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demand slump: Retailers forced to write-off inventory due to obsolescence, cut sourcing periods



Apparel retailers have started to write-off unsold inventory due to product obsolescence, sourcing closer to the season and have reduced their sourcing period of merchandise from 120-150 days earlier to 60-90 days to reduce such risks of obsolescence with demand yet to pick up.

The companies said such write-offs are required despite them trying to clear unsold and old inventory with deep discounting for an extended period as a lot of old merchandise is still not sold. Such measures are also going to have an impact on the margins this fiscal, executives said.

Shoppers Stop Ltd chief executive Kavindra Mishra told analysts last week that while ordering the spring summer and autumn winter merchandise (for last year), the company didn’t anticipate the slowness as is there right now.

“We decided to clean up and provide for the obsolescence of inventory which is worth around close to Rs 9 crore. Due to this, our gross margins are impacted by 60 bps (basis points),” he said. A basis point is 0.01 percentage point.

Departmental store chain Lifestyle International chief executive Devaranjan Iyer said several retailers are forced to write-off inventory due to obsolescence and have cut sourcing periods to reduce such risks in the future. The company is now placing orders for 2-3 months as compared to 6-7 months earlier.

“This will give us the ability to find the shock and then react in a much more agile manner,” said Iyer. “It will also ensure inventory is not stuck for six months and the demand forecast is on a real time basis. Obsolescence has increased for the industry and this will lead to margin erosion for sure,” he said.Apparel retail business has been impacted for more than five quarters now and the industry was not at all prepared for the sudden demand slump after the festive season in 2022. For three quarters before that, there was a huge surge in demand led by consumers refreshing their wardrobes after the pandemic as restrictions and offices had opened. Hence, all retailers had placed orders for a bullish 2023 leading to stock pile up.Rural and small town focused V-Mart Retail managing director Lalit Agarwal said the company earlier used to plan for 3-4 months, but now due to the stress in the market it has decided that 20% of the inventory should be planned for 45 days. “This will allow us to adjust in case of stress in the market and be in line with the fast fashion trend,” he said. Shoppers Stop too is now buying closer to the season.

Apparel retailers have run extended discounting periods in 2023 and will continue it for the current end of season sale, apart from additional discounts offered in ecommerce marketplaces and the upcoming Republic Day sales this weekend.

Retail sales in December showed a growth of 4% as compared to the same period in 2022, according to a just released survey by industry body Retailers Association of India (RAI). Despite the festive season, October and November had also shown growth of 7%.

“While the industry showed growth of about 4 % pan-India, it was due to new stores and new geographies of trading. For most offline retailers, like for like stores growth was negative by about 5 %,” said Kumar Rajagopalan, CEO at RAI.

Retailers have said there is a shift in the consumer spend with people spending more for the travel or experiences rather than only buying products leading to a slowdown in sales.



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