Raghavendra Kamath & Sharleen D'Souza, Business Standard

Mumbai, February 1, 2012

Spending on the High Street has never been cheaper for such a long period of time. If you walk through Mumbai’s Linking Road that houses the showrooms of some of the world’s biggest brands, it’s almost a surreal experience: be it Mango or Vera Moda, or Jack & Jones, or even shoe brand Aldo – all these premium retailers are literally shouting from the rooftops that they are offering up to 70% discounts. Some like designer wear Mogra has gone one up and is offering up to 80% 'sale'.

“At this rate, I won’t be surprised if they go up to 100% discount one day,” quips Vinita Chandran ,a regular shopper.

Welcome to the Great Indian Discount Bazaar— something no retailer likes but nobody can do without, as a dull Diwali and poor offtake in the following months have forced brands to dole out more for less.

The value retailers, as the low-cost brands like to refer themselves to, are also feeling the pinch as the raison d'etre of their business is now being hijacked by the bigger players.

Vasant Kumar, executive director of Landmark group’s value retail chain Max, was worried during the end of the season sale as many brands offered up to 80% discounts and shoppers flocked to stores to buy goods on discount.

“We could not offer such discounts because of our margin structures,” Kumar said. To woo customers, Max lowered its sale prices from Rs 399 to Rs 299 and played its value card to compete with big brands. “There was no meaning of 20 to 30% discount when big ones were giving flat 50 to 60% discounts. So we lowered our sale prices and said our prices are still lower when others gave steep discounts,” he said.

Kumar is bang on. While French menswear brand Daniel Hechter offered flat 60% discount to shoppers for two days, apparel chain Bombay High was offering ‘buy two get two free’. Apparel retailer Provogue went for a flat 50% off over the Republic Day weekend and is now offering a flat 40% off.

Experts say the 'sale’ tsunami was bound to happen. “There was a double impact—the like to like sales growth was below par and new stores could not be opened as planned...So they have more inventories to get rid of,” said Devangshu Dutta, chief executive of retail consultancy Third Eyesight. Like to like sales refers to sales coming from stores which are in the business for more than one year.

Besides steep discounts, brands are also keeping higher amount of inventory in the discount basket, say industry experts.

“If brands were keeping 30 to 35% of their merchandise on sale, now we are seeing 60 to 70% of their goods on discount. We are also seeing brands going for flat 50% discounts rather than upto 50%,” said Kumar of Max.

If that was not enough, many malls such as Raheja-owned Inorbit, Oberoi Mall run by Oberoi Realty and Kishore Biyani’s Central came out with shopping events wherein 50-100 brands offered a flat 50% discount.

It’s no surprse that many in the industry are not happy with the steep discounts brands are offering.

“I think retailers are overdoing discounts. By giving 70% discounts every other season, they are killing the full price purchases. They are sensitizing the customers to wait for the next season and do not buy full priced product,” said Jaydeep Shetty, founder and chief executive of apparel brand Mineral.

“When sales end in February, March will be empty month for brands as customers exhaust money to shop,” Shetty adds.

Govind Shrikhande, managing director of Shoppers Stop, which offers customers upto 51% discount, said: “We do not believe in this (steep discounts). It is tough and it is race to the bottom.”

But will brands be able to sustain such discounts? “I think brands believe that it is better to liquidate stock at higher discounts than cash getting stuck in merchandise,” said Dutta.

The inventory issue came to the fore when many brands advanced their end of the season by a few weeks to clear their inventory before the next season kicks in.

Though brands normally start their end of the season sale after January 15, this time around, they came out with the sale from third week of December.

For instance, Mango started its sale from December 22, while Aldo started beginning this month. German brand also Esprit also advanced its end-of-the-season sale by a over a fortnight to December 31 this year (it was January 16 last year). Spanish brand Zara also started its sale from early January.

“Some retailers started their sales from Xmas weekend and advanced sales by two to three weeks. It is obvious that they wanted to have more topline,” said Nirzar Jain, vice president, Oberoi Mall, Mumbai.

Kumar added that: “There was drop in demand in September and October. Hence brands decided to go early and get rid of inventory.”

Some brands have also extended their sale to shore up the topline. French menswear retailer Celio, which has a joint venture with Future group, is on a sale for almost one-and-a-half months till February 14, UK-based brand French Connection is having its year-end sale till March. Normally, these brands have their end-of-the-season for a month.

Steve Madden, an international shoe brand, which started sale from beginning this month has extended their sales by another week.