Renewed restrictions on malls and non-essential stores and curtailment of mobility amid the third COVID wave will shave off nearly 8 per cent of fashion retailer’s revenues in India in fiscal 2021-22 (FY22), ICRA Ratings estimates. So they are expected to reclaim up to 70-72 per cent of their pre-pandemic revenues as against 78-80 per cent expected earlier.

This is based on estimated 20 per cent decline in store-operating hours during the fourth quarter vis-à-vis the rating agency’s earlier expectation, leading to a commensurate decline in the fourth quarter (Q4) revenues.

The restrictions are expected to be limited to Q4 FY22 and estimated to be around six to eight weeks. Strong rebound in sales is, however, expected upon lifting of restrictions, akin to that witnessed post the second wave. 

ICRA currently has a negative outlook on the segment and expects it to revert to its pre-COVID level of sales by Q2 FY23, assuming the absence of any fresh wave of infections.

On the cost structure front, retail entities typically have three key cost components—rental, employee cost and selling/promotional expenses, which account for 29-30 per cent of their total costs, over and above the material costs.

The decline in revenues and profits is expected to be more pronounced for mall-based retailers, particularly those located in metros and tier-1 cities, where the incidence of infections is higher.

As seen during the first two waves, malls are among the last segments to witness easing of restrictions. Even after re-opening, the ramp-up in mall footfalls has been only gradual.

Entities with omni-channel presence are, however, better placed to tide over the third wave amid the restrictions on offline sales.

Fibre2Fashion News Desk (DS)

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