Sale frenzy morphs into retail worry


August 21, 2012

Nupur Anand, Daily News & Analysis (DNA)

Mumbai, 21 August 2012

Retailers are bleeding. The ‘sale’ season whose duration has been stretched of late, has pushed brands and retailers to despair, in spite of shoppers’ frenzy. The sale season in its present form is unsustainable, retailers say.

Traditionally, seasonal sales used to start in August. Last year, they were advanced to July to give shoppers additional time to indulge. This year’s sales started in June.

“‘Sale’ was originally introduced to boost sales. But this prolonged sale and deep discounting are not a good strategy. Retailers need to take stock and devise a way out of these frequent sales now,” says Arvind Singhal of Technopak, a retail consultancy firm.

Companies and retailers may get hurt as quality-conscious customers who may not be bargain-hunters, are likely to stay off markets during the sale duration. And bargain-hunters are likely to behave likewise after the discount season, leading to subdued demand for long periods.

So, the consequent demand-supply mismatch leads to huge inventories which, in turn, necessitate longer sale periods. Companies are now trying to correct this phenomenon by preempting inventory pile-ups.

“Companies need to and are trying to get their demand forecasts right to avoid pile-ups and to maintain profits,” says Sanjay Vakharia, director at Spykar Lifestyles.

What this can mean for customers is a shorter sale period and fewer, and lower, discounts.

“The companies may take a couple of quarters more to get their stock pile-up right. Consumers can then say goodbye to these three-month-long sales,” says Abhishek Ranganathan, analyst at MF Global.

Devangshu Dutta, CEO of retail consulting firm Third Eyesight, thinks consumer demand has been subdued this year, and is unlikely to change any time soon due to the dampened consumer sentiment and dismal macroeconomic scenario.

“Companies are not going to repeat their mistake of a making wrong demand forecast,” says Dutta. “To check the mismatch between anticipated demand and actual demand, companies are reducing the time between orders and deliveries. With this, they will have less stock to clear at the end of a season and this will possibly lead to shorter discount sales.”

This is a much-needed change, say retailers. “Besides brands, malls organise their own discount sales to increase footfalls. Long promotional offers are bleeding companies. The retail industry is finding this sale frenzy unsustainable,” says the CEO of an apparel-and-retail chain.

Retailers are also worried about changing consumer behaviour and expectations. These days, shoppers wait for the sale season to start before they step out with cash/ cards to buy. Given frequent sales, the wait to buy stuff at half the cost is never too long.

Up to 70% discounts are another worry for the industry. “We are forced to offer deep discounts as everyone else is doing so. We don’t have a choice,” says Sanjay Bindra, director at Seven East, an ethnic wear brand.

Retailers acknowledge that sales and discounts attract consumers to retail spaces like malls that would otherwise wear a deserted look. But such footfalls, they bemoan, have come at a huge cost to them.