Apparel brands not flying off the shelves

The apparel retail sector in India is experiencing a slowdown in demand, with fashion retailers reporting a drop in revenue and profits. Lower sales and high inventories have been attributed to factors such as weak discretionary demand, inflationary pressure, and interest rate hikes. However, premium and luxury fashion brands have seen strong growth, driven by affluent consumers. To navigate the challenging market, companies are advised to be cautious with their orders and respond more quickly to market trends. Agility and tech-driven strategies are also seen as key for success, particularly in targeting GenZ consumers.

If you have noticed the piles of inventory in apparel retail shops in the last couple of months, you would have figured that the clothing category in India has seen a slowdown in demand. Even the more recent hefty discount sales did not draw big crowds except for select brands. The anecdotal evidence of sluggish sales is backed by Q3 results of fashion retailers. Reuters on Tuesday reported a revenue drop for Arvind Ltd which sells licenced international brands like Tommy Hilfiger. Its denim category under Flying Machine, US Polo Association and Arrow also underperformed. Multi-brand apparel, beauty and accessories retail chain Shoppers Stop, too, reported a fall in quarterly profits on account of weakness in discretionary demand that hampered revenue growth.

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Akhil Jain, executive director at women’s clothing brand Madame, said although his sales value improved because of price restructuring, he has sold fewer units in the last quarter. “So, the quantity sold is less because I am serving fewer customers,” Jain said.

Most apparel companies overestimated demand based on revenge shopping they witnessed in 2022. “They thought the momentum would continue and planned it big for the summer and winter of 2023. But consumption slackened leaving many with huge inventories,” Jain said.

Hit hard by food inflation in the last couple of years, the middle class and low-income group consumers have been scrimping on discretionary purchases such as fashion. “On top of that, interest rate hikes have impacted people with auto and home loans. Besides, the news of layoffs at tech companies does not instill confidence. The sentiment isn’t bullish any longer,” said Rajat Wahi, partner, consulting, at Deloitte India.

Anuj Sethi, senior director, CRISIL Ratings agreed that continuing inflationary pressure, slow growth in rural incomes, and tepid salary raises in certain urban based sectors such as IT, have dented demand for apparels. “Impact is highest on the economy and value apparel segments, which account for 60% of total revenues, leading to continuing deep discounts and advancing End of Season Sales,” Sethi said.

However, premium and luxury fashion brands have seen strong growth in the festive months. “Obviously, India is seeing a K-shaped recovery where the affluent are driving demand for the premium segment,” Wahi said.

Madame’s Jain agreed that premium, bridge-to-luxury, and luxury brands have seen robust sales as customers are evolving. “Consumers are seeking experiences which come with premiumization. Even though we are a mid-segment brand, we have entered the premium fragrance category with perfumes made in France and priced at ₹4,000 to ₹6,000,” he said.

Another reason for mounding inventory has been the clutter in the segment – not in terms of newer brands coming in, but in existing brands increasing their footprint. “Everyone is trying to gain as much square feet of space as possible, across formats, be it shop-in-shops, multi-brand retail or exclusive brand stores. Brands over-manufactured leading to a glut even as consumption didn’t keep pace,” Jain said.

In the next fiscal, CRISIL’s Sethi expects demand revival to be gradual, and contingent on higher sales in the economy and value apparel segments. Jain said companies should be satisfied with 10-11% growth for the next two years given that some of them saw negative growth. “They need to place orders very cautiously and be more agile in responding to market trends,” Jain said.

Sumit Jasoria, co-founder of Newme, a GenZ-focused apparel brand launched in 2022, said they have bucked the slowdown because of their agility in predicting fashion trends, designing clothes and hitting the market in a matter of days. “Tech is the core for all our functions,” said Jasoria. Last week, Newme raised $5.4 million in seed funding round from Fireside Ventures.

“Legacy brands that are not replenishing or launching new designs very frequently, will struggle. The days when companies employed designers to design new fashion and rolled it out in 4-5 months are over,” he said. Speed matters since GenZ consumers refresh their wardrobes very frequently. “What they see on Instagram, they want it now. We launch 4-5 designs every week,” Jasoria said.

But not every fashion retailer may be targeting GenZ. “That’s true. But fashion companies must spot the new gaps that are emerging and if they can solve those problems, consumers will accept them,” he said.