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Market Monitor | September 2016

Big brands maintain lead

CMAI’s Apparel Index for Q1 April-June FY 2016-17 indicates the industry has managed better growth with overall Index Value at 5.45 points compared to previous quarter (Q4) where the overall Index Value was 3.79 points. Giant and large brands, like always have maintained their growth trajectory which is still much higher than small and mid brands. In fact, growth this quarter for giant and large brands is higher than last quarter but lower than the same quarter previous year. The trend is similar for mid brands however, it’s the small brands that have performed much better this quarter compared to other quarters, touching 4.45 points. Perhaps, what made small brands improve performance this quarter was the unusually low increase in inventory holding at 1.78 indicating small brands didn’t hold inventories long enough. The Index Value bouncing back to 5.45 points is mainly on account of restricted increase in inventory holding at 1.72, most often this figure is much higher in other quarters.

Q1 Index reflects growth on track

CMAl’s Q1 Apparel Index for the April-June (FY 2016-17) clocked in 5.45 points growth. This is approximately 22.47 per cent higher than the index for small brands (with turnovers of Rs 10 to 25 crore) which stood at 4.45 points. For mid brands (turnover of Rs 25-100 crore), growth is 5.46 points. They have performed better than small brands. However, it’s the large brands with 6.72 points and giant brands with a high Index Value of 9.57 points that have led the growth story this quarter. In fact, large and giant brands have consistently done well in the past few quarters. Notably, Index Value for giant brands is 75.56 per cent higher than the Overall Index Value. Generally, Q1 is known for buoyancy in sales over previous quarter, being start of summer season. This quarter, small brands performed relatively better and narrowed the gap with other groups which helped in boosting overall Apparel Index Value. The restricted inventory holding however, could indicate controlled production and clearance of carried forward stocks. Although, sales turnover failed to show buoyancy in quarter and sell through had limited growth.

Sales turnover improves

The correlation between sales turnover and inventory holding explains the difference in Index Value of different brand groups. A close look at sales turnover and inventory holding reveals the reason for Index Value not growing as much is because there’s an increase in inventory holding against the improvement in sales turnover, improvement in sales is getting offset by increased inventory holding. And moderate increase in sell through and investment generally fails to give the required boost in Index Value. As Sanjay K Jain, Managing Director, T T Ltd puts it, “We operate in the economy segment and cater to the middle class who have many aspirations but limited budget. This segment is extremely price sensitive and we have always been tempted to give promotional schemes to compete, however since last one year we have changed track and are focusing on better value for money i.e. Same price but better quality. Hence, our focus has shifted to quality rather than price. Consumers remember quality everyday and price just once.”

Rajiv Nair, Celio, says that the Sales Turnover for the brand in the quarter has not been constantly growing as he would have expected and since they didn’t opt for Mid-Season discounting, it increased their Inventory Holding, “Overall, we have seen a slowdown in sales in May/June compared to February, March, April, which was quite strong. This, has been the trend in the industry as well. We have not resorted to Mid-Season discount as we did last year to ensure we don’t reduce our margins in the middle of the season. The stock levels are a bit higher than we would like but it’s a function of the market momentum.”

In comparison at Classic Polo, Inventory Holding has gone down vis-a-vis last year, as their business has scaled up, inventory has also shot up but they are all against orders, as Usha Periasamy, VP – Operations & Brand, Classic Polo observes, “Classic Polo’s sales through has scaled up due to improved designs and on time deliveries. Secondly, wide range of casual fashion at affordable price is another disguised reason contributing to the hike. Customer choices and preferences are well studied prior to the seasons from trade partners, dealer research and online international forecast standards (WGSN) to deliver merchandise to match best to target audience's perceptions.” On same lines, Vinod Kumar Gupta, Managing Director, Dollar Industries opines, “The growth in our Sales Turnover has come from product diversification and deep market penetration across the country, but there has been an increase in our inventory holding actually due to our strong backward integration.”

For both Dollar and Classic Polo, increase in sales has increased their inventory investment, if not inventory holding. On the other hand, Avadhoot Sansare, Business Head, VIP, says they have increased sales as well as controlled inventory holding, “We have managed growth in Q1 over last year and managed to reduce inventory through ‘Better Planning’. We have some strong products in our portfolio and there is a steady demand for these. This year, we managed supplies well and that has resulted in 10-15 per cent sales growth over last year. Also, better sales planning, corrective action taken in the beginning of Financial Year in manpower allocation and distribution network helped us to take advantage of consistent supplies.” However, the overall picture reveals giant brands have grown maximum over last quarter, since they could manage much higher sales turnover and limit inventory holding.

Small brands reduce gap

If small brands (turnover Rs 10 -25 crore) are to be compared with big brands (turnover above Rs 25 crore), the Index Value of big brands at 6.53, is almost 47 per cent higher than that of small brands at 4.45. This time the gap between big brands and small brands is unusually less. The bigger gap came only in sales turnover, with higher sales turnover 4.75 points for big brands as against 3.15 for small brands, rest of the parameters however, were not significantly lower for Small Brands. The notable difference this quarter is the small brands have improved their performance comparing it with earlier surveys and big brands have not been able to keep their pace of growth, comparing it with the same quarter in previous year.

A comparison of Apparel Indices of Q1 April-June 2016 and 2015 reveals the overall Index Value was 13.76 per cent higher at 6.2 last year compared to 5.45 for 2016. Reason: lower growth performance of most parameters except a reduction in inventory holding. Overall, the apparel industry grew but with a lesser rate of growth in the same quarter last year on all aspects such as sales turnover and sell through. On the other hand, inventory holding showed lesser increase in 2016, as a lower increase reflecting better control on inventory causing lesser impact on bottom line.

The two important points that draw attention are: small brands have significantly reduced inventory holding this year to 1.78 from 3.08 earlier. Second, there’s consistent drop in growth rate in mid, large and giant brands when compared to performance same quarter previous year. Except inventory holding, all performance parameters have shown lower performance.

CMAl’s Apparel Index aims to set a benchmark for the entire domestic apparel industry and helps Brands in taking informed business decisions. For investors, industry players, stakeholders and policymakers the index is a useful tool offering concrete and credible information, and is an excellent source for assessing the performance of the industry. The Index is analysed on assessing the performance on four parameters: Sales turnover, sell through (percentage of fresh stocks sold), number of days of inventory holding and investments (signifying future confidence) in brand development and brand building.

Apparel Index

Cumulative

Small

Mid

Large

Giant

Total Brands

100

52

23

18

7

Sales Turnover

3.92

3.15

3.83

5.33

6.29

Sell Through

1.695

1.62

1.76

1.75

1.93

Inventory Holding

1.725

1.78

1.96

1.81

0.36

Investment

1.56

1.46

1.83

1.44

1.71

Overall Index Value

5.45

4.45

5.46

6.72

9.57

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