By: Durba Ghosh
Premium clothing brands such as Van Huesen, Arrow, Izod, US Polo, Reebok and Kimaya Fashions are set to hike prices by up to 10% to offset higher input costs, while others such as Wills Lifestyle, Marks & Spencer, Reebok and Benetton plan to absorb higher costs to keep their sales growth intact.
The Cornelian dilemma, where retailers are torn between increasing prices that may impact sales in a recovering market and absorbing 25-30% jump in prices of yarn and cotton to take a hit in their margins, has vertically split the industry.
Many garment retailers now see room to push up prices in the premium segment on the back of rising demand after spending most of last year wooing buyers with lower prices and cutting costs by consolidating sourcing and shutting down non-performing stores as sales slumped due to economic slowdown.
Interestingly, Madura Garments, the Aditya Birla Group firm that promotes Van Huesen in the country, is expected to absorb the rise in raw material costs in the case of brands such as Allen Solly and Peter England.
Thats because companies are targeting the high-end segment in their portfolio to jack up prices. Arvind Brands, for example, will increase the prices of premium brands including Arrow, Gant, Izod and US Polo in the country, while keeping the prices of brands such as Lee, Flying Machine and Excalibur are untouched.
Increasing prices in the premium segment would have less or no impact on the target consumers, says J Suresh, CEO of Arvind Brands. Sportswear brand Reebok has yet to take a call but may increase prices marginally as its input costs have increased about 25%, according to its MD Prem Subhinder Singh.
Kimaya, an India-bred designer apparel brand, is also looking at increasing prices by about 5% due to increasing input costs coupled with increase in service tax on rental property by 10%. The increase in input costs will definitely affect our expansion. It is uncalled for and we werent expecting it, says Pradeep Hirani, promoter of Kimaya Fashions.
The company spends close to 15% of its sales proceeds on rentals, which is expected to go up to about 25% next quarter.
Cotton prices have increased almost 30% in just three months, while yarn prices have gone up by 20%. The increase in prices of cotton and yarn in India is a reaction to the global prices...and it has directly affected textile prices, says D K Nair, secretary general of Confederation of Indian Textiles and Industries (CITI).
These, coupled with a Rs 2 increase in petrol and diesel prices, has led to a substantial increase in raw material and input costs for retailers.
According to E&Y retail analyst, Pinakiranjan Mishra, the increase in input costs may imply a 7-8% more expenditure for the apparel retailers. But coming just when garment sales started to rise after reporting a 25% drop last year, retailers are extremely wary of increasing rates that may hit demand.
Brands such as Marks & Spencer and Benetton are betting on higher volumes and more localization to offset the rise in input costs. M&S had brought down prices by 30% last year.
ITC Lifestyle too has no plans to hike rates. The demand is robust now and we see no reason to increase prices immediately, says Atul Chand, ITC Lifestyle retailing CEO. There can be a marginal increase later in the year, he added.
Originally published in The Economic Times, Ahmedabad dated: March 11, 2010