Fashion retailers are set to grapple with a 120 basis points (bps) decline in profit margins in FY 2024, even as they anticipate a robust 13 per cent year-on-year revenue growth, as per an extensive analysis conducted by ICRA. The industry is poised to face this margin squeeze primarily due to amplified discounting following a demand slowdown and escalating expenditures on advertising and promotions to fuel revenue.
ICRA’s analysis revolves around the operating profit margins of 11 publicly listed retail entities, collectively constituting 23 per cent of the sector’s total revenue. It anticipates a moderation in operating profit margins to 5.2 per cent in FY 2024, reflecting a dip of nearly 120 bps.
This margin contraction looms large despite a substantial Y-o-Y revenue growth estimate for the year, driven chiefly by network expansion. ICRA currently maintains a stable outlook for the retail sector.
Sakshi Suneja, Vice President & Sector Head – Corporate Ratings, ICRA, commented, “In line with our expectations, fashion retailers escalated their levels of discounting in YTD FY 2024 to stimulate sales, which had been under duress since the previous festive season due to inflationary pressures. Retailers are pinning their hopes on a demand resurgence during the festive season, which has prompted them to continue their aggressive spending on advertising and promotions.”
The fashion retail segment has been grappling with a demand slowdown since Q3 FY 2022 due to inflationary challenges. Following a lackluster Q4 FY 2023, fashion retailers reported a sequential sales uptick of 13 per cent in Q1 FY 2024, propelled by an expanded store network and a degree of revival in discretionary spending, partly attributed to the early commencement of end-of-season sales.
In terms of segments, the value fashion sector has borne the brunt of the slowdown more profoundly compared to the premium segment and is yet to reach its pre-pandemic average sales per square foot.
ICRA foresees a relatively steady quarter-on-quarter revenue growth for fashion retail players in Q2 FY 2024, primarily due to ongoing inflationary pressures. Furthermore, the shift of the festive season to Q3 FY 2024 is expected to constrain growth in Q2, with substantial revenue growth projected to commence from Q3 onwards. This, coupled with continued network expansion, is poised to drive a 13 per cent YoY revenue surge for FY 2024.
Bharat Tex Special Report 2026 
