Brief warning: Innerwear sales reveal a slowdown


A slowdown in briefs can be revealing, according to Alan Greenspan.Innerwear sales growth fell sharply in the June quarter, demonstrating the relevance of the so-called ‘men’s underwear index,’ as Indian consumers struggled to stretch budgets to cover discretionary spending.

Conceived by former US Federal Reserve Board chairman Greenspan in the late 1970s, the index suggests that declines in the sale of men’s underwear indicate a poor overall state of the economy,while upswings
reflect the opposite.

Quarterly performance at the top four listed innerwear firms were the weakest in a decade.Sales of Page Industries, which sells the Jockey brand of innerwear, grew 2%, its slowestexpansion since 2008. That of Dollar Industries NSE -2.69 % and VIP Clothing NSE -0.38 % declined 4% and 20%, respectively. Lux Industries’ sales were flat.“The market segment at this point of time is not at its best,” Page Industries CEO Vedji Ticku told analysts last week.

“We very clearly see that the footfalls are not the same. The sentiment is still not what it should be. There is a very slow footfall across the markets. It is all headwinds currently from all aspects of business,” Ticku said. The company saw a 2% volume decline in the quarter, its first ever.

Shrinking disposable income is the prime reason Indian consumers are holding back from new purchases even in essential categories and staples,expertssay.Nominalpercapita disposable income growth was 13.3% between 2010 and 2014 but moderated to 9.5% between 2015 and 2018. Market researcher Nielsen revised its growth forecast for the fastmoving consumegoods (FMCG) sector to 9-10% in 2019 from its previous outlook of 11-12%, citing a sharp rural slowdown.

Page Industries, which controls a fifth of the men’s innerwear market, has been the darling of fund managers thanks to its ability to defy a challenging macro environment, at least until now. Volume had grown even in the aftermath of the financial crisis, in the slowgrowth phase between 2013 and 2016, demonetisation and inventory destocking due to the implementation of the goods and services tax (GST).

“The primary reason for the drop is rural distress,flattening lending conditions, which is again due to the rising NPAs (nonperforming assets) in the banking sector, and the ailing health of financial institutions, especially NBFCs (nonbanking finance companies),” Dollar Industries managing director Vinod Kumar Gupta said during an investor call last week.“The unemployment rate has also been very high. All these factors have led to a decrease in expenditure at the consumer level. Availability of funds (has) also slowed down at the MSME (micro, small and medium enterprises) level as well.”

The innerwear category, estimated at Rs 27,931 crore,accounts for 10% of the total apparel market and is expected to grow at a compounded annual growth rate of 10% over the next decade to Rs 74,258 crore. Experts, however, feel innerwear is evolving from being functional to a segment with a fashion quotient. It s also shifting from a pricesensitive category to a brand-sensitive one.

The slowdown has been reflected in the valuation of innerwear companies. Over the past year, both Page and Lux have fallen 46% while Dollar Industries has seen an erosion of 33% in its share price. VIP Clothing declined 76% over the past year.

Credit Suisse has cut the earnings estimate of Page Industries by 9-11%. Kotak Institutional Equities cut its earnings forecast by 5-6% after pricing in the weak June quarter results.