Soaring real estate prices and hike in the interest rates earlier this year seem to have played a spoilsport for the Indian apparel sector. The high property costs are making it difficult for companies to undertake rapid retail expansion.
“It will be cheaper to open a store probably in Milan than to book a property in Mumbai or Gurgaon,” feels Raymond Apparel President Shreyas Joshi.
Apparel retailer Giordano International had to defer the launch of its new stores in India by a couple of months. Peter Lau, chairman, Giordano International says, he would like to open at least 20 to 25 stores in the country over the next three years, but given constraints on the real estate prices, it is facing difficulties.
The branded apparel sector is growing at 20 per cent on the back of the upwardly mobile young population, increasing disposable income and the rising brand consciousness. However, the high rental costs have put pressure on the profitability of the companies.
Sanjeev Mohanty, managing director, Benetton India, comments, “The hike in the real estate rates became a critical hindrance for the growth, per store rental costs have doubled in percentage terms from 15 per cent to 30 per cent since last 12 months.”
The industry is also reeling from the poor offtake in the first part of the year due to the spike in interest rates. “ The per store revenues has declined as the consumer spending, drifted more towards automobiles and consumer durables,” said Mohanty.
This Diwali, the consumer durable companies have registered a record sales, while traditional categories such as jewellery and clothing witnessed a marginal demand.
Entering smaller markets, thrust on exclusive outlets seems to be the way out for the industry. H Sidhu, executive vice-president, Koutons, said, “ High rentals have huge impact on margins. The exclusive stores skips a layer of middlemen.”
Indeed, companies have started preferring exclusive outlets to multi brand stores as they give greater control over merchandise and also avoid delayed payments, which they simply cannot afford.
Prashant Agarwal, associate vice-president, Technopak Advisors points out that retail growth will happen in the bigger 40 cities given the infrastructure support.
Companies may also adopt the franchisee route and curtail their aggressive rollout plans to combat high real estate costs.
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