Indian apparel retailers expect a 12-13% revenue boost this festive season, even as rising costs threaten to squeeze operating margins by 100 basis points. While consumer demand for value-fashion remains resilient, companies are preparing for potential pricing adjustments due to a new UPI transaction fee effective mid-October.
Indian apparel retailers are heading into the peak festive season with expectations of a 12-13% rise in revenue for the current fiscal year. This period is a critical driver for the industry, typically accounting for 35% to 40% of total annual sales. While the sector remains optimistic about demand, especially in Tier-II and Tier-III cities, the path to growth is not without challenges as companies balance the consumer preference for quality with rising operational costs.
Margin Pressures and Cost Factors
Despite the festive optimism, businesses are facing a decline in operating margins, which are expected to drop by roughly 100 basis points to about 14%. This pressure is largely driven by increased costs for raw materials like cotton and higher logistics expenses. Furthermore, persistent food inflation has begun to eat into household budgets across the country, potentially leaving less room for discretionary apparel spending. As consumers become more cost-conscious, many retailers find it difficult to pass these higher costs directly to the buyer without risking a drop in sales volume.
New UPI Fee and Pricing Challenges
Adding to the complexity is a new regulatory update regarding digital payments. A 0.4% Merchant Discount Rate (MDR) on UPI transactions over ₹2,000 is set to take effect on October 15, 2026. This additional cost structure creates a fresh hurdle for retailers. Companies may be forced to either absorb the expense, which would further dent profit margins, or pass it on to consumers through higher price tags or reduced festive discounts.
Strategic shifts are already underway to manage these headwinds. The industry is seeing a notable trend toward value-fashion, which now accounts for 46% of total segment revenue, up from 39% over the past three years. Brands are focusing on agile inventory management to align new product launches with what shoppers are actually buying, rather than carrying excess stock. The next important monitorable for shareholders will be actual festive sales performance and whether retailers can successfully protect their profitability while navigating these added cost pressures.