Retailers bank on fashion to drive margins

Margins in apparel segment are upwards of 40% and even higher for private lables

Retail chains such as Shoppers Stop, Future Retail, Pantaloons are banking on fashion to boost thier margins.

 

For instance, Raheja-owned Shoppers Stop recorded EBITDA (earnings before interest, taxes, depreciation and ammortisation) margin of 6.1% in the second quarter of the current financial year, a 98 basis points increase over the corresponding quarter previous year. 

 

The company expects EBITDA margins to be 6-6.5% in FY15 and 7-7.5% in FY16 and post that, it expects margins to be above 8%.

 

Margins in apparel are said to be upwards of 40% and private lables carry even higher margins.

 

"Apparel margins are much higher than non-apparels, and when the apparel share is going up, obviously, you get better margins," said Shoppers Stop managing director Govind Shrikhande at the company's conference call.

 

The share of apparels went up to 67% in Q2 for Shoppers Stop from 63.6% in Q2 of FY14.

 

Its hypermarket chain Hypercity’s margins also went up by 140 basis points in Q2. The company expects margins to improve by 50 to 80 basis points, with the contribution of fashion segment to overall sales projected to go up by 19% in FY16. Hypercity achieved EBITDA level break even during the second quarter.

 

Same is the case with Kishore Biyani-led Future Retail. The company reported EBITDA margins of 10.7% in Q2 of FY15, which is around 157 basis points increase compared to Q2 of FY14. Rakesh Biyani, joint managing director of the company, said that the rise was due to higher share of apparel and home segments, which carry higher margins.

 

Though Aditya Birla-owned Pantaloons is still making losses, it posted a 400 basis points increase in EBITDA margins in Q2 of FY15.

 

“We had a re-look at the brands, which did not have good margins and customer attention, and launched new brands," said Susil Agarwal, Sushil Agarwal, chief financial officer and whole-time director at Aditya Birla Nuvo.

 

Arvind Singhal, chairman of Technopak Advisors said due to higher margins and steady growth in the segment, fashion is a good segment to be in.

 

“Each of these companies have good understanding of the apparel segment and have good supply chain in place. If they are increasing focus on apparel, it is a good strategy," he added.