quarter from January to March 2015, reveals low sentiment continues to haunt Small Brands (turnovers of Rs 10 to 25 crores) and Mid Brands (turnover of Rs 25-100 crores). Of course, Mid Brands performed a little better than Small Brands, however, their performance failed to fulfill expectations. <,p>

The Index value for Small Brands was 4.92 and for Mid Brands it stood at 6.14. Both figures are much lower compared to Large Brands which registered 8.87 points and Giant Brands a whopping 13.33 points. A close analysis of the figures for this quarter compared to the same quarter, last year, shows a clear trend: as the brand size grows, the index value increases.

High inventory, low sales turnover fails small brands

The Overall Apparel Index figure of 7 points has been arrived at after accounting for individual index values such as: Sales Turnover which stands at 5.4; Sell Through which is 1.9; and Investments which is 2.4 in Q4. They contributed positively to the overall performance. Inventory Holding, a parameter that reflects negative performance stood at 2.6 this quarter.

What works most for Giant Brands is the substantial increase in Sales Turnover (8.44) and control in inventory (-0.83). Surprisingly Inventory Holding shows a reduction in period in this quarter, contributing to higher index value. A decrease in inventory holding for Giant Brands indicates bumper EOSS and stock clearance much earlier than in previous quarters. For Large Brands, even though Inventory Holding increased (2.85) and is much higher than others, the impact is offset, by the high increase in Sales Turnover at 6.15 points. For Small Brands, the increase in Inventory Holding and a modest increase in Sales Turnover led to failure. Mid Brands however, show better control over Inventory Holding compared to Small Brands though the increase in Sales Turnover was almost the same. As Sandeep Jain, Executive Director, Monte Carlo explains, “The garment industry is at an average state as of now and is not performing too well. In such a situation, lesser inventory works better for any organisation. We sold much lesser T-shirts and denims on discounts this quarter, resulting in improvement in overall performance.”

Big brand’s positive show with high Sales Turnover

This quarter, the Sales Turnover of apparel industry has grown by 5.4 points. This is reasonably good growth, considering the quarter doesn’t include any peak season, being a pre-summer quarter. Of course, the EOSS is much bigger compared to June-July period, as winter merchandise is cleared off shop shelves as they get ready for summer products. “We had the right product mix, priced right this season. And the rest which includes ambiance, store layout et al, added up, to boost sales turnover significantly, besides we didn’t discount our denims at all,” says Aditya Nadkarni, Brand Manager, Retail Administration, Jack & Jones about their stellar performance.

Interestingly, none of the Giant Brands surveyed reported a loss in turnover, and only one Large Brand reported a loss in turnover but Small Brands continued to be in the negative. Citing reasons for turnover loss, Amit Tanna, Proprietor, Custom Jeans says, “Since Diwali, sales were not good and unsold stocks had to be carried over to Jan-March quarter. Hence, we didn’t build enough fresh stocks, affecting sales in this quarter. The other reason was, denim fabric prices increased, hiking retail prices of jeans and sales turnover suffered.”

Sell Through and investments reflect improvement

Nearly 75 respondents out of the 100 surveyed claimed that their brand improved Sell Through in this quarter. Surprisingly, maximum number of brands that reported highest Sell Through of 41 per cent and above were Small Brands followed by Large Brands. However, in percentage terms, Large Brands contributed almost 30.7 percent among those who recorded a high, 41 per cent improvement in Sell Through. Arrow which reduced inventory holding this quarter, reveals better planning as the main reason for improvement. “Better inventory planning and planning sales ‘on target’ has worked for us. We have been monitoring and measuring the response month on month. We have also reduced the number of options as well as optimised our product basket”.

82 brands reported an increase in Investments, projecting greater confidence. Overall, the quarter reflected good confidence among brands to increase investments for future.

The industry as a whole and brands now need to introspect and look at improving Sell Through and reducing Inventory Holding for healthy growth, while boosting individual Sales Turnover. However, all the parameters are interrelated and every brand needs to strike a critical balance to improve performance. Fashion being a fad, inventory needs to be constantly refreshed.

Industry positive about the future

Comparing the Apparel Indexes of Q4 (Jan-March ’15) with Q4 (Jan-March ’14) and Q3 (Oct-Dec ’14) reveals the Index Value was highest at 10.26 in Q4 (Jan-March ’14). The reason: industry had come out of excise regime, which gave a boost, to the Apparel Index. On the other hand the Index Value was lowest in Q3 (Oct-Dec ’14), with Small Brands recording minuscule increase of 0.55, reeling under low consumer sentiment, failed festive sales and increased inventory holding.

For 40.7 per cent brands the outlook for next quarter (April-June ’15) is Good; For 37.5 per cent it is Average; and 18.7 per cent brands feel the next quarter will be Excellent; while only 3.1 per cent brands are pessimist terming it Below Average. The responses are indication of the definite improvement in consumer sentiment and market conditions.

Annual Apparel Index at 7.28, indicates positive fiscal 2014/15

Interestingly, looking at all the four quarters of fiscal 2014-15, from April 2014 to March 2015 the industry managed to grow by 7.28 points. Experts term this as ‘good’, growth considering the low sales even during festive season around Diwali, which usually helps brand make up for turnover losses owing to upbeat consumer sentiment.

The index value was lowest for Oct-Dec 2014 quarter at 5.01. Comparing it with the same quarter in previous year, when it didn’t grow as was expected. The Index grew most during April-June ’14 quarter, followed by July-Sept ’14 and Jan-March ’15 quarter.

Since all the quarters are reviewed and compared to previous years quarters and the comparison is done at the assumed base value of 100, an average of four indices belonging to four quarters of the financial year, is the annual apparel index.