Fashion industry sinking far off its pre-crisis growth rate: ASSOCHAM

August 21, 2009 - India

Notwithstanding its improved global profile led by a boom during the pre-crisis period, Indian fashion industry has been hampered by the global economic recession as reflected by stark differences in the growth rates of pre-crisis and the current period, according to the Associated Chambers of Commerce and Industry of India (ASSOCHAM).

The ASSOCHAM Financial Pulse (AFP) Study on “Impact of recession on Indian fashion industry” analyzed that top companies catering to the fashion industry have faced huge losses as the demand of luxury readymade apparels, leather and gems & jewellery fell down drastically which impaired the sector’s profitability.

Forming the major part of the fashion industry, growth rates in the net profit of companies in readymade apparel, gems & jewellery and leather products declined by 151.7 per cent, 81.8 per cent and 445.7 per cent respectively in FY 2008-09 as against ostensible growth rates of 38.2 per cent, 7.4 per cent and 87.6 per cent respectively during the pre-crisis period (2005-08).

“Even though the Indian economy is growing at a robust pace, the per-capita income of the consumers is still too low to significantly boost the purchasing power for the high-end fashion industry during the economic downturn” said Mr. Sajjan Jindal, President, ASSOCHAM.

The AFP Study carried by Assocham Research Bureau is based on the corporate results of the companies from FY 2005-06 to FY 2008-09. The analysis includes the companies which are engaged in manufacturing of readymade apparels, gems & jewellery and leather based products.

The Chamber chief said, high operating cost borne by the textile sector is the major factor responsible for the shrinkage in the net earnings of the readymade apparel companies. The CAGR of net profit in the sector, which was 18.3 per cent during the pre-crisis period (2005-08), declined by 9 per cent in last fiscal 2008-09.

The slowdown in the economy and the major fall in the exports figure in last fiscal 2008-09 are attributable for this negative dip in the net profits of the readymade apparels sector.

Severely hit by the economic slowdown, Gems and Jewellery is another sector which dragged the fashion industry in deep trouble. The sector faced a decline of whopping 81.80 per cent in the net profit during 2008-09 as against a positive growth rate of 7 per cent during the pre-crisis period. External demand for the sector dried up due to the global recession.

The AFP Study also analyzed that leather products which include finished leather, leather footwear, leather garments & clothing, bags & handbags and other accessories & products faced the grip of slowdown and the demand of these products came down drastically. Also, India's leather exports posted an almost flat growth rate in 2008-09 owing to slump in demand in major overseas markets.

The companies engaged in leather sector faced a huge dip in profitability in2008-09 as the net profit declined by a staggering 445.70 per cent. In stark contrast, the sector showed a high positive growth in net profit in terms of CAGR of 87.60 per cent during the pre-crisis period.