Retailers step up discounts to “right price” products


August 23, 2010

Daily News & Analysis (DNA)

Mumbai, 23 August 2010

Shailaja Sharma

Back then, the sales were a much-awaited annual affair. Today, discount sales run all year round. Modern retail appears to be learning its lesson on right-pricing the hard way – the Indian consumer will go where the value is.

In other words, those who decide against taking a direct correction by bringing down prices to realistic levels, have to take an indirect cut through frequent discount sales.

"Retailers whose prices did not match with the requirements of consumers have experienced that their highly-priced products may not sell too much," Lalit Agarwal, chairman and managing director of Delhi-based hypermarket company, V Mart Retail said.

So, while the last year saw retailers prepone festival sales or run them for extended periods to be able to clear the inventory, this year is witnessing an increasing number of discount sales.

This year too, most brands went on sale before the usual July 15 timeline. Most stores are still stocking more discounted items than fresh merchandise.

The trend of extending sale period is prominent mostly with retailers who are in the business of apparel and footwear, said Govind Shrikhande, customer care associate and managing director, Shoppers Stop.

"If we have a 17-day sale, we stick to it and have tried to avoid over-discounting for sure, but some stores, instead of doing the usual two week sale, are keeping it on to almost five-six weeks of sale," Shrikhande said.

The last two years have been unusual from the point of view of the expectation versus the achieved space. Where in 2005 most brands started on an expansion spree, the beginning of 2008 effects of slowdown started creeping in.

"So while the companies were opening stores, the sales they were expecting were not achieved. And as the consumer spending became conservative, a lot of companies either scaled back their expansion plans or they shut down stores. So there was a lot of inventory in the pipeline, which was there for the planned growth that never happened. And that to a certain extent created a further dependence on discount sales," said Devangshu Dutta, chief executive officer of retail consulting firm Third Eyesight.

This has led to a seemingly irreversible trend of unending discount sales by major retailers across categories, which is spoiling the consumer, say analysts.

"Last year the discounts were much higher and for longer. Retailers rushed to cut each other’s throat in competition to see who goes on sale first," said a sector analyst who did not wish to be named.

Apart from the usual Spring-Summer and Autumn-Winter discount periods, retailers are increasingly bundling occasions like Mother’s Day, Rakshabandhan, Valentine’s Day and Independence Day, Kumar Rajagopalan, chief executive officer of the Retailers Association of India pointed out.

"Each retailer wants more market share than the other, and to grab the market share, they discount more," Shrikhande said.

Retailers are trying their best to woo customers to walk in to the stores and buy.

"Retailers are seeing lot more competition and also, propensity to spend for consumer is increasing and that is why retailers are trying to get deeper share in consumer wallets," Rajagopalan said.

And customers wait for the time when brands offer the highest discounts, Agarwal said. "Consumers are getting smarter and are willing to delay their purchases to discount periods," he said.

Dutta said that retail in India was still over-priced as western counterparts pay half for the same products.

"The fundamental issue of right-pricing has to be addressed and till that happens discounts will be present in the market. We have an issue with pricing, and modern retail here becomes just more apparent. Unfortunately, over the last few years because of ongoing discounts there is an expectation that has crept into consumers’ minds," Dutta said.

Retailers order goods or inventory basis the sales targets they have and the current scenario in retail is that of surplus inventory that retailers are sitting on.

Last year, British skin care company, The Body Shop slashed its prices in India by 10-30% in order to become a ‘right-priced’ brand for Indians. There are other apparel brands that are perennially on sale.

(This article originally appeared in the Mumbai edition of DNA on August 23, 2010: click here to read on DNA)