Demonetisation: Apparel sales down 30-40% on liquidity hit but improvement expected

Despite the onset of wedding season, the situation in apparel retail market remained unchanged and saw sharp decline in sales

The $100-billion Indian textile and apparel industry has lost 30-40% of business since the surprise announcement of demonetisation of high value currency notes on November 8.

Apparel sale in domestic markets had stopped in the initial days and recovered gradually. Consumers continue to face liquidity tightness, resulting in deferring of purchase. Hence, further recovery might take some time.

As the wedding season is on, this would affect the revenue and profit of manufacturers, as apparel purchase is seasonal or occasional.

"The effect on denim sales is even worse. While exports are not affected, the decline in domestic retail sales would definitely hit sales and profit," said R K Dalmia, chairman, The Cotton Textiles Export Promotion Council.

Market participants believe output needs to be curtailed to control supply and avoid long-period discounting and stock clearing sales.

Sameep Kasbekar, an analyst with Emkay Global Financial Services, said in a note on Aditya Birla Fashion & Retail: "Due to demonetisation of Rs 500 and Rs 1,000 currency notes, there has been a sharp dip in cash (45% of overall) sales and slowdown in overall retail consumption. The company expects such headwinds to persist for at least a quarter more."

The apparel sector, however, has hailed the overall demonetisation scheme as good for the long term, on expectations of transparency in the entire value chain. Many handloom, powerloom and cottage fabric manufacturers continue to operate largely in cash. Any business with retail connections generates unbilled amounts; in garments, a large section of retailers at the bottom of the pyramid deals largely in cash, without generating bills. Demonetisation is expected to curb all unbilled sales.

"The disruption is obvious. Initially, sales were down completely. With the availability of new currency notes, sales have improved to around 60%. We expect to gain till 85% in some time. Recovery of the remaining 15% would take some time, depending upon liquidity management of the Reserve Bank of India," said Naishadh Parikh, Chairman, Confederation of Indian Textile Industry.

He expects some announcement shortly of new measures by the government to enhance liquidity into the system.