Apparel retailers sitting on huge inventories

The Rs 2 lakh-crore apparel sector is under strain, with prices of raw material falling sharply while demand is low. Organised retailers are currently sitting on three to four months of inventory and smaller ones are not able to pay manufacturers.

Organised entities are prolonging their discount sale season, with inventories at a higher level than in a long while, with consumer spending not picking up after Diwali.

Retailers have had to give big discounts (as much as 70 per cent) and were also forced to start sales as early as November. With retailers not able to sell, fabric prices have fallen. Raw material cost is falling but manufacturers are holding stocks of synthetic yarn, bought when prices were high. Their raw material cost will fall once the existing stock is utilised and they procure at a lower price.

PROBLEM OF PLENTY

• Organised retailers are currently sitting on three to four months of inventory
   
• Smaller ones are not able to pay manufacturers
   
• Organised entities have prolonged their discount sale season, with inventories at a higher level than in a long while
   
• Retailers have had to give big discounts and were forced to start sales as early as November

“Retailers had anticipated strong demand for apparel post Diwali and had stocked accordingly,” said Rahul Mehta, president of The Clothing Manufacturers Association of India (CMAI).

E-commerce has also played a big role in rising inventory levels. “Consumers now compare pricing of products with e-commerce websites before buying and look for a discount. Retailers need to gauge the amount of inventory which should be diverted to e-commerce,” said Nikhil Chaturvedi, managing director of Provogue.

Smaller and unorganised retailers are said to have defaulted on payment by Rs 500-600 crore over the past few quarters to apparel makers. Payments are also being delayed longer, says CMAI. To deal with these, it has strengthened its arbitration committee. The body has 150 default complaints at present and its members met here this week to discuss the issue.