Year 2011 has proved to be dampener for apparel retail. It began with cotton price hike which affected costs and then the announcement of 10 per cent excise duty on apparel, this was followed by the signals of another economic slowdown. All these factors together affected consumer sentiment in the country resulting in a low footfall in shops. So far, apparel retailers have registered just a 10 per cent growth compared to the 30 per cent last year. What’s more most retailers expect a “visible” slowdown in consumer demand in the coming quarters, mainly due to high inflation and interest rates, which have left lower disposable income in the hands of shoppers.
In fact, to deal with the situation, where consumers are not even responding to discount deals and promotions, apparel retailers are cutting down on inventory and average time stock stays in stores before it is sold and or doing away with discount deals. Apparel retailers Cotton County, Cantabil, TNG, John Hill and Koutons have stopped their year-round discount schemes like ‘buy one, get two free’ or ‘flat 70 per cent off’ that lured buyers and helped them maintain a steady business model in the past.
Other multi-product retailers like Shoppers Stop, Lifestyle, Trent, Raymond, Provogue etc, have decided to cut down on stock days, or the average number of days the products remain on the shelves before being sold, by 15 to 20 per cent to free the capital investment. For instance, Shoppers Stop has reduced its inventory from 45 days to 30 days, its lowest level in five years. Besides, it has started buying half the goods on returnable basis if they remain unsold, unlike a decade ago when it used to buy the entire merchandise.
With buyers not responding to offers and discount schemes, and all retailers passing on the high excise duty cost to consumers, the apparel industry is already reeling under pressure and is uncertain about the future since even the festive season did not bring in expected results. Experts say, earlier, inflated MRPs, despite discounts up to 75 per cent, allowed apparel retailers to achieve 13 to 18 per cent of operating profit margin before interest and depreciation. But growing consumer awareness and the new excise regime has badly affected the business.
Consumers are now turning their attention to brands offering full-priced model, for instance the 115-store chain John Hill moved to a full-priced model in January this year with its prices still 30 per cent lower than brands like John Players and Peter England. Larger value retailers like Reliance Trends and menswear brand Turtle feel that full price is the right price so customers trust their brands more.
Today’s smart buyer, who is aware, educated and understands the gimmick behind discounts offered by retailers is becoming a tough nut to crack. And even apparel retailers are in no position to offer good discounts with the 10 per cent excise duty on maximum retail price on branded textiles. Not every retailer believes in cutting down on inventory to deal with the situation since they feel that it might lead to losing out on sales and customers. So what steps or situation will bail these retailers out… only the time will tell.