Economy

Demonetisation takes the shirt off apparel-makers’ backs

Rashmi Pratap Purvita Chatterjee Mumbai | Updated on January 15, 2018 Published on November 25, 2016

For now, companies have not yet taken a call on either stopping production or deferring inventory   -  GRN Somashekar

Franchisees, multi-brand outlets are not giving any new orders for summer stock

Apparel makers are feeling the heat of demonetisation as wholesalers and retailers refuse to buy any fresh inventory from manufacturers. With sales down almost 50 per cent, despite the wedding season, franchisees as well as multi-brand outlets (MBOs) are not giving any new orders for stock for the summer season, signalling a possible demand-supply mismatch in the sector.

“Franchisees and MBOs of Raymond have stopped fresh orders for the forthcoming summer season,” SK Gupta, Group CEO, Raymond UCO Denim, told BusinessLine. This means, when liquidity returns to the system, there might be a flood of orders with manufacturers, while currently they are witnessing a supply glut.

Arvind Lifestyle Brands, the subsidiary of textile manufacturer Arvind, which retails brands such as US Polo, Flying Machine and Arrow, witnessed almost 20 per cent drop in sales in the first 3-4 days of demonetisation. “We are concerned about multi-brand stores and online sales as they mostly deal in cash. While we have benchmarked our inventory levels based on sales, this could impact multi-brand outlets where the cash component is higher,” said Alok Dubey, CEO, Arvind Lifestyle Brands.

According to analysts, cash transactions comprise 40-50 per cent of sales at branded apparel outlets. “Generally, such customers buy high-ticket items, upwards of ₹2,500, and so high-value apparels are the most impacted,” pointed out Gautam Duggad, Head of Research - Institutional Equities, Motilal Oswal Financial Services.

Reluctant wholesalers

But that is only a part of the problem. An equally bigger issue is the inability of manufacturers to shift wholesalers from cash to any other form of payment. “Wholesalers, who have always dealt with cash transactions, are reluctant to switch over to any new payment methods as sentiments are down,” Gupta of Raymond said.

“Domestic market distributors, supplying to brands and retailers, are currently just waiting and watching. There is a slowdown which is impacting the ecosystem of distributors in the textile trade,” said Aamir Akhtar, CEO - Denim Fabrics, Arvind.

However, Arvind Singhal, Chairman at Technopak Advisors, said this is a kneejerk reaction on the part of distributors, and the situation will ease out in some weeks. “Those who want to remain in the business will eventually have to move away from cash to other methods,” he said.

But for now, there is no consensus among industry players on the way out. While some companies like the Future Group are willing to give more than 50 per cent discount on clothes at its multi-brand outlet, Central, to spur sales, others like Raymond have firmly denied any price cuts to get back customers, relying more on schemes and promotions.

“We have decided not to give any discounts. Instead, we have already taken more than 50 actions to combat demonetisation,” said Sanjay Behl, CEO - Lifestyle, Raymond. These measures include tie-ups with mobile wallets such as Paytm, Jio and Mobikwik, besides giving EMIs to customers.

For now, companies have not yet taken any call on either stopping production or deferring inventory. “We deal in perishable fashion, and are feeling the pinch; but will be on wait-and-watch till the end of January before deciding to defer our inventory,” said Deval Shah, Business Head, Reliance Brands, which sells luxury apparel brands such as Diesel and Superdry.

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Published on November 25, 2016
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