Sales as retail panacea

The end-of-season sales have made an early appearance this year. The usual timing is the first week of February and this time around it is earlier by a month. We can perceive it as the retailers tried their best resort to make the buyers spend their money in the backdrop of a bleak economic scenario. The discount is a bit higher than last year with a 20-25 per cent extra slash in price.

The reason is quite obvious, since the festive season that stretches from October to December did not give any respite. Usually, sales during this period account for 40 per cent of the annual turnover, but this time it dipped to 20-25 per cent.

Sales for retail revive

The slowdown has taken its toll with consumers experiencing the jitters over job security and falling consumption which has resulted in slow movement of goods and increasing inventory stock. Against this backdrop, sales are the means to liquidate the piled up stock. As Pinakiranjan Mishra, Partner & Industry Leader, Retail & Consumer Products Practice, Ernst & Young describes, “The discounts are required to maintain topline and draw footfalls. If retailers are able to liquidate old inventory through this sale, it will help them in the long run.”

So what are the parameters that prompt the retailers to call for discount? Mr Narayanan Ramaswamy, Executive Director, KPMG Advisory Services Private Limited observes, “Discount as a whole is ruled by stock pile-up, cash position, age of product, relevance of brand in case of fashion, etc., and in those where retailing is done by an independent vendor, his/her inventory turnover and cash reserve as well. Today, many of the above parameters are pushing retailers and brand owners to provide deeper discount over a longer period of time. In the current economic condition, this will help boost retail sales in the short-term and bring some buoyancy in the market.”

Dipping profit margin

Industry experts view the situation as a bottleneck condition and fear it will worsen till the market manages to buoy itself. Fitch, a well known rating firm, projects a lower same store growth for slower GDP. But that is bound to produce lower profit margin with volume selling through sales. It is a rule for apparel retailers to sell 60 per cent of the stock at full price and the rest at 20-25 per cent discount. The profit margin generally varies between 30-35 per cent. But the situation has made this reverse with 60 to over 90 per cent of the inventory selling out on discount. Mr Mishra opines, “The current discounting will impact their margins significantly with additional margin erosion of anywhere between 15-20 per cent.” Mr Dinesh Sehgal, Managing Director, Blues Clothing Company, which is the exclusive franchisee of some high-end brands like VJC Versace, Corneliani and Cadini, informs that the usual profit margin for ready to wear apparels is 30-40 per cent, but during end of season sale, it dips down just to meet break even or sometimes even below cost, whereas for the discount format retail outlets like The Grab Store, the profit model is based upon high turnover in quantity and low profit margin. “Usually, we get the products from the brands at ‘x’ price and out of that, we pass on almost 80 per cent to the customers. During end of season sale, the same gets increased to about 90 per cent, since we work on even higher quantity during this period,” remarks Mr Sanjay Tayal, Promoter, The Grab Store.

Retailer not deterred

The sales for prolonged period can boost up top line sales and same store growth, but at the same time can affect EBIDTA (Expenditure before interest, depreciation, tax, amortization) margin, observes an expert. But retailers are keeping their fingers crossed, hoping to beat the downturn through better offerings and blaring campaigns. It all depends upon calculation with target sales. These sales do not ever produce loss—a silver lining on the black cloud. Take a look at other countries like France. The country which is hit by the worst-ever economy only after World War II, is welcoming retail sales in full swing that have started from January onwards, and recorded a rise of 5 per cent in comparison to the first two weeks of the Grand Sale. The outlets of Zara and Promod are thronged by enthusiastic consumers rummaging the merchandise to select the best. But the consumption blues are sure to set in once this euphoria phases out.  Retailers in India too are now thinking on the same lines, with a positive beat. A premium cosmetics brand like The Body Shop witnesses 60-90 per cent of footfalls and the sale conversion touches almost 60 per cent during the sale season.  An outlet of Provogue at Delhi high street experienced footfalls as high as 140-160 per cent with sale conversion varying between 50-60 per cent. In the Indian market, most of the retailers earmark 10-15 per cent of their annual turnover for the promotion of the brand which includes promotion during end of season sale (EOSS). The percentage can go up to 30 per cent for comparatively new brands like The Grab Store.

Sales to charge up consumer sentiment

The purpose of EOSS is to boost up sales and most retailers expect to do the same in the range of 10-18 per cent. The discount retail format aims to hit the maximum and in some cases, the target is fixed at five times of regular sales. Apart from cutting down MRP, retailers are taking other avenues for revitalising the slump in sales. Jumbo Electronics is offering free items with some selected products. Some models of cell phones are sold along with Bluetooth free. Vishal Retail launched ‘Sabse Bada Tehelka’ with offers like ‘Ek rupay me dhamakedar’. Giving a fillip to consumer sentiment, Future Group promoted ‘The Great Indian Shopping Festival’. Sales are effective for speciality retailers like Ahuja Sons, a well known name in retailing shawls and stoles. Ahuja Sons makes most of the business during the period that lasts between November and January. The company is expecting its topline to rise by 5-8 per cent in comparison with the last year through EOSS. For a niche retailer like Ahuja Sons, rest of the year export and oversees customers are the two important sources for generating business, reveals Mr Bhuvan Ahuja of Ahuja Sons. The situation has made consumers the real gainer and it is good for retailers too, as purchasing can only ensure cash flow for the betterment of economy, while for the educative part of it, retailers are coming to terms with value for money services.