Discounts unlikely to arrest fall in apparel demand

In spite of having opted for a longer discount season, the Indian garment industry is reeling under dipping margins. Why? Apparel prices are at an all-time high due to full implementation of excise duty on branded garment thereby hitting the demand among consumers by as much as 15-20 per cent, say players.

"The month of July has seen the full impact of excise duty on branded garments wherein demand has slackened. An extended discount season does not seem to be helping the apparel manufacturers or retailers alike as well. Margins have been squeezing for almost all the players with demand dipping by as high as 15 per cent," says Rahul Mehta, president of Clothing Manufacturers' Association of India (CMAI).

What's more, squeezed margins have forced most players to even cut down on production. According to Sanjay Jain, president of Kolkata Association of Garment (KAG), customers seem to be refusing to take the hike in apparel prices due to excise duty. "Apparel manufacturers and retailers had to hike prices due to excise duty on branded garments. However, when customers refused to accept the hike in prices, apparel retailers offered extended discount season. Yet, demand has been dropping by around 20 per cent, forcing garment manufacturers to cut down on production," says Jain.

From retailer's point of view, even Arvind Retail Ltd. expects the coming days to be tougher on the apparel industry. "Micro economics of the apparel industry is not looking good. In the long run the micro economic factors should have an impact on demand. We began the discount season late yet the impact seems imminent," says J Suresh, managing director and CEO, Arvind Lifestyle Brands Ltd and Arvind Retail Ltd.

The central government had levied a 10 per cent excise duty on branded garments this year.

Soon after the implementation, both manufacturers and retailers across the country had shut shops for a day to protest against the hike.

Meanwhile, discount season in apparel retail is expected to continue in spite of declining margins and demand.

"We will have to wait and watch since the end of season is going on. The season is likely to continue for sometime," adds Suresh.