Even as apparel customers are relieved after the GST Board has postponed the rise in the GST rate for textiles, clothing prices are likely to rise by up to 20 percent this year due to the increase in raw material prices, freight costs, etc. A possible increase in the GST will lead to an additional rise in the price of clothing.
Even when the GST Board at its last meeting decided to postpone raising the GST rate for textiles from 5 per cent to 12 per cent, consumers will still have to spend extra money on branded apparel. Branded apparel prices are set to rise due to the higher cost of raw materials and higher transportation costs, among others. And this wouldn’t be a simple hike; Clothing prices will increase by up to 20 percent for many brands.
“With the rise in the prices of raw materials, such as cotton, yarn and textile as well as packaging materials, freight costs, etc., we cannot avoid the increase in the prices of finished goods anymore. While at the industry level, it may vary between 8-15 percent depending on the price structure of the brands In the Indian Terrain, the rate increase will be in the range of 8-10 per cent,” Charath Narasimhan, CEO, Indian Terrain Fashions Ltd, told Financial Express Online.
Apparel companies don’t want to incur high costs anymore
While many brands have already started steadily increasing the prices of their merchandise, others are set to ramp up prices with the launch of their summer collections in March and April. “Roughly, there was at least a 70-100 percent rise in the prices of raw materials, especially cotton. If we compare last year’s prices with this year, MRP will increase by at least 15-20 percent. We have already increased our MRP The winter collection will increase by 10 percent and the upcoming summer season will see an increase of another 10 percent,” said Yuvraj Arora, partner at Octave Apparels.
Meanwhile, Numero Uno is raising its prices by 5-10 percent, while women’s clothing brand Madame is raising its prices by 11-12 percent, starting with its summer collections. In fact, the Apparel Manufacturers Association of India (CMAI) has confirmed that this year’s summer ranges will see an average price increase of 15-20 per cent.
“However, some brands can adjust the quality of their products a little bit in order to reduce the price increase, especially the brands that sell in a lower price range and will keep the rise to only 5 percent, but an increase in prices is definitely on the table, industry wide,” Rahul Mehta, president of CMAI, told Financial Express Online. Consumers, however, will see this increase starting at the end of January, he said, because until about mid-January, there are still discounts and end-of-season sales going on in the market.
Clothing brands absorb high costs
While factors like increase in the prices of raw materials and also in the prices of products being imported from other countries, higher freight costs and discounted rupee, have been playing a role for some time now, retailers have been absorbing the rise in their margins. Apparel brands have been quite reluctant to pass on the higher cost to consumers due to sluggish demand. But with sales numbers and consumer demand rebounding, in the wake of the holiday season, it only makes sense for brands to increase prices.
“This particular season, although there is record inflation of around 4 percent per year mostly due to the pandemic, we haven’t increased prices but have absorbed that into our margins. In fact, our average selling price is down slightly by about 2 percent. This year, this has given us good results and good support for our sales in general,” Achilles Jean, CEO, madam, told Financial Express Online. “Clothes are now running anyway with a very small margin due to extreme discounts, etc. Earlier, we had about 65-70 percent of sales, now we have about 55 percent of sales, which affects the brand a lot.”
“While we are still trying to accommodate the increased input costs in the margins, for many lower quality products, with many factors in play, we are forced to increase prices for all categories of apparel by 5-10 percent,” said Ramesh Kapoor, Chief Financial Officer, Numero Ono, For Financial Express Online.
While a few of the garment makers are of the opinion that there is a need for government intervention in order to control the prices of raw materials, etc., others have seen that the factors are mostly external. Cotton price in India moves according to world prices and demand. With the sanctions imposed by the West on China, there was an increase in the demand for cotton from India. The companies operating in the export market have started to export most of their stock as they get better prices in the export market.
What would raising the GST rate mean for apparel makers?
Even as the GST Board meeting postponed the proposed increase in the GST rate to 12 percent, the proposal is still under study and has been referred to the current group of ministers on rationalizing the GST rate. What will a possible price hike in the coming months mean for consumers who will already be paying more than usual for their clothing choices?
To be clear, higher GST rate will only affect prices in brands selling merchandise for less than Rs 1,000 or in the value segment. “I expect another 7-10 per cent increase in clothing prices if the government ever decides to raise the GST rate, because the margins provided to retailers include GST,” CMAI’s Rahul Mehta said.
Yuvraj Arora of Octave Apparels explained, “The rise in the GST rate to 12 per cent overall will affect brands who have the majority of their merchandise priced at Rs 1,049 or less. A neck t-shirt for around Rs 799-899 and a polo shirt around Rs 999 and in case Standard Goods and Services Tax of 12 per cent we would have to come to Rs 1,299 which is another Rs 30 per cent increase in prices Raising the total tax by 7 per cent which will go to the government and then the discounted margins of channel partners will not leave us any Another option but to go with such a significant price increase.”
The move would devalue brands for their volumes because a “sharp price hike” like this would open up the option for many other brands to consumers, who would “choose it now because the differentiation here was MRP, which will fade,” he added.
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