Rivalry and debt cause gaps in Fabindia’s sales

The six-decade-old business, which is regarded as a pioneer in the industry, has gained attention due to rumors of a potential strategic interest sale or an outright sale of ethnic retailer Fabindia to the Tata group.

Once a popular choice for those looking for Indian clothing, textiles, handicrafts, and accessories, analysts claim that the retail business, established by John Bissell in 1960, has recently suffered from trendier and less expensive competitors, which have negatively impacted the company’s revenues. However, the firm’s bottom line has suffered as a result of the pandemic’s effects on business and the ensuing downturn in retail. Between FY21 and FY23, the company posted losses.

In the last several years, a number of businesses have emerged in the ethnic wear market, spanning price ranges and operating both online and offline. In contrast to their parents’ choices, younger customers are choosing contemporary styles and collections, according to Harminder Sahni, founder and MD of Gurugram-based retail consultant Wazir Advisors.

Examining the financial data obtained from PrivateCircle Research, a market intelligence platform, and submitted to the registrar of companies (RoC), Fabindia’s FY23 revenue of Rs 1,688 crore is just 13% more than its pre-pandemic turnover of Rs 1,481 crore (in FY19).

The store made a net profit of Rs 101 crore in FY19, but in only five years, the company’s fortunes have drastically changed. In FY23, it reported a loss of Rs 121 crore. Although the firm has not yet released its FY24 financial results, experts predict that, as the ethnic clothing industry becomes more competitive, a similar pattern will continue.

For example, Reliance Retail directly competes with Fabindia with its “Swadesh” brand of ethnic apparel and handicraft outlets, which debuted in Telangana in November 2023. According to the corporation, plans call for opening Swadesh outlets across India as well as in other areas including the US and Europe. Aditya Birla Fashion and Retail, on the other hand, is placing a lot of money on ethnic wear. For their luxury ethnic wear collections, they have partnered with high-end designers like Sabyasachi Mukherjee, Shantanu & Nikhil, Tarun Tahiliani, and Masaba Gupta. At the popular and premium ends of the market, they have acquired brands like Aurelia, Wishful, and W from TCNS Clothing.

Overhanging debt
According to a recent assessment by Crisil Ratings, Fabindia’s total debt increased from Rs 646 crore recorded in FY22 to Rs 741 crore as of FY23’s conclusion. The ratings agency also observed that the business has switched from a company-owned, franchise-operated (COFO) model to a franchise-owned, franchise-operated (FOFO) model at a handful of its 360-odd outlets, suggesting that Fabindia would assume the inventory risk. According to Crisil Ratings, this led to greater working capital borrowings as inventory levels increased to Rs 506 crore as of March 31, 2023, from Rs 445 crore as of March 31, 2022.

The ratings agency said, “Even though the management has made clear that it is focused on lowering inventory and consequently working capital borrowings, it remains a key monitorable.”