GLOBAL ECONOMY
According to the International Monetary Fund (IMF), the global economy
witnessed growth of 5.9% in the year 2021 vis-?-vis contraction by 4.4% in the year 2020.
The economic recovery continued in the year 2021 amid a resurging pandemic. Rapid spread
of Delta and the threat of new variants increased uncertainty about economic recovery. As
vaccination rate increased and COVID cases started declining, economy started opening-up.
As restrictions were relaxed, demand accelerated, but supply was slower to respond since
entire supply chain ecosystem got disrupted amidst pandemic.
Global growth is expected to slow from 5.9% in 2021 to 3.2% in the year
2022 and 2.7% in the year 2023. This is going to be the weakest growth profile since 2001
except for the global financial crisis and the acute phase of the COVID-19 pandemic.
Global inflation is forecasted to rise from 4.7% in the year 2021 to 8.8% in FY 2022 but
to decline to 6.5% in the year 2023 and to 4.1% by the year 2024. Various structural
reforms and policy measures should stay the course to restore price stability.
indian economy
Indias real GDP growth in FY 2022 stood at 8.7%, 1.5% higher than
the real GDP of FY 2020. This indicates that overall economic activity recovered past the
pre-pandemic levels. Almost all indicators showed that the economic impact of the
"second wave" in Q1 FY 2022 was much smaller than that experienced during
the full lockdown phase in FY 2021 even though the health impact was more severe.
Total Consumption has grown by 7.0 per cent in FY 2022 with
significant contributions from government spending. Similarly, Gross Fixed Capital
Formation exceeded pre-pandemic levels on the back of ramped up public expenditure on
infrastructure. Exports of both goods and services have been exceptionally strong in FY
2022, but imports also recovered strongly with recovery in domestic demand as well as
higher international commodity prices.
One of the key growth enablers has been Indian governments
emphasis on supply-side reforms rather than a total reliance on demand management. These
supply-side reforms include deregulation of numerous sectors, simplification of processes,
removal of legacy issues like ‘retrospective tax, privatisation,
production-linked incentives and so on. Even the sharp increase in capital spending by the
Government can be seen both as demand and supply enhancing response as it creates
infrastructure capacity for future growth.
outlook
With the vaccination programme having covered the bulk of the
population, economic momentum building back and the likely long-term benefits of
supply-side reforms in the pipeline, the Indian economy is expected to grow by 6.5-7% in
FY 2023. The inflationary concerns remain high and may impact growth rate, especially from
elevated global energy prices.
IN DIAN RETAIL AND FASHION INDUSTRY
Indian retail sector is estimated at USD 836 Bn in FY 2022.
Owing to COVID pandemic, retail sector witnessed a decline in FY 2021 for the first time
ever. However, the sector bounced back as economy recovered.
Indias fashion market is estimated at USD 65 Bn in FY2022.Indiasfashionmarketisthesixthlargestofitskind
in the world and one of the key sectors for Indian market. The countrys textiles and
apparels industry contribute nearly 2.3% to GDP, 13% to industrial production and 12% to
exports and employs over 45 million people.
In the wake of the pandemic in FY 2021, a large-scale cut in
discretionary spending, reduced income levels and restricted people movement caused demand
to dip significantly. Since fashion is a discretionary spend for consumers, the industry
has taken a large-scale fallout, with significant headwinds left to navigate. In FY
2022, sector showed signs of recovery post recovery from Delta wave in Q1 FY 2022. By the
end of FY 2022, fashion retailers reached close to pre-pandemic levels in terms of
revenues.
EMERGING TRENDS IN FASHION RETAILING
The fashion industry went through several changes in terms of
structural, strategic or operational changes in FY 2021 to adapt to the new working
environment and survive and thrive in the new normal. Companies maintained the same
standards in FY 2022 as it was intermittently disturbed by multiple COVID waves. Here are
a few focus areas:
Social distancing within retail spaces
To ensure the safety of both customers and employees, social-distancing
norms were observed and adhered to. There was stringent surveillance of people count
inside a closed space to provide customers a safer and comfortable shopping experience.
This also led to the rise of Shopping by appointment across retailers.
Sanitation and disinfecting of clothes
Fashion retailing invariably requires ‘touch, feel and fit
to enable customers to make the right choice of purchase. However, in the wake of
pandemic, fashion retailers adopted right processes and technology to ensure that products
on display are well-sanitised and do not pose the risk of an infection. The same was
communicated to consumers to provide assurance and gain their confidence.
New-age payments and queue management
‘Contactless is emerging as a key theme in the new normal.
This extends to the way people shop and pay as well, using new-age payment systems such as
e-wallets, tap and pay, and Unified Payments Interface (UPI), among others. Further,
social distancing also extends to billing counters, where queues need to be managed
better, with the customers maintaining adequate distance between one another.
Employee safety and training
To alter customer behaviour and adapt their shopping journey to the new
norm, employees at the retailer end were adequately trained. The right practices were
emphasised, mock sessions were conducted and the employees were empowered to correctly
guide the shoppers. Since they spend over eight hours (on an average), SOPs on employee
safety were established and their implementation was closely monitored.
Product level changes
Since most of the people stayed indoors during pandemic, the clothing
needs also changed. There was more demand for comfort and casual wear as against formals.
Retailers adapted their product mix accordingly to meet the evolved needs of consumers.
E-commerce push
Since consumers were wary of stepping out and shop in malls/markets,
e-commerce got significant traction during this pandemic. Most of the brands and offline
retailers also launched / strengthened their e-commerce availability to drive sales during
this period.
Direct-to-Consumer or D2C brands
D2C brands have grown exponentially in every category and every market
in the past two years. These are new brands for a new generation of customers and
developed with a Digital-First approach. The brand, product, packaging, sourcing, and
fulfillment are all designed keeping in mind the customer will buy these brands only on
digital platforms.
Outlook
The fashion and apparel industry witnessed signs of recovery since Q2,
FY 2022 and gained momentum from Q3 FY 2022 during the festive period. The sector is
expected in FY 2023 to rebound, as economy returns back to normal. The priorities of
industry players will be that customer needs are serviced well by offering them new trends
and designs in a safe environment and continue to invest in building omni-channel
capabilities. In addition to this, industry players are still cautious on costs front and
do not intend to invest heavily in fixed costs, given the uncertainties around the
external global environment.
COMPANY OVERVIEW
Future Lifestyle Fashions Limited (FLFL) is an integrated fashion
business, home to distinguished fashion labels and well-established retail destinations.
FLFL, the flagship fashion company of Future Group strives to bring contemporary and
branded fashion to the discerning and aspiring citizens of India.
FLFL is led by veterans in the fashion and retail spaces, and operates
180 retail stores (across Central, Brand Factory and Exclusive Brand Outlets) spread over
2.5 Million sq ft. It straddles both the premium end and the affordable branded end of the
fashion ecosystem. FLFLs integrated business model of retailing own brands as well
as third-party brands have become its key differentiator over the years.
BUSINESS PERFORMANCE
FY 2022 was challenging year for the business. Revenues declined
sharply in Q1 FY 2022 due to Delta wave and thereby facing lockdowns and closures.
However, business recovery improved during Q2 FY 2022 and Q3 FY 2022, reaching over 70% in
Q3 FY 2022. Business recovery again got impacted by Omicron wave in the month of January,
2022 and later in February, 2022 large number of FLF stores received termination letters
on account of non-payment of rentals. This led to decline in store base from 331 stores in
Q3 FY 2022 to 180 stores in Q4 FY 2022. This also resulted in significant increase in
attrition rate for human resources.
Risks And Opportunities
During the year under review, external environmental factors like
Interest rates, Inflation, Quick changes in fashion, Growth in economic activity, Job
creation, Emerging compliances, Consumer sentiments and consumption including Demand
Forecasting, Changing government policies, Information/cyber security including Data
Governance/Security, Environment and Sustainability (Depleting/extinct categories,
alternate categories, alternate energy, alternate processes, alternate materials,
distribution channels, alternate packaging, compliance with NGT or other NGOs etc.)
and Competition have been identified as key threats as well as opportunities for the
Company.
Emerging Compliances in the area of Data Privacy/ Protection, Cyber
world, Digital Transformations, Consumer Protection, will further enable Consumer
Protection and help us winning their confidence.
Risk Mitigation
The COVID pandemic has impacted the way fashion business works. The
Company has amid COVID-19 pandemic, reviewed the major risks including risks on
accountofbusinesscontinuity,supplychainmanagement, third party risks, legal compliance and
other risks which may affect or has affected its operations, employees, customers, vendors
and all other stakeholders from both the external and the internal environment
perspective. Basis this review, appropriate actions have been initiated to mitigate,
partially mitigate, transfer or accept the risk (if need be) and monitor such risks on a
regular basis. On the consumer side, we believe, many consumer habits may have permanently
changed due to COVID and the prolonged lockdowns. Many emerging trends that may have taken
years to become mainstream, has accelerated at a steady pace and disrupted existing rules
or strategies in business.
The Company has Risk Management Committee, which is tasked with the
responsibility to frame, implement and monitor the risk management plan for the Company.
It is responsible for reviewing the risk management plan and ensuring its effectiveness.
The Company has adopted a Risk Management Policy to identify and evaluate business risks
and opportunities for mitigation on a continual basis. The Risk Management framework seeks
to create transparency, minimise adverse impact on business objectives and enhance the
Companys competitive advantage. It defines the risk management approach across the
enterprise at various levels including documentation and reporting.
The Company is faced with risks of different types, each of which need
varying approaches for mitigation. It has identified each of the risks and implemented
measures to mitigate such risks with the help of competent senior management and outside
specialist consultants.
Internal Control Systems And Their Adequacy
The scope and authority of the Internal Audit function is well defined
in the organisation. To maintain its objectivity and independence, the Internal Audit
function reports to the Chairperson of the Audit Committee of the Board. The Internal
Audit Department monitors and evaluates the efficacy and adequacy of internal control
systems in the Company, its compliance with operating systems, accounting procedures and
policies at all locations of the Company. Based on the report of the Internal Audit
function, process owners undertake corrective action in their respective areas and thereby
strengthen the controls. The Company has an Internal Control System, commensurate with the
size, scale and complexity of its operations. The internal financial controls as laid down
are adequate and were operating effectively during the year.
The Company has identified key external and internal risks associated
with the operations as well as control process to mitigate such risks. Further, regular
review of identification of risks and control process to mitigate such identified risks
ensures new evolved risks are identified well within time and appropriate control process
to counter such risks is established. The Company also makes appropriate use of its ERP
system (SAP) and various applications to put checks and controls to strengthen the
internal control framework for financial reporting, organisational structure, authorities
and procedures, which are also reviewed and validated by the external experts.
All such internal controls and their adequacy, financial and risk
management policies, significant audit findings, compliance with accounting and or other
standards are regularly reviewed by the Audit Committee.
Human Resources
The Company valued human caption as its most treasured capital and
constantly invest in them to create a distinct advantage for their careers and for us as
an organisation. The Company focus on creating a workplace that fosters thought
leadership, innovation and a culture of involvement, participation and transparency and
strive to provide employees opportunities to collaborate, learn and grow within the
organisation. There were 3,841 permanent employees of the Company as on March 31, 2022.
The Companys initiatives towards employees Welfare and
engagement are elaborated in the Business Responsibility Report which is annexed to this
Annual Report.
Financial Performance
KEY RATIOS
|
FY 2021-22 |
FY 2020-21 |
| Interest coverage ratio |
(4.68) |
0.09 |
| Gross Margin (%) |
19.50 |
27.50 |
| Debtors Turnover |
14.20 |
5.56 |
| Current ratio |
0.59 |
0.92 |
| Net Margin (%) |
(81.51) |
(40.34) |
| Inventory Turnover |
1.63 |
0.83 |
| Debt-Equity ratio |
(0.92) |
2.44 |
| Return on Net Worth (%) |
137.00 |
(133.00) |
Details of significant changes in the key financial ratios:
1. Interest coverage ratio: It has been adversely affected
due to decline in profitability on account of COVID-19.
2. Current ratio: Ratio has been adversely affected on
account of impact of Ind AS 116 implementation, due to which current liability has
increased.
3. Debt*-equity ratio and return on net Worth:
Ratios have been adversely impacted due to decline in profitability on
account of COVID-19 and increase in borrowings.
4. net profit margin: It has been adversely affected due to decline
in profitability on account of COVID-19 and provision for impairment on investment.
*Debt = Borrowings (excluding Lease Liabilities accounted as per Ind AS
116)
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