Retailers likely to curb sale periods after prolonged discounts in 2012


January 28, 2012

Mihir Dalal & Suneera Tandon, Mint (A Wall Street Journal Partner)

Bangalore/New Delhi, January 28, 2013

Later in the year, growth picked up as a combination of improved consumer confidence and a flurry of festivals prompted shoppers to hit the stores.After weak demand and piled-up inventory forced clothing retailers to give discounts for longer than usual in 2012, companies such as Arvind Lifestyle Brands Ltd, DLF Brands Ltd and Lifestyle International Pvt. Ltd say they will not extend their sale period this year.

Last year, some retailers started offering discounts early and extended them till the end of March as they dealt with the overhang of a post-recession boom in retail: massive inventory.

The end-of-season sale lasted as long as seven-eight weeks, against the norm of four-five weeks, industry executives said.

In the first half of 2012, too, discounts were extended for unusually long as slowing economic growth and high inflation hurt demand.

However, growth picked up later in the year as a combination of improved consumer confidence and a flurry of festivals prompted shoppers to hit the stores.

“In the first two weeks of the sale period, we’re 10% above last year on a like-to-like basis. This year, by 15 February, the main part of the sale will be over. There will probably be a couple of weeks of silent sale after that, at most,” said J. Suresh, chief executive officer (CEO) of Arvind Lifestyle, which runs the Megamart chain and sells brands such as Flying Machine and Tommy Hilfiger.

Madura Fashion and Lifestyle’s Louis Philippe will not extend its discounts for longer than four weeks this year as sales growth in the months following the Diwali festival season had been “strong” at over 25%, brand head Jacob John said.

“Sales have been good for us since August. It’s been a combination of the FDI (foreign direct investment) announcement by the government, which helped consumer sentiment, strong and early winterwear sales, plus the numerous marriage season dates post-Diwali,” said Rachna Aggarwal, CEO of Indus-League Clothing Ltd, which owns brands such as Indigo Nation and Scullers.

Indus League’s sales growth had averaged 15-20% from August to December, she added.

Retailers and experts also said that due to the insipid demand last year, companies haven’t kept a large amount of inventory.

“The sentiment is more positive than before, so we will see timely sales in 2013. Stock and inventory is being maintained keeping that in mind, we won’t see a desperate situation like last year,” said Dipak Agarwal, CEO of DLF Brands.

“Last year inventory had been stocked up, but reality fell short of expectations and so (inventory) had to be liquidated. This year retailers have been more careful,” said Devangshu Dutta, CEO of retail consultancy Third Eyesight. “A number of brands have also started giving huge discounts earlier in the (end-of-season-sale) rather than towards the end, so sales may not be stretched out as last year.”

Indus League has already started shipping in fresh merchandise when a majority of clothes in its stores are last year’s leftovers and still bear the on-sale sign.

Department store chain Lifestyle, too, will introduce a new spring-summer merchandise in the first week of February, a company official said.

However, Rajive Ranjan, managing director at German retailer S. Oliver Fashion India Pvt. Ltd, expects early sales will continue in India for sometime as retailers’ dependence on discounts is high.

“But as retail will mature, this trend of multiple and preponed sales will mature too. In the coming years, more retailers will move down stock within the season and dependability on sales will go down,” he said.

Third Eyesight’s Dutta warned that though revenues are likely to show strong growth in the second half of 2012, retailers’ profits will take a hit as many companies offered promotions continually. “Many companies were offering promotions throughout the festival season starting from October. So my sense is that the second-half topline (revenue) will be good, but margins will take a hit,” he said.

Median Ebitda margins for the retail sector are likely to decline by 50-75 basis points in 2013, India Ratings said in a report last week.

Ebitda, or earnings before interest, taxes, depreciation and amortization, is a measure of profitability. A basis point is 0.01%.

“Sales in 2012 were driven by discount offers,” India Ratings said, “and the trend is likely to continue in 2013, providing volume growth at the cost of margin.”