The organised retail apparel sector is set to grow 8-10% this fiscal year, driven by festive and wedding demand, normal monsoon conditions, easing inflation, and a growing preference for fast fashion, according to a report by Crisil Ratings.
Fast fashion, offering trendy and affordable clothing, now accounts for 60% of total sales, up from 56% before the pandemic, and will be the primary revenue driver. Additionally, demand for premium clothing during festivals and weddings will boost growth, said Crisil Ratings Senior Director Anuj Sethi.
However, growth will slow compared to the 11-12% CAGR seen between fiscals 2018 and 2023, leading retailers to focus on improving efficiency, controlling costs, and limiting new store openings. This approach is expected to maintain operating margins at 7.2-7.4%, despite high marketing expenses.
Retailers are adapting to evolving consumer preferences by enhancing supply chains and focusing on fast fashion trends. While urban store expansion will be cautious due to shifts in consumer spending toward travel and luxury, growth in tier II and III cities will continue. New retail space will increase by 2.2 million square feet, down from 3.6 million last year, with smaller store formats.
Revenue density is expected to remain flat at Rs 11,900 per square foot, limiting profitability gains. However, a slight margin increase is anticipated as retailers streamline operations and selectively open new stores. Inventory management and stable input costs will prevent major write-offs, as seen last year.
Debt metrics are expected to stay strong, with interest coverage at 6.2 times and a total debt/EBITDA ratio of 1.7. Retailers will need to watch inflation, consumer behaviour, and fast fashion momentum to sustain growth.