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Fashion retail entities expected to see 45% revenue growth in FY23: ICRA

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The sales growth will led by a pick-up in discretionary spending and normalisation of store operations, post-pandemic

Bengaluru: Fashion retail entities are expected to witness an encouraging 45% year-on-year (YoY) increase in sales in fiscal year (FY) 2023, as per a recent analysis by ICRA, an independent and professional investment information and credit rating agency. The growth will be led by a pick-up in discretionary spending and normalisation of store operations after the pandemic.

“Driven by improved economic activity and an uptick in discretionary spends, the retail sector reported a robust 55% YoY revenue growth in 9M (months) FY23,” said Sakshi Suneja, vice president of ICRA in a release. “While this was admittedly partly led by a low base, it also reflects a sharp 35% growth over the pre-pandemic period of 9M FY20. This favourable performance was also aided by nearly 5 million sq. ft. of additional store space set up during FY20-FY22.”

“Segment-wise, the revenue growth is led by premium brands in the metros/Tier-I cities. The value-fashion segment, on the other hand, is facing inflationary headwinds and reported a negative same-store-sales growth when compared with the pre-covid period of 9M FY20,” she added.

The gross margins for retailers in 9M FY23 remained largely in line with the FY22 levels, as retailers passed on increased raw material costs to end-consumers. The other key cost heads for a retailer include rental, employee costs, and selling/promotional expenses, which together account for about 30% of the total cost.

Operating profit margins (OPMs) of the industry are expected to remain range-bound at 7-7.3%, due to significant increases in advertisement and promotion spending during the year. The rating agency currently has a stable outlook on the retail sector.

Following a lull in FY21, retailers resumed store expansion plans in FY22, which have continued in FY23 as well. This was also enabled by the large equity raisings in FY21 and improved cash flows during FY22 and YTD (year to date) FY23.

“Online sales also continue to grow, though at a slower pace, with the waning impact of the pandemic. ICRA expects the share of online sales to inch up to 12-14% of revenues by FY24/25, vis-à-vis 8% in FY22. This is, however, unlikely to replace the brick-and-mortar sales model any time soon,” added Suneja.

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