Hit by high input costs, increased excise duty on branded garments and low consumer buying even during the festive season, many textile companies and apparel brand retailers reported a decline in net profits for the second quarter
ended September 30, 2011. While denim players like Arvind, K G Denim and Nandan Exim and a few others like Sudar Garments, Shoppers Stop, Mandhana Industries and Raymond reported an increase in their net profit on the back of aggressive retail expansion and excellent inventory management. But the number of companies registering a decline in net profits is far greater compared to those who reported profits. For instance: Tata Group retail firm Trent reported 71.66 per cent decline; Zodiac Clothing Company registered a consolidated net profit at Rs 5.03 crore against Rs 7.81 crore for the quarter ended September 30, 2010 while its employee cost was Rs 13.52 crores i.e. 19.18 per cent of its sales; Provogue has reported a net profit of Rs 8.91 crore as against Rs 9.71 crore for the same quarter, last year while its employee cost was Rs 4.21 crore i.e. 3.90 per cent of sales; debt ridden Pantaloon Retail has registered a second consecutive quarterly drop in net profit and a sluggish top line growth posting a 36.3 per cent decline in its consolidated net profit; Mumbai-based vertically integrated textile company, Bombay Rayon Fashions (BRFL) registered a 12.5 per cent year-on-year dip in its net profit for the second quarter of current fiscal; Celebrity Fashions reported net sales of Rs 38.76 crores, down 45.65 per cent from last year same quarter. Its net loss was Rs 1.78 crore.
The
branded apparel segment that first faced an axe with the announcement of 10 per cent excise duty on apparel in the last Budget, also got badly hit by the increasing raw material costs followed by the signals of another economic slowdown. All these factors had a cumulative effect on bottomlines. Moreover consumer buying sentiment was also low resulting in lesser footfalls in stores. So far, many apparel retailers have been able to register just a 10 per cent growth compared to the 30 per cent last year.
To deal with the situation, apparel retailers tried various measures to increase sales. They extended the discount season with heavy discounts, cut down on the inventory and average time stock stays in stores before it is sold and also offered schemes by tying up with lifestyle entities like airlines, coffee shops, hotels and so on to let the consumer take advantage of deals covering a wide spectrum. But buyers showed little interest in these schemes. And the apparel industry already reeling under pressure witnessed a lower second quarter earnings and registered a decrease in net profit compared to the same quarter last fiscal.
Now, apparel companies are strategising to lure consumers back to stores and stabilise the sales registers. For example, India’s biggest retailer Future Group is focusing on its core business strength and has decided to raise funds to the tune to $400 million from PE investors to deal with the debt situation and to carry out its retail expansion plans. It would also sell a stake in Future Capital Holdings, the company’s financial services arm, apart from these moves; it is also in talks with the global retail giants to form a strategic alliance with them.
According to experts, though the buying sentiment has been low for some time, the fact remains that today’s aware and fashion conscious consumer does not buy branded clothing looking at the cost. In fact it’s the value that matters most to them. If this argument is true then apparel retailers will surely see a positive turn of events ahead.