Rajesh Memani used to supply 50,000 articles of clothing every month to department stores and retail chains in Mumbai.
While taking stock of orders early this month, he got a shock when he was told by his manager that the orders had come down to nearly 20,000 articles. He was told the remaining order would be given after “the current inventory gets over or whenever the need arises”.
High inventory costs and rise in apparel prices have led retailers and department stores to cut fresh purchases by a third to maintain profitability, say vendors and suppliers to the retail chains.
This is a double whammy for these suppliers, as their businesses from overseas markets are already down due to economic uncertainties in the US and the eurozone.
“Domestic chains have reduced their buying by 25 to 30 per cent, as there is a slowdown in sales due to high prices of apparels,” said Rahul Mehta, president of the Clothing Manufacturers Association of India.
Pankaj Gupta, practice head, consumer & retail, Tata Strategic Management Group, said, “They (retail chains) are opting for lower orders, so they can maintain margins by offering lower discounts to liquidate unsold stocks. There is a caution coming from an anticipated slowdown.”
“Reduction in order sizes by apparel retailers is a reflection of economic environment at a time when inflation is high and there is uncertainty about growth. It affects retail offtake,” Gupta added.
Almost all manufacturers and retailers have raised apparel prices by 10-20 per cent due to a sharp rise in cotton prices and the government’s move to levy a 10 per cent excise duty on branded garments. In February, cotton peaked to Rs 63,000 a candy (one candy=356 kg), while cotton yarn peaked to Rs 290 per kg.
Eighty nine per cent of the 250-odd manufacturers and retailers, surveyed by CMAI in June on the impact of increase in excise duty, said their sales had declined in the last three months, compared to the same period last year. Of this, 65 per cent said their business had come down by more than 20 per cent.
Though cotton prices have come down to Rs 37,000 a candy, retailers are left with huge inventory. So, most retailers are giving additional discounts or extending the season sale to clear the inventory.
“The outlook seems dull and the situation can be better assessed towards the end of September,” said Mehta.
Arun Sirdeshmukh, chief executive of Reliance Trends, said the impact could be more in retailers selling high-value products and chains in the maturity phase. Other department stores Business Standard spoke to denied they had cut their orders.
“We have not cut down our orders, and I do not see any kind of resistance from the market. We are very much on track. Our new goods are on the shelf since the past one month and consumers have also accepted the price rise,” said Kailash Bhatia, director, Pantaloon Retail, which runs Pantaloons department stores.
(Vendor’s name changed on request)
