Though akin to the last fiscal, revenue growth will be slower than the compounded annual growth rate of 11-12 per cent seen between fiscals 2017-18 and 2022-23, making retailers cautious at opening new stores, the rating agency said.

Instead, retailers will focus on enhancing efficiencies at existing stores, controlling costs and limiting reliance on external debt, which will help maintain their operating margin at 7.2-7.4 per cent despite continued high marketing expenses, thereby ensuring stable credit profiles.

A CRISIL Ratings analysis of 37 organised Indian apparel retailers, accounting for over a third of the organised industry, indicates as much.

“The mass market segment accounts for ~60 per cent of total sales now, compared with ~56 per cent before the pandemic, due to the rising popularity of fast fashion, which is expected to be the primary revenue driver this fiscal. The likely increase in demand for premium clothing during the upcoming festive and wedding seasons will also contribute to overall revenue growth of 8-10 per cent this fiscal,” said Anuj Sethi, senior director at CRISIL Ratings.

Retailers are adjusting business strategies, enhancing supply chain efficiency and focusing on new trends—particularly in fast fashion—to meet the evolving consumer behaviour.

With consumer spending shifting towards travel experiences and luxury goods in major urban locations, retailers will be cautious at store expansion there, while continuing to expand in tier-2 and -3 cities, which are transitioning towards organised retail.

Area addition will be lower on-year at close to 2.2 million sq. ft compared with nearly 3.6 million sq ft in the last fiscal as store sizes will be smaller.

Revenue density is expected to remain flat at ₹11,900 per sq ft due to muted growth in same-store sales and will restrict significant improvement in profitability.

Better inventory management and stable input costs will prevent significant inventory write-offs, unlike last fiscal when sharp cost changes lowered profitability by 100-110 basis points.

Consistent cash flow and limited reliance on debt to fund store expansion will lead to adequate debt metrics.

Interest coverage and total debt and earnings before interest, taxes, depreciation and amortisation ratios of apparel retailers rated by CRISIL Ratings are expected to be around 6.2 times and 1.7 times respectively in fiscal 2025, in line with the last fiscal.

However, changes in commodity prices, inflation trends, consumer spending behaviour and retailers’ ability to sustain the momentum in the fast fashion segment will bear watching, the rating agency added.

Fibre2Fashion News Desk (DS)