Summer Wardrobe Makeover Will Pinch Even As Cotton Prices Ease

The softening of cotton prices comes as relief for apparel makers grappling with weak demand and high inflation impacting margins.

<div class="paragraphs"><p>Apparels on display inside a store. (Photo: BQ Prime)&nbsp;</p></div>
Apparels on display inside a store. (Photo: BQ Prime) 

T-shirts to jeans makers are revisiting pricing for their upcoming summer collection as cotton prices, which surged to historic highs last spring, have eased.

Cotton prices surged over the last year past Rs 1 lakh per candy (356 kilograms), propelled by bad harvests in key states like Gujarat, Maharashtra, Telangana, Karnataka and Madhya Pradesh, and the ensuing demand-supply gap. But the cost of input for the apparel industry has fallen 40% since its peak to about Rs 60,000-65,000 per candy, according to South India Spinners Association. However, the prices remain higher than the pre-pandemic rates of Rs 42,000-45,000.

Still, softer prices bring relief for apparel companies that spent the last year grappling with higher costs and figuring how much of it could be passed on to consumers to protect margins. Now, retailers are looking to pass on the benefit. Lower prices, however, won't show up on merchandise tags in stores until late summer this year.

"The winter stocks did not get the benefit of any lower yarn prices as purchases are booked at least two to three months in advance," said Anant Agarwal, chief financial officer, V-Mart Retail Ltd., in a post-earnings call.

"...There may be marginal relief available in summer 2023, but as is the practice, it will be passed on to the customers in entirety as we would want to remain very competitive in the value retail pricing segment," he said, adding that yarn prices have come down from their peak by 30% since September but they are still 30 to 40% higher than the pre-Covid level.

Deepak Bansal, managing director, Cantabil Retail India Ltd., also said that their upcoming summer collections starting May will have lower price tags.

Some companies, however, will decide over the coming weeks whether they can continue to charge more for their T-shirts, denim jeans and underwear allowing them to widen margins, or to pull back and give consumers a break.

The pressure is particularly acute for Page Industries Ltd., the maker of Jockey underwear in India, as the fabric can account for as much as 60% of the cost of a garment. While cotton prices have eased, the company is not sure for how long with that last given declining cotton productivity and weak global demand.

India's cotton production for the season (October 2022- September 2023) is estimated at 365.4 lakh bales (each of 170 kg raw cotton), according to Cotton Association of India. That's nine lakh fewer bales than the estimate at the beginning of the season in October last year.

State-wise, the CAI has reduced its Maharashtra cotton crop estimate by 2.5 lakh bales, Telangana by 3 lakh bales, Andhra Pradesh by 1.5 lakh bales and Madhya Pradesh and Karnataka by 1 lakh bales each.

"We are not looking at any immediate price interventions as of now," said V S Ganesh, its managing director, during a post-earnings call. "We can be more conservative on that [pricing intervention] only if the trend continues. We are just watching how the input costs are going to move."

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Hopeful On Margins

Rising input costs had dented margins. Clothing retailers— including Shoppers Stop Ltd., Aditya Birla Fashion and Retail Ltd., Avenue Supermarts Ltd., V-Mart Retail Ltd., Arvind Fashions Ltd., and TCNS Clothing Company Ltd.— said they are counting on easing costs to help pad margins starting next year.

Value retailers V-Mart Retail and the Aditya Birla Fashion and Retail Ltd-run Pantaloons, which cater to consumers at the bottom of the pyramid, have been the worst hit by inflationary woes and subdued demand.

Page Industries expects the inventory that the company had bought at a higher price should start flowing in from the fourth quarter. "And we should then be able to see the benefits of that flowing into our system," according to Ganesh.

According to Shailesh Chaturvedi, managing director and chief executive of Arvind Fashions, some softening, not a drastic fall, in prices is good for the company given the lead times on its spring/summer collections.

While the cotton prices have come down to Rs 65,000 from the peak of Rs 1 lakh, the reduction in input costs will show up in margins and retail prices for deliveries from July onwards, he said.

Consumers, too, are getting pickier about spending as prices soared after the Covid-19 broke out. But they didn't stop buying cotton as companies feared.

According to Anant Daga, Managing Director of TCNS Clothing, which owns ethnic brands like W and Aurelia, the company failed to gauge the consumer demand.

"When we were designing our W range, the fabric prices were [at an] all-time high. So, what we thought was consumers might be looking at a slightly lower price option and they might be okay with fabrics like polyester and ornamentation like data prints and all," he said.

But that was a "wrong business call in hindsight, which has taken a toll on brand's performance this season", he said. "If you see our new collection, you'll see that you have much more cottons, natural fabric."

Most of the benefit from lower raw material prices will go to the consumer, he said. "It will reflect on the product value."

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