The fashion retail sector is expected to see a growth of 45 per cent in year-on-year(YoY) sales in FY23, according to a report by credit rating agency ICRA. This is expected as a result of the rise of discretionary spending by consumers and normalisation of store operations post-Covid.
The report also said that operating profit margins (OPMs) of the fashion retail entities are expected to remain range-bound at 7-7.3 per cent due to a significant increase in promotional and advertising spending.
Sakshi Sunaja, VP and sector head of corporate ratings at ICRA, seeing the revenue growth of the retail sector in the first nine months of FY2023, said “While this was admittedly partly led by a low base, it also reflects a sharp 35 per cent growth over the pre-pandemic period of first nine months(9M) of FY2020.”
The performance of the retail sector was helped by additional store space of nearly 5 million square feet set up during FY20-FY22. Revenue growth, segment-wise is led by premium brands in metros and Tier-1 cities. Facing inflationary headwinds, the value-fashion segment, however, has reported negative same-store-sales growth when compared with the first nine months of FY2020.
As per the ICRA report, as compared with the 55 per cent revenue growth achieved in 9M of FY2023, growth in Q4 will be moderate and is projected to be 45 per cent year-on-year growth for Fy2023 as a whole.
Led by an increase in cotton prices, retailers passed on increased raw material costs resulting in retailers’ gross margins in 9M of FY2023 remaining in line with FY2022 levels.
Retailers resumed store expansion plans in FY22 which have continued on in FY23 as well which was enabled by large equity raisins in FY21 along with improved cash flows during FY22 and YTD FY23.