Thursday, January 18, 2007

Expand with caution is the mantra for branded apparel firms

Business Standard reports that branded apparel companies are a cautious lot. Even though the segment is growing at 20% a year, high property prices and rentals at malls are placing expansion plans on the back burner. According to Bela Gupta, CEO of Kewal Kiran Clothing, “In the past two years, the mall rentals have increased 40 per cent, affecting the profitability of the brands and their margins. Despite taking calculative risks, no brand would be able to survive beyond a certain limit with a weaker business viability.”

While rentals have increased substantially, sales are not increasing in the same proportion, leading to small and medium sized retailers and manufactures to delay their expansion plans and shift their focus elsewhere such as smaller and newer cities for the time being. Subrata Siddhanta, business head for Cottons by Century, explains that, “Real estate prices in Mumbai have shot up from Rs 60 per sq ft to Rs 250 per sq ft. Mall rentals, too, have risen by about 50-60 per cent. Currently, rentals constitute about 30 per cent of the gross margins. And sales are not expected to rise dramatically.”

While malls and shopping centers are coming up in the the larger cities in the north, the high prices are sure to put lots of retailers off from taking space there. Several retailers are looking to smaller towns, but these towns don't always have any good high street locations to invest in, which could lead to delays in the reach of the retail industry.

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