Foreign apparel cos fail to dress up profits

Dec 08 2013, 00:43 IST
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Benetton raked in India sales of Rs 523 crore during FY13, a 21% increase from Rs 430 crore in FY12 (Reuters) Benetton raked in India sales of Rs 523 crore during FY13, a 21% increase from Rs 430 crore in FY12 (Reuters)
SummaryForeign brands turn around their stock much faster than most local brands

What does it take for a foreign apparel retailer to leave its footprint on Indian soil? Keeping its pricing right, or an increase in the number of stores? While these factors may lead to higher sales, they may not drive up significant profit margins. Or so it seems if data from the Registrar of Companies (RoC) is anything to go by.

As per the RoC data, even as foreign fashion retailers like Benetton and Marks & Spencer are taking some solace in revenue growth, the brands are yet to see a substantial increase in their bottom lines. Among the large players, Zara is the only exception, which has been constantly outperforming its peers in terms of net increase in revenue and net profit with just 16 stores nationwide.

Benetton raked in India sales of Rs 523 crore during FY13, a 21% increase from Rs 430 crore in FY12. However, the company’s net profit fell to R4.7 crore from R4.8 crore last year, as per the company’s filings with the RoC.

Similarly, Britain’s largest apparel retailer, Marks & Spencer, which has a JV with Mukesh Ambani’s Reliance Retail, reported 33% higher India revenues at R375 crore during FY13. The company’s India revenue rose 28.1% for the first half of FY14, ended September 30. But losses in India mounted to R17 crore during FY13 from R2.5 crore in FY12, as per RoC data.

However, Marks & Spencer’s CEO Marc Bolland remains unfazed. “We are now positioned as a mid-market brand. We are not only focusing on stylish clothes, but also on quality products, unlike some of our peers,” Bolland said earlier this month. The company plans to make India its largest international market by doubling its store count to 80 by 2016, from the present 36 stores.

Foreign brands turn around their stock much faster than most local brands, giving consumers greater variety and styles. Lately, these brands have been pricing their merchandise almost on a par with premium Indian brands and offering discounts on the back of higher sourcing from the Indian subcontinent. But the profits are being eaten away by rising costs, especially in rentals, say analysts.

“The brands are yet to get their supply chain management right and reach the economy of scale that would bring in profits. Also, rental costs in India are skewed against retailers. In India, rentals comprise 8-15% of their total costs, while retailers abroad spend 3-8% of their total

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