India’s apparel retail set for growth, e-comm leading way: Ind-Ra

The e-commerce segment in Indian apparel retail market is expected to rise at around 17 per cent y-o-y in FY25 and at a 15 per cent CAGR till FY30 (2x of FY25 sales), and brick and mortar (B&M) segment to grow by 7 per cent y-o-y and at a 9 per cent CAGR (although lower than e-commerce), as per India Ratings and Research (Ind-Ra).

Physical retail is expected to continue to be relevant, given the desire for in-person experience and necessity to touch and feel products, especially expensive ones and customers wanting to have in-store experience with multiple product availability.  

India’s apparel retail market is expected to grow with e-commerce increasing by 17 per cent y-o-y in FY25 and brick-and-mortar by 7 per cent.
Fast fashion, luxury, and ethnic segments are expected to outperform.
EBITDA margins will remain stable in FY25, improving in FY26 due to cost optimisation.
Store expansions will focus on fast fashion and ethnic formats, with a slow pace of growth.

Ind-Ra believes certain segments will outperform the broader apparel industry, such as fast fashion, on the back of social media influence and Gen Z preference (major retailer’s fast fashion format store count to double in FY25), e-commerce channels, on the back of increasing penetration of internet/smartphone, luxury, due to rising consumer aspiration and affluence, and ethnic, value and tier-2 and beyond segment, due to the shift of customers to the organised industry. 

Ind-Ra expects the EBITDA margin across the apparel retail space to remain flat in FY25, followed by a moderate improvement in FY26, due to the benefits of cost optimisation measures. The agency believes that controlled capex and steady profitability will keep the credit metrics at comfortable levels in FY25, with an improvement expected in FY26. 

“The tepid consumption demand and high base effect have impacted the growth of the apparel retail industry over the past few quarters. However, we expect a recovery in revenue growth over H2FY25/FY26, on the back of improving consumer financial health, a higher number of wedding days and favourable monsoons. Organised retailers’ steps to rationalise stores, undertake controlled expansion coupled with a focus on segments with relative outperformance such as fast fashion, luxury and ethnic fashion will support their credit profiles,” said Adarsh Gutha, associate director, corporate ratings, Ind-Ra. 

Ind-Ra estimates the pace of store addition will be slow, with the retail area growing by 9 per cent y-o-y in FY25 and by 11 per cent y-o-y in FY26 for the Ind-Ra sample set. The expansion trend is expected to be driven by a greater quantum of store additions in fast fashion and ethnic-focused store formats. In addition, there has been a growing trend of direct-to-consumer brands opening B&M stores and established retailers expanding in the under-penetrated Tier-2 and beyond markets. Additionally, retailers’ focus is expected towards scalable franchisee models to ensure optimal use of capex, working capital and management bandwidth, as per the report.

Ind-Ra expects the revenue growth to moderate from 9.5 per cent in FY24 to 8.5 per cent in FY25 before reaching 10.5 per cent in FY26 for the Ind-Ra sample set. While SSSG is expected to be marginally negative in FY25, with improvement in FY26, revenues from new store additions are likely to drive growth. In H1FY25, revenue growth for the Ind-Ra sample set fell to nearly 7 per cent y-o-y (FY24: 9 per cent), led by subdued consumer sentiments, negative SSSG and a drop in volumes owing to the shift of festive demand to H2, which is expected to revive in H2. 

Despite the decline in SSSG and subdued demand, which constrained pricing, the EBITDA margins are expected to remain protected at 16.5 per cent in FY25, owing to the cost optimisation measures adopted by the companies. Advertising and promotional spending trends have been a mixed bag, with some retailers investing heavily in promotional and discounting activity to attract consumers, while others opting to reduce theirs. Ind-Ra expects it to be maintained between 2.5-3.0 per cent. Ind-Ra expects EBITDA margins across the apparel retail space to grow by nearly 30bp y-o-y in FY26, as retailers continue seeking opportunities to improve their efficiency through cost optimisation. However, given that inventory holdings come at a cost and impact return indicators, choosing an optimal mix and adequate quantities (based on stock movement) is essential to ensure efficient inventory turns. 

While there will be a slight dip of 4 per cent y-o-y in the inventory days in FY25, Ind-Ra expects them to remain elevated until FY26, owing to the controlled expansion plans and retailers’ focus on a shorter cycle fast fashion segment. Ind-Ra believes steady profitability and controlled capex will support the capital structure and keep the credit metrics at comfortable levels in FY25, with improvement expected in FY26.

Fibre2Fashion News Desk (RR)

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