The third Covid wave is expected to shave-off 8 per cent of fashion retailers’ revenues in FY22.
Leading ratings agency ICRA has said that the retailers are expected to reclaim up to 70-72 per cent of their pre-pandemic revenues in FY2022 as against 78-80 per cent expected earlier.
There are renewed restrictions on operating hours of malls, non-essential stores and curtailment of mobility due to the third wave of Covid.
The agency said in its report that this is based on estimated 20 per cent decline in store-operating hours during the fourth quarter vis-a-vis rating agency’s earlier expectation, leading to a commensurate decline in Q4 revenues.
It also added that restrictions are expected to be limited to Q4FY22 and estimated to be around six to eight weeks. Strong rebound in sales is, however, expected upon lifting of restrictions – akin to that witnessed post the second wave, it said.
Sakshi Suneja, Assistant Vice President and Sector Head, ICRA, said “Typically, January and February are the months of the end-of-season sales (EOSS), where retailers attempt to liquidate their (winter stock) inventory, prior to the launch of fresh Spring/Summer collections. With restrictions on mobility, retailers face a great risk of inventory markdowns as they are expected to resort to higher levels of discounting to attract customers.”
“While this, coupled with increased input costs (cotton yarn and manmade fibres), would impact their gross margins, rental negotiations and rationalisation of other discretionary spends are expected to somewhat limit the decline in operating profit margins (OPM). Inability to clear out excess stock could result in higher borrowings or depletion in cash balances for some retailers in Q4FY22.”
“As seen during the first two waves, malls are amongst the last segments to witness easing of restrictions. Even after re-opening, the ramp-up in mall footfalls has been only gradual,” ICRA said.
