Discount apparel mart halves


September 17, 2012

Nupur Anand, Daily News & Analysis (DNA)
Mumbai, September 17, 2012

Trousers at 80% off, a pair of Reebok sneakers for 60% less, buy two shirts and get four free.
Discounted apparel stores that include Cantabil, Koutons, Vishal Retail and Loot had created a buzz with such too-good-to-believe offers when they first appeared on the retail scene a few years back.
The deals, available round the year, were good enough to tempt even the tight-fisted shoppers.

And with inflation pushing up apparel prices, these firms were expecting a windfall and long queues before their stores.

However, things haven’t turned out as per expectations as fewer footfalls and inventory pile-ups have reduced the industry to half in the last one year.

Experts said the discounted apparel industry, which was estimated to be Rs 2,000 crore till 2010-11, is now not worth more than Rs. 1,000 crore.

Extended sale seasons by regular brands to beat economic slump, adverse impact of an excise duty hike, negative brand perception and "deceptive" pricing have led to the decline of discounted apparel stores, they said.

Consequently, stores that went on an expansion spree during 2008-2010 have been consolidating and closing down several stores across cities. The excise duty hike of 12% in 2012 Union Budget has been a huge dampener for the industry.

Abhishek Ranganathan, analyst at MF Global, said the tax was required to be paid on the MRP (maximum retail price). "So even if the company was selling the clothes at a discount it had to bear the excise duty on the full price. These companies generally work on margin of 15-20%. Following the duty hike, the retailers have seen margins slipping to single digits," he said.

Big brands and other retailers stretching sale seasons to counter competition and slowdown made matters worse for discount stores.

Gimmicky discounts, too, drove consumers away. "Most discount retail stores generally went for an inflated original price and then offered a huge discount on it. As a result, the net saving of the customer was very less and so they could see through the fictitious discounts being offered," said Devangshu Dutta, CEO of retail consultancy Third Eyesight.

Experts said that consumer perception of these brands being "cheap" as they came with huge discounts probably hit sales.

"Not every one wants to be seen sporting a discounted brand that offers ‘buy two get three free’," said a retail analyst.

No wonder Megamart, another apparel chain, is looking to get rid of the discounted tag.

Though analysts don’t see a future in this business model, there are still takers for it.

"The fact that several retailers in this space have shut shops spells huge opportunity for us. We know the mistakes these brands have made and so keeping that in mind we are treading carefully," said Punit Agarwal, director, Promart, a new entrant in the discounted apparel segment.

Also, the creation of affordable fashion by big retailers like Pantaloon, Max and Reliance is luring consumers that are looking for a value deal.