Consumer demand falls as apparel prices rise

29 Jun '11

3 min read

A 20 percent fall in the country's apparel sales since March 2011 has compelled a number of companies to announce their 'end-of-season' sale a little earlier than the usual July first week schedule. Adidas, Mango and Reebok are all included in the list of brands which have already kicked off their 'end-of-season' discount sale.

The surge in cotton prices and the imposition of a 10 percent mandatory excise duty on branded garments in the Union budget have led to an increase in the prices of apparels, leading to a sluggish demand this season.

In a report submitted to the Textile Ministry, the Clothing Manufacturers Association of India (CMAI) has mentioned that a rise of around 10 to 20 percent has been noted in inventory levels of majority of the retailers and producers. The Association has demanded either complete rollback of the excise duty or reducing it to one percent to ease the prices and push demand.

The soaring cost of production due to an increase in the cost of raw material, labour and borrowing costs, has outpaced the rise in prices. Hence, the organized apparel sector which registered a turnover of Rs. 400 billion last year is troubled by decreasing profit margins. Looking at the present situation, it appears that the apparel industry would not be able to maintain a growth of 10 to 15 percent.

Industry sources say that initially the retailers shifted the burden of hike in raw material prices on to the consumers, but now it is getting difficult for them to do the same, as any further hike in prices would adversely hit the demand.

Affected by the rising prices of fuel and food items, a lot many customers have already shifted to buying more affordable local brands rather than their usual preferences. This has benefited the private local brands which have grown in spite of an increase in prices in that segment too.

However, industry experts believe that the actual effect of the rise in apparel prices will be seen during the festive season as the rise in cotton price would start reflecting by then.

Retailers are concerned about sustenance and development of their business. Some of them have curtailed their orders for winter apparels, as it is expected that the demand for costly apparels will be low in the coming months.

Though there has been a correction in cotton prices, the input cost for the items that are meant for sale in autumn and winter season is bound to remain high, which would keep the prices of those products at a higher level.

The inventory cost of the organized retail industry for the past three months is estimated to be around Rs. 25 billion, while the overall turnover is supposed to be around Rs. 100 billion.

According to the industry experts, the demand from consumers belonging to low-income groups would be hit the most as they would spend more on food items which are getting dearer owing to ongoing inflation. However, the demand from the middle-income groups and salaried consumers may not suffer that much as alongside the inflation, their income has also grown.

Fibre2fashion News Desk - India

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