Today, apart from air travel and luxury hotels, now, even clothes are getting costlier! The recent imposition of mandatory excise duty has become the last straw for the apparel industry.

The declaration of 10% excise duty on branded apparels has evoked protests among the apparel industry players. The 7000 crore Indian branded apparel sector is up in arms protesting this decision, stating it adds more burden to the industry which is already burdened with increasing cost of raw materials.

Indian apparel industry acquired a sales of 40,000 crore the previous year. Current year is seeing a decline in the profit margins. Numerous factors plaguing the industry including increase in raw material prices, labor unrest, and increase in borrowing costs are behind this deterioration.

Clothing makers and retailers are seeking alternatives to handle the mandatory duty.They are opting for a change in the product mix, introducing different price points, and also considering a price hike up to 8%. Some of them are even considering a 10% hike in apparel prices. Apart from the impact on the operating costs, retailers also fear a decline in the apparel sales.

Increase in apparel prices:

Apparel retailers express their insecurity by the way; the higher duty will be pushed on to the customers. Earlier, the increase in prices of raw materials was passed on to the end users, but more increase is feared to affect customer demand.

Drop in Sales:

Making the 10% excise duty mandatory has forced many brands to increase the price of their apparels. This has caused a fall in demand, and a dent in the sales figures. Since March, many apparels retailers saw a slump in sales approximately by 20%. To sustain their profit margin, many brands have started with the discount sales even two weeks earlier than they generally do. Industry players fear this would restrict the growth of apparel industry for the current year.

Increase in Inventories:

As a result of the excise duty, retailers have witnessed an increase in their inventory level by 10-20%. Most of the retailers plan to minimize their inventory levels by going in for deeper discounts.

Most of the retailers believe that imposing mandatory excise duty is a major drawback for the growth of the industry. Customers are already plagued with soaring food, and fuel prices. Increase in the apparel prices would force them to seek other cheaper options, such as inexpensive brands in place of their favorite ones. As price hikes curb their purchasing power, they keep branded apparel shopping at a distance.

Retailers opt for discounts to ride the tide:

As customers curtail their shopping expenses, retailers go in for deep discounts to maintain their market share. Brands such as Shoppers Stop, Pantaloons, Westside, Globus, Reliance Trend, and Wills Lifestyle have already started with the trend by giving big discounts. Apart from beating the inflation, currently to tackle the mandatory duty, retailers prolong with their discount offers.

CMAI survey findings reveal that summer discounts which generally amount to be around rs.1, 800 crores is expected to go high up to ` 4, 000 crores for the current year. This denotes a loss of ` 2, 200 regarding apparel sales. The survey further states that overall sales are anticipated to go down by 10-30%.

The excise duty has come as a sudden shock not only to the apparel retailers, but also to the consumers. Value retailers and brands are facing the heat of the situation more than premium retailers, as they have to increase the MRP of apparels to tackle the additional duty. Overall, all industry players are reluctant regarding their winter bookings.

References:

1. "Impact assessment of imposition of excise duty on the garment industry, Industry- wide survey findings", CMAI, 25^th June, 2011.

2. Economictimes.indiatimes.com

3. Businesstoday.intoday.in

4. Moneycontrol.com

Note:

CMAI survey includes in-depth one-to-one interviews conducted with the top level management of manufacturers, retailers and brands, and structured questionnaires designed and circulated to the target respondents over emails to gather their responses.

Target respondents include top level management / CEO's of small, medium and large garment manufacturers, and key apparel brands and retailers.