The revenue of the organised apparel retail sector is expected to plummet 30-35% this fiscal due to temporary store closures, restricted mobility due to the lockdown and low income visibility for consumers, Crisil Ratings said.
“While operating profitability is expected to be impacted by 200 basis points (bps), the absolute fall in operating profits will be much sharper, necessitating additional funding, mainly debt, by firms to make up for cash flow shortfalls. This will affect credit metrics,” it said.
The analysis is based on a sample of 60 Crisil-rated apparel retailers (representing a third of the sector’s revenue).
“Pent up demand, as well as the behaviour of consumers post lifting of lockdown, will have a bearing on the pace of recovery,” it said.
According to Crisil, sales at departmental stores will be hit harder with a 40% decline in revenue, as half of these stores are located mainly in malls and Tier 1 cities.
For value fashion retailers, the impact will be lower at 30%, as these have higher presence in Tier 2 and 3 cities.
Apparel retailers are also likely to see higher contribution from online channels this fiscal, driven by changing buying pattern of consumers amid the pandemic, the ratings agency said.
