Apparel retailers seem to have got some relief from the high inventories they had accumulated for about a year. In the last quarter of 2011-12, these are estimated to have fallen due to the end of season sales.
Inventory is expected to be down by five to 10 per cent compared to the previous quarter, analysts said. Arvind Mills, Trent, Pentaloon, Alok and Shoppers Stop had declared higher inventory data with their half-yearly results.
“Inventory for apparel retailers is expected to come down by 5 to 10 per cent on quarter-on-quarter basis,” said Abhishek Ranga-nathan, an analyst with MF Global.
The current financial year, however, is seen as a better one as companies will be able to start with lower inventories of finished goods. “On account of lower garment prices and high-cost raw material inventory (cotton), Arvind’s margins are estimated to decline in quarter ended March, but with the high-cost inventory getting exhausted in Q4FY12 itself, the company is likely to get the benefit of low-cost inventory for entire 2012-13,” said Jignesh Kamani of Nirmal Bang Institutional Equities.
Retail sales are expected to pick up in coming months although by a marginal five per cent.
“In the March quarter, retailers saw some relief, as they offered heavy discounts to get rid of their high inventory. I expect the next two months to be slightly better than last year,” said Rahul Mehta, president of the Clothing Manufacturers Association of India. The body says the industry has been sitting on inventory worth Rs 1,400 crore. Retailers faced inventory pile-up in previous quarters as prices were high and consumer sentiment low. They’ve cut back on fresh stocks, despite offering higher discounts and keeping discount sales for a longer period than usual. Had they not done so, their inventory levels would have been much higher, said an analyst.
“Apparel sales have seen a decline in the last few quarters. The last (March) quarter may have helped companies to reduce some inventories, as they offered heavy discount,” said Abhishek of MF Global. Many were forced to pre-pone their discount sale. Some offered discounts up to 70 per cent. Some brands, instead of offering 30 to 40 per cent of their inventory on sale, were forced to keep as much as 60 to 70 per cent of it on sale in the quarter.
Since last year, a 10 per cent excise duty was levied on branded garments. Even cotton prices in the early part of last year were high and left retailers with no choice but to raise prices by around 20 per cent, which also caused a rise in inventory. Cotton prices have since eased, allowing retailers to cut apparel prices by five per cent. The Union budget has also helped, albeit marginally, with reduced incidence of excise on branded garments.
