Awareness among shoppers about jacked up prices & high excise duty trigger the change
SARAH JACOB, PRAMUGDHA MAMGAIN & SAGAR MALVIYA
BANGALORE | NEW DELHI | MUMBAI
Indian retailers are turning leaner and meaner, chipping away at the average time stock stays in stores before it is sold and doing away with the too-good-to-be-true discount deals that no longer lure buyers.
Apparel retailers Cotton County, Cantabil, TNG, John Hill and Koutons have given up on their year-round discounts model and schemes such as ‘buy one, get two free’ or ‘flat 70% off ’ that helped them stitch a steady following in their early years.
Several multi-product retailers, such as Shoppers Stop, Lifestyle International, Trent, Raymond, Provogue and Bata have cut down the stock days, or the average number of days goods remain in stores before being sold, by 15%-20% to free up capital.
Retailers realise customers have cottoned on to the fact that regular prices are simply marked up before deducting the so-called discounts. Moreover, they say, with the 10% excise duty on maximum retail price introduced this fiscal on branded textiles, inflating prices before selling goods at sharp discounts is no longer viable.
"The pull of discounts models was already waning. Excise duty imposition only gave impetus to it," says Babar Naqvi, chief executive of Cotton County Retail, which did away with its discounts model soon after the new excise duty regime kicked in.
"The discounts model is not feasible now," says Vijay Bansal, MD of Cantabil Retail, which has shut over 150 stores of its casual menswear brand Lafanso over the past year and entered the semi-premium segment.
The future for the retail industry is flat prices, with nominal discount schemes during the festive season and at times when seasons change, says Anil Khatri, director at Coralbay Advisory, which is advising Koutons on corporate debt restructuring. He says all retail chains are passing on the excise levy to the consumers. That has translated into slightly higher retail prices across the board.
Earlier, the inflated MRP, despite discounts up to 75%, allowed apparel retailers to maintain 13%-18% operating profit margin before interest and depreciation, says Rohit Inamdar, senior VP and head corporate ratings at ICRA. But growing awareness among shoppers and the new excise regime changed all that.
Inamdar says discount retailers are shutting unviable stores but continue to price their products lower than the conventional brands.
The 115-store chain John Hill, which moved to a full-priced model in January, is a case in point as its prices are still 30% lower than brands such as John Players and Peter England.
Larger value retailers, such as Reliance Retails’ Trends and menswear brand Turtle, say customers now trust their brand more. "Now, full price is the right price. The industry as a whole will start looking more genuine," says Amit Ladsaria, director of Turtle.
While discount retailers are shutting unviable stores, multi-product retailers are scaling down their inventory. This allows them to reduce their net working capital cycle, which helps free up some capital and thereby improves their balance sheets, says Hardik Shah, senior analyst at Mumbai-based brokerage KR Choksey.
Shoppers Stop has reduced its inventory, for example, from 45 days to 30 days, its lowest level in five years. Besides, now the company is buying half the goods on returnable basis if they remain unsold, unlike a decade ago when it used to buy the entire merchandise.
Analysts point to at least three large retailers – Subhiksha, Vishal Retail and Koutons – which saw higher inventory resulting in choked cash flows, leaving them either bankrupt or heavily debt-ridden.
But even as several multi-product large retailers have taken steps to avoid these pitfalls, inventory at the country’s largest retailer Pantaloon has risen to more than 135 days on a consolidated basis. However, it plans to reduce its stocks by 10 days each year. "We are seeing same stores sales slowing down in the recent quarter for Pantaloon and the inventory level is alarming," says Sangeeta Tripathi, senior analyst at Sharekhan Broking.
Lifestyle and Provogue are also bracing for the possible slowdown by cutting down on inventory.
Retailers, though, are divided on just how much inventory is optimum, given the ongoing festive season and the possible slowdown in consumer sales. "Higher inventory impacts profitability, but we also don’t want to be in a situation where we lose out on sales due to less stock," says Kabir Lumba, managing director at Lifestyle International. Similarly, retailers switching from the perpetual discounts model are finding the going tough to begin with. At Cotton County footfalls converting into sales dropped around 10% initially .
With inputs from Jwalit Vyas
New Retail Story APPAREL RETAILERS Cotton County, Cantabil, TNG, John Hill and Koutons give up year-round discounts model and schemes
DISCOUNT RETAILERS realise that Inflating prices before selling goods at sharp discounts is no longer viable, especially after the new excise regime
MULTI-PRODUCT retailers such as Shoppers Stop, Lifestyle, Trent, Raymond, Provogue and Bata cut down stock days
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