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Fashion retailers expect modest holiday-quarter results


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With post-pandemic-induced shopping spree, global industry-wide Christmas sales and India’s wedding and festive season all over, apparel retailers are now doing reality checks. This is because the first financial quarter of 2023 has opened bleakly. What’s more, recession fears are looming in the horizon and a slowdown in sales growth seems likely after the sharp increase post-Covid last year.

Brands cut excess inventories and hiring

Brands are now focussing their energy on the clues that might keep their profit figures stable in 2023 as they await the results of last quarter with most global retailer’s fiscal year having ended in January.

Big retaliers such as Walmart, Home Depot, Target, Best Buy, Macy’s, Home Depot among others will soon be kicking off their retail earnings season by posting their holiday-quarter results of modest sales figures. Healthier profit margins could happen in 2023 for many, in spite of the recession, with fall in prices of shipping and freight and lesser stocks of excess merchandise to mark down. But all global companies will now need to be more cautious about spending with smaller inventory orders, and cutting down n unnecessary hiring, which could stabilize profit margins later in the year.

According to US-based National Retail Federation (NRF)-which has represented retail for over a century , global industry-wide Christmas sales across all segments has fallen short of projections this will further adversely affect profits in the first quarter of 2023. Although in November and December, sales increased 5.3 per cent year-over-year to $9,363 billion, it was still be below major trade group's expected growth forecast of between 6 and 8 per cent.

The NRF had expected expenditure between $9,426 billion and $9,604 billion at the beginning of November, which did not become a reality as people in mid-segment income levels still remained cautious about spending. Many retailers have already forecasted lower-than-expected Christmas sales. While Macy's cautioned Christmas quarter sales would fall short of projections; Nordstrom reported decreased sales and increased markdowns which impacted its financial performance in November and December 2022; with excess inventories, Lululemon too is looking at lower than anticipated earnings.

Having to buy for gifting purposes over the festive season has taken a toll on customers. They came under pressure with credit card balances rising rather than cash payments in premium outlets such as Macy’s and Bloomingdale’s. In fact, some retailers had to resort to layoffs to survive these include Neiman Marcus, e-commerce retailer, Stich Fix, Wayfair, Bed Bath and Beyond and Amazon among others who had to cut their work-force by 20 per cent or more.

However, the earnings season sometimes offers happy surprises with more-than-expected earnings as it depends on consumer bases in different geographical regions, the brand power and different festivals and wedding seasons of different global communities. The world focus may be on top-line brands and countries but many mid-segment or premium market participants focus on where profits actually lie and how to get there. Retailers’ strategies have changed over the last year as they put higher stakes and made riskier bets on new improved sales figures. However, what upset most companies’ margins most often was as unsold merchandise landed up for clearance with costs creeping up and unstable sales.

As David Silverman, retail analyst at Fitch Ratings said recently, the world is focused on top-line momentum. So many market participants are focused on what revenue is. But it’s the operating profit that could bounce back nicely from a difficult 2022. Brands remain hopeful that with a more focussed product portfolio and a wider sales and distribution channels, the next quarter could well be a good one despite odds.


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