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Wednesday, 06 July 2011 |
 When the FM imposed a 10 per cent excise duty on the Indian garment industry last March, all stake holders reacted negatively. Already under pressure due to high raw material costs, they anticipated the excise duty would jack up prices which
in turn would affect buying sentiment. And three months later, there is ample proof that their fears were not misplaced. A recent survey conducted by The Clothing Manufacturers Association of India (CMAI) among key apparel brands, retailers and garment manufacturers has confirmed this. Nearly 89 per cent of the respondents have said there has been a decline in sales during the last three months (March-May 2011) as compared to sales in the same period last year. Most have indicated more than 20 per cent decline in sales figures. What’s more this decline is most evident in the organized apparel sector which is pegged at Rs 40,000 crores. Based on the weighted average of the responses, the survey reveals a 17 per cent reduction in sales which amounts to a whopping Rs 1,725 crores reduction. For example, Arvind Brands with brands such as Arrow, Lee and Flying Machine have reported sluggish sales in June. And J Suresh, MD and CEO of Arvind Lifestyle Brands and Arvind Retail feels they need to wait and watch whether this continues in July and August.
 That’s not all the survey also indicated a steep rise in inventories. Nearly 49 per cent have reported they have 50 per cent additional inventory this year. This translates to an average inventory increase of 42 per cent which is worth Rs 1,400 crores inventory lying with manufacturers and retailers. And with such high inventory accumulation most respondents are now looking for various ways to dissolve it. Half of them they are willing to offer up to 40 per cent discounts to clear the backlog and are looking at a longer discount period this year. No wonder brands like Brands like Reebok, Adidas, Mango etc have already started their end-of-season discount sales – a full two weeks earlier than usual this summer. Rahul Mehta, President of Clothing Manufacturers Association of India (CMAI) believes “The present trend indicates that the industry will hardly be able to sustain a growth of 10-15per cent as margins are under tremendous pressure.”
The rise in raw material prices was passed on to consumers in tranches earlier, but now it has become difficult to carry forward, Mehta feels and any more rise in prices will impact demand. Already, many consumers, hit by rising food and fuel prices, have already started buying lower-priced brands. In fact, 94 per cent respondents have said they are already facing a decline in their current winter season bookings. And they fear the pace of growth will slow down if the current situation prevails. Pantaloon Retail CEO Kailash Bhatia foresees sluggish demand for high priced garments in the coming months. Although cotton prices have corrected, the component of raw material cost will be high in the stock that would be sold during autumn/winter. So prices will be up for those products.
The CMAI survey also points out that overall the industry expects to have a cumulative loss of around Rs 4,000 crores. Growths too have slowed down by 10-15 per cent. And small players are the worst hit. Value retailers have been hit more than lifestyle and premium retailers as the excise duty has reduced their margins in a big way. To stem further losses, CMAI has strongly recommended the removal of the 10 per cent excise duty, if not it should be brought down to one per cent level in line with 130 other items. |
