International brands to raise prices on weak rupee


July 22, 2013

Anshul Dhamija, The Times of India

Bangalore, July 22, 2013

International retail brands will increase prices in the upcoming Autumn-Winter season, with the rupee depreciation having raised costs for them.

The rupee has depreciated by 12% against the dollar since February.

The new season for shoppers, which would begin in the second week of August, is expected to see most international brands raise prices by at least 10%.

German sports lifestyle brand Puma has seen costs escalate by 30% since January this year. "So far, we haven’t passed on the burden to consumers, but this Autumn-Winter season we will increase prices by about 10%," said Rajiv Mehta, MD, Puma India.

He said if the company passed on the entire cost increase to consumers, sales would take a beating. Puma’s India business has been growing at a cumulative annual growth rate of 37% over the last six years.

International apparel and accessories brands such as Tommy Hilfiger, Mango, Promod and Zara are expected to revise prices as their high percentage of imported content does not allow them to absorb the costs entirely.

Mukesh Ambani’s fashion business Reliance Brands, which has franchise agreements with premium to luxury brands Kenneth Cole, Paul & Shark, Diesel and Ermenegildo Zegna, among others, is also said to be looking at a price revision for the upcoming full-price fashion season.

On the other hand, Daniel Hechter and Manchester United, part of Kishore Biyani’s Future Group-owned Indus League Clothing, which have a 10% exposure to imports, are unlikely to increase prices. Benetton and M&S are the other international brands that won’t be impacted by the dollar due to a high percentage of local sourcing.

Pinakiranjan Mishra, partner and national leader (retail and consumer products) at consulting firm Ernst & Young, says that since brands are already offering huge discounts, any steep price hike in the next season could dampen consumer spending. "It will be difficult for consumers to accept anything above a 15% price increase," said Mishra

For franchises of ultra-luxury international brands, the problem could be particularly acute. Genesis Luxury – which markets and distributes labels such as Armani, Jimmy Choo and Paul Smith – has been advertising large discounts to revive waning sentiments of luxury shoppers. And this elite segment has the option to buy at neighbouring shopping hubs such as Dubai and Singapore.

"International brands that operate on a franchise model in India, where the local franchisee has a high exposure to currency fluctuations through imports, will definitely have to go in for a price increase," said Devangshu Dutta, CEO of retail consultancy Third Eyesight. He added that international brands that have set up JVs in India might look to absorb the increase in costs, with a view that the situation is a short-term phenomenon.

At present, both domestic and international brands are riding high on the year-end sale season, as consumers are lapping up discounts ranging between 30% and 50%. These are expected to further deepen to as high as 70% with the sale season entering its final leg. Dubai-based Landmark Group’s multibrand retail store Lifestyle has already reported 50-60% growth in sales over last year’s end-of-season sale.