The Indian retail apparel sector is poised for a resurgence in fiscal years 2025 and 2026, according to a recent report by India Ratings and Research (Ind-Ra). After a period of moderated revenue growth in the first half of FY25, attributed to weaker consumer demand and a high base effect from post-pandemic “revenge shopping,” the industry is expected to see a significant recovery.
Several factors are driving this positive outlook:
- Improved Consumer Finances: Rising income levels and easing inflation are projected to boost disposable income, fueling consumer spending on apparel.
- Increased Wedding Season Demand: A significantly higher number of auspicious wedding days in the second half of the fiscal year (2.5 times more than the first half) is expected to drive strong demand for wedding-related attire.
- Favourable Monsoon Impact: Good monsoon seasons are anticipated to stimulate demand in Tier-2 cities and beyond, expanding the market reach for apparel retailers.
Segment Performance and Retail Strategies:
While growth has been uneven across the sector, organized players are generally outperforming smaller, unorganized businesses. Specific segments are predicted to excel:
- Fast Fashion: Driven by social media influence and Gen Z preferences, major retailers are doubling their fast fashion store count in FY25, indicating strong confidence in this segment.
- E-commerce: Continued growth in internet and smartphone penetration will further bolster online apparel sales. Ind-Ra estimates e-commerce growth of around 17% year-on-year in FY25 and a 15% CAGR until FY30 (doubling FY25 sales).
- Luxury Apparel: Rising consumer aspirations and affluence are contributing to the growth of the luxury segment.
- Ethnic Wear and Value Segment: A shift of customers towards organized retail is benefiting the ethnic and value segments, particularly in Tier-2 cities and beyond.
Brick-and-mortar stores, while growing at a slower pace than e-commerce (7% year-on-year growth and 9% CAGR), remain relevant due to the importance of in-person shopping experiences, particularly for higher-value items.
Retailers are adapting their strategies to optimize performance:
- Controlled Expansion: Store rationalization and strategic expansion, particularly in fast fashion and ethnic wear, are key focuses. Ind-Ra estimates retail area growth of 9% year-on-year in FY25 and 11% year-on-year in FY26, down from approximately 12% in FY24.
- Focus on Franchise Models: Scalable franchisee models are gaining traction to optimize capital expenditure, working capital, and management resources.
- Omnichannel Strategies: Direct-to-consumer (D2C) brands are increasingly opening physical stores, while established retailers are prioritizing integrated online and offline experiences to cater to affluent consumers.
Financial Outlook:
Ind-Ra projects stable EBITDA margins of 16.5% in FY25, with a moderate improvement of around 30 basis points expected in FY26, driven by cost optimization measures. Controlled capital expenditure and steady profitability are expected to maintain healthy credit metrics in FY25, with further improvement anticipated in FY26. Revenue growth is expected to moderate from 9.5% in FY24 to 8.5% in FY25, before rebounding to 10.5% in FY26. While same-store sales growth (SSSG) is expected to be marginally negative in FY25, new store additions are projected to drive overall revenue growth.
Key Takeaways:
The Indian apparel retail sector is navigating a dynamic landscape, with evolving consumer preferences and technological advancements shaping the industry. While challenges remain, the sector is well-positioned for a robust recovery, driven by strategic adaptations, favourable economic factors, and evolving consumer demands.
