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Market Monitor | March 2017

Big brands maintain lead

CMAI’s Apparel Index for Q3 October-December FY 2016-17 shows that this quarter has had the lowest growth, so far, with the overall Index Value at 1.4 points, as compared to the previous Quarter (July-Sept FY 2016-17) where overall Index Value was 4.64 points. The dismal growth this past quarter is an obvious outcome of the disruptive Demonetisation that had an impact on all segments and sectors of the Indian economy, including the apparel industry. Within apparel industry, the impact has been felt, across the board. However, large and giant brands seem to have adapted to the situation and managed their brands’ growth. While large brands were at 7.23 points, giant brands scored eight points. Small brands, however, have been hit badly recording negative growth at -0.55 points, while mid brands managed to grow a meager 1.22 points.

Large and giant brands somehow maintained growth with fast clearance off goods and discounts that increased the sales turnover to 4 and 6.67 points and reduced inventory holding increase to just 0.68 and 1.77 points, respectively. Comparatively, small and mid brands lost sales turnover this quarter by 0.45 and 0.22 points and inventory holding increased for small brands at 2.70 and mid brands at 1.25 points. This had a cumulative impact on sales turnover and inventory holding of Overall Index Value as small brands and mid brands outnumber large and giant brands greatly.

CMAI’s Q3 Apparel Index for the October-December FY 2016-17 clocked 1.40 points growth. This is approximately 2.54 times higher than the Index for small brands (with turnovers of Rs 10 to 25 crore) which stood at -0.55 points. For mid brands (turnover of Rs 25-100 crore), growth is 1.22 points. They have performed much better than small brands. However, it’s the large and giant brands that have led the growth once more this quarter with 7.23 and 8 points. In fact, large and giant brands have consistently been doing well in every quarter. Notably, index value for giants brands is 5.71 times higher than the Overall Index.

The Q3 Apparel Index clearly indicates that large and giant brands have outdone mid and small brands. Small and mid brands have lost sales turnover, and one of the main reasons could be demonetisation and its impact on overall retail sales. Smaller retailers and brands associated with them have had much larger transactions based on cash instead of credit cards or other digital modes. Drop in sales impacted stocks clearance and hence, increased inventory holding. This, in turn, affected the Index Value of both small and mid brands. Large brands and giant brands, on the other hand, were connected with organised retail through MBOs, EBOs and large format stores. They took the deep discounting route, thereby stimulating sales to clear off inventory at both store and company level this is clearly reflected in increased sales turnover and restricted inventory holding in effect, pushing up their index at 7.23 and 8 points.

The success mantra

Indeed there is a strong correlation between sales turnover and inventory holding and this explains the difference in the index value of different groups. Since small and mid brands are more dependent on trade and have less control on retail, they couldn’t push sales, while large and giant brands could stimulate sales turnover, thereby restricting inventory holding. As Vineet Gautam, Country Head, Bestseller India, says, “We have seen more than a 50 per cent surge in sales, only compared to last year. We had planned and added 40 new doors to the brand, which automatically implied an increase in inventory holding. Also, the key to managing increased Inventory Holding is increasing sell out. For only we successfully managed to increase sell out.” Arguing on similar lines Anant Daga, VP, ‘W’ and Aurelia, says, “Sales growth surge is backed by high double digit SSSG and aggressive expansion. Inventory reduction is a result of better than expected sales against planned buys.”

Explaining the plight of winter wear makers and retailers which was impacted the most due to Demonetisation, Vinod Kumar Gupta, MD, Dollar Industries, says, “Some of our products like thermals—which are seasonal in nature and production—had been done in the month of July and August, to be sold up in winter months; but with Demonetisation, the entire industry witnessed a drastic fall in the last quarter. Naturally, our inventory increased by a huge margin. However, with summer approaching and the new financial year, we are hoping all summer products are sold and closing stock goes down.”

Classis Polo attributes increased sales turnover and better sell through, to better designed product that catches the consumers’ fancy. Usha Periasamy, VP – Operations & Brand, Classis Polo, opines, “Fine research in understanding the design needs of the target group and market thereby upgrading creativity to meet expectations precisely. Earlier, Classic Polo range had striper dominated tee’s and basic collections but now the non-striper fashion category has taken over which is reaping results. We have identified the most liked categories in shirts and trousers—printed shirts and Lycra bottoms are order of the day.” In fact, Brands are getting closer to customer expectations. This is the real reason behind the turnover and sales push. This effect will be more evident in the next fiscal.

The real picture

Sales turnover saw an index growth of 0.72, while 54 per cent of brands reported an increase in sales turnover. Of these, 40 per cent grew between 1-20 per cent; 10 per cent grew between 21-40 per cent; and 4 per cent grew 41 per cent, or more. The number of brands that grew 41 per cent or more were mostly giant brands at 22.3 per cent, followed by large brands at 9.1 per cent. Nearly 8 per cent respondents said their sales turnover remained the same. A significantly high number of respondents reported loss this quarter at 38 per cent, maximum respondents who reported a loss in turnover were from small brands with 71.05 per cent respondents, followed by mid brands—23.68 per cent—and large brands at 5.2 per cent. No giant brand indicated a loss in turnover in Q3.

Inventory holding recorded an index value growth of 2.53 points. Inventory duration increased, this quarter amongst all brands—62 per cent. Nearly 28 per cent brands reported an increase of between 1-20 per cent in holding; another 22 per cent reported an increase of 21-40 per cent; and only 12 per cent said their inventory holding went up 41 per cent, or more. However, 21 per cent respondents said their inventory holding remained the same.

For 17 per cent respondents, there was a decrease in inventory holding—13 per cent between 1-20 per cent whereas 3 per cent decreased between the 21-40 per cent slab and 1 per cent more than 41 per cent.

If small brands are compared with big brands, the index value of big brands at 4.57, is a whooping 8.30 times higher than that of small brands at (-) 0.55. This time the gap between big brands and small brands has widened even high. The bigger gap came in sales turnover and in inventory holding where big brands increased inventory holding by 1.25 points against 2.70 for small brands. The higher value in inventory holding indicates negative impact.

Outlook for the next quarter

In fact, around 41 per cent of brands feel that the outlook for next quarter is good. Another 10 per cent say the outlook is excellent. Nearly 42 per cent foresee an average outlook and 7 per cent (previous quarter, as well) feel it will be below average. Next quarter being the last quarter of the year, brands assume demonetisation impact though phasing out will still be there as consumers will take time to return to stores.

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