Covid-frayed fashion retailers seeing sales recovery, says ICRA

Our Bureau New Delhi | Updated on September 27, 2021

However, the segment is expected to reach pre-Covid level of sales only by the second quarter of FY 23.

Post the second pandemic wave, the fashion retail segment has begun witnessing recovery trends, according to a report by ICRA. However, it added that the segment is expected to reach pre-Covid level of sales only by the second quarter of FY23.

During the months of July and August, the fashion retail segment garnered sales of up to 70-85 per cent of pre-Covid levels. Though the average ticket size has “moderated from FY21 levels”, the footfalls have increased, the report added.

Sakshi Suneja, Assistant Vice-President and Sector Head, ICRA, said, “With an improvement in the vaccination coverage, the segment is expected to witness a 15-17 per cent y-o-y growth during the period July-March 2022, translating into an annual revenue growth of 23-25 per cent in FY22. This shall, however, remain lower by up to 20 per cent compared to pre-Covid level of sales. ICRA, therefore, maintains its negative outlook on the segment and expects it to revert to its pre-covid level of sales by Q2 FY2023.”

Rental concessions

The report noted that the extent of rental concessions in Q1 FY22 is markedly lower by up to 55 per cent than those seen in the first wave. Most of the retailers have also rolled back salary cuts in FY22, though they are expected to continue rationalising other overheads.

While the pandemic has accelerated online shopping, the report noted that the fashion retailers will continue to focus on offline retail expansion as the online channel will only supplement and not replace the offline model of store expansion.

“Fashion retail entities in ratings agency sample set are expected to increase their capital spending towards store additions by over 45 per cent in FY22, entailing a total capital outlay of approximately ₹14 billion. The liquidity position of most of these retailers also remains strong on account of equity raisings done during FY21,” the report noted.

A severe third wave, however, poses significant downside risks. “The third wave could potentially shave upto 40 per cent of the segment’s revenues from ICRA’s base case during Q3 FY22, translating into a modest 7-8 per cent y-o-y revenue growth only in FY22,” Suneja added.

Published on September 27, 2021

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