Apparel retailers are facing the challenge of unsold inventory due to product obsolescence, prompting them to reassess their inventory management strategies. To combat this issue, companies have shortened their sourcing periods from 120-150 days to 60-90 days, aiming to reduce the risk of obsolescence before demand picks up.
Despite resorting to deep discounting to clear old stock, many retailers still find themselves with unsold merchandise. This scenario is expected to impact profit margins in the current fiscal year.
Shoppers Stop Ltd CEO, Kavindra Mishra, explained that the company had to make provisions and write off inventory worth nearly Rs 9 crore due to obsolescence. This move resulted in a 60 basis points impact on their gross margins.
Lifestyle International CEO, Devaranjan Iyer, revealed that several retailers are forced to write off inventory due to obsolescence. In response, they have reduced their sourcing periods to avoid further risks. Instead of the previous 6-7 months, orders are now being placed for 2-3 months.
The apparel retail industry has been grappling with slow demand for over five quarters, catching retailers off guard after a surge in demand following the pandemic. As a result, retailers accumulated excess stock, which is now contributing to the obsolescence problem.
To adapt to the changing market dynamics, V-Mart Retail has modified its inventory planning by allocating 20% towards a 45-day planning period. This practice allows them to react swiftly to market challenges and align with the fast fashion trend.
Retailers have extended discounting periods in an effort to clear inventory, particularly during the current end-of-season sale. Additionally, discounts are being offered through e-commerce marketplaces and upcoming Republic Day sales to entice consumers.
Recent data from the Retailers Association of India (RAI) shows a 4% growth in retail sales for December 2023 compared to the same period the previous year. However, sales growth for offline retailers remained negative, highlighting a shift in consumer spending patterns towards experiences and travel rather than solely purchasing products.
