The Indian footwear sector’s performance in fiscal 2020-21 is likely to be significantly affected due to the COVID-19 pandemic, according to ICRA, which recently said revenues for the fiscal are expected to drop by 10-15 per cent over the last fiscal, with a larger impact on profitability. Revenues are nil during the lockdown due to closure of retail outlets.
While volumes would be considerably affected, a marginal decline in the average selling price (ASP) is also likely due to the expected discounts because of companies’ inclination to convert the limited footfalls after COVID-19 into sales to shore up their cash flows while liquidating the inventory, the ICRA note said.The Indian footwear sector's performance in fiscal 2020-21 is likely to be significantly affected due to the COVID-19 pandemic, according to ICRA, which recently said revenues for the fiscal are expected to drop by 10-15 per cent over the last fiscal, with a larger impact on profitability.Revenues are nil during the lockdown due to closure of retail outlets.#
“Further, factors like the impact on disposable incomes, consumer sentiment, closure of educational institutes, offices, public spaces and drop in movements, will keep the demand for footwear subdued in FY2021. This apart, due to downtrading by consumers, the impact is expected to be higher on the premium segment visa-vis the value segment,” Kapil Banga, assistant vice president, ICRA, said in a statement.
The pandemic is also likely to catalyse the shift to e-commerce. For majority of the players’ online sales has remained low as a proportion of total sales, with proceeds from the online channel generating lower than 10 per cent of sales. However, with the norms of social distancing expected to remain in place, along with the fear of stepping out in public places, the share of sales from e-commerce is likely to increase significantly in the near term, ICRA said.
Exports to the United Kingdom, Germany, the United States and Italy contributed 45 per cent to the leather and leather goods exports in fiscal 2018-19. Given that these nations have been grappling with the effect of the pandemic, the demand from destination countries is also expected to remain subdued, as is evident from the 8.5 per cent decline in exports of leather and leather products in 2019-20 compared to the previous fiscal.
The decline in exports of leather and leather products was very sharp at 37 per cent in March this year. Leather footwear accounts for the largest portion of exports of leather products from India, at 39 per cent in 2018-19, followed by leather goods at 25 per cent and finished leather at 13 per cent.
The capital expenditure outgo for the fiscal 2020-21, both in terms of addition to the manufacturing capacity of plants as well as addition to the retail store network, is likely to be moderated by footwear companies to preserve cash.
The pandemic is expected to have a substantially higher impact on players with weaker balance sheets and on players with limited financial flexibility, compared to the stable and larger footwear players with higher liquidity buffer and stronger balance sheets.
Fibre2Fashion News Desk (DS)
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