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January 28, 2012
Mihir
Dalal & Suneera Tandon, Mint (A Wall Street Journal Partner)
Bangalore/New
Delhi, January 28, 2013
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.”
