Apparel retailers likely to see recovery in FY22

Mumbai: Apparel retail sector's recovery is expected to continue in FY22, on back of improving consumer confidence, resumption of store expansion by organised players and prospects of the vaccine rollout, said India Ratings and Research (Ind-Ra).

"Although the pressure on discretionary spending, possibility of a second wave of infection in certain States and subsequent travel restrictions continue to pose a threat to the recovery, improved cost structures, liquidity enhancement measures and omnichannel push should provide cushion to glide through the same," Ind-Ra said.

Besides, the ratings agency expects part of the cost rationalisation measures undertaken by retailers during the pandemic-led crisis to be sticky and sustain even after achieving business normalcy starting FY22, thereby structurally improving the margin profile of apparel retailers.

"Store expansionary capex reduced sharply in 1HFY21 on the back of the lack of business visibility." "However, Ind-Ra expects the pace of expansion to accelerate in FY22, as the organised segment continues to gain market share from the unorganised segment along with an improvement in the operating environment and resumption in store rollout from 3QFY21, with particular focus on Tier II plus cities."

Furthermore, the ratings agency cited that while retailers have been pushing omnichannel offerings for the past few years, the pandemic has accelerated digital transformation, forcing retailers to think broadly and invest more rapidly in them.

"Retailers will continue to allocate an important part of their capex to the development of omnichannel capabilities to widen their digital and customer interaction capabilities and thus complement the brick and mortar business." In addition, the agency said with the survival phase following the pandemic now completed, the focus has shifted towards revival and growth.