Competition, debt punch holes in Fabindia sales

In five years, the company has swung from being a profitable retailer – earning Rs 101 crore in net profit in FY19 – to reporting a loss of Rs 121 crore in FY23. (Representative Image)

A possible strategic stake sale or an outright sale of ethnic retailer Fabindia to the Tata group has put the spotlight on the six-decade-old company, considered a pioneer in the category.

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Once a go-to destination for those seeking Indian apparels, fabrics, accessories and handicrafts, experts say that the retail firm, which was founded in 1960 by John Bissell, has had to contend with trendier and cheaper rivals in recent years, who’ve hurt the company’s sales of late. At the same time, bottom line has taken a hit – the company reported losses between FY21 and FY23 – thanks to the twin impact of servicing high debt levels and business suffering due to the pandemic, and subsequent retail slowdown.

“The ethnic wear space has seen the emergence of a number of players, both online and offline, and across price points in the last few years. Younger consumers are opting for newer designs and collections which is different from the choices made by their parents,” Harminder Sahni, founder and MD of Gurugram-based retail consultancy Wazir Advisors, said.

A look at the financial numbers from the registrar of companies (RoC) sourced from PrivateCircle Research, a market intelligence platform, shows that Fabindia’s FY23 revenue of Rs 1,688 crore is just 13% more than its pre-pandemic turnover of Rs1,481 crore (in FY19).

In five years, the company has swung from being a profitable retailer – earning Rs 101 crore in net profit in FY19 – to reporting a loss of Rs 121 crore in FY23. While the company is yet to report its FY24 financial numbers, analysts expect a similar trend to play out during the period as the ethnic wear market gets increasingly competitive.

For instance, Reliance Retail has taken on Fabindia directly with its ‘Swadesh’ brand of handicraft and ethnic wear stores, launched in November 2023 in Telangana. Plans include launching Swadesh stores across India and in markets such as the US and Europe, the company said. While Aditya Birla Fashion and Retail is betting big on ethnic wear, picking up brands such as Aurelia, Wishful and W from TCNS Clothing, at the popular and premium ends of the market to stitching up partnerships with top-end designers such as Sabyasachi Mukherjee, Shantanu & Nikhil, Tarun Tahiliani and Masaba Gupta for their luxury ethnic wear collections.

Debt overhang

A recent report by Crisil Ratings says that Fabindia’s total debt rose to Rs 741 crore as of FY23-end from Rs 646 crore reported in FY22. The ratings agency also noted that the company had converted a few of its 360-odd stores from franchise-owned, franchise-operated (FOFO) to a company-owned, franchise-operated (COFO) model, implying that the inventory risk would be borne by Fabindia. This, Crisil Ratings said, had resulted in an increase in inventory levels to Rs 506 crore as on March 31, 2023, from Rs 445 crore as on March 31, 2022, leading to higher working capital borrowings.

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“While the management has articulated its focus on reducing inventory and therefore working capital borrowings, it remains a key monitorable,” the ratings agency said.