Discount chains’ profits fall

Thursday, 08 September 2011

Most apparel retailers and discount chains have had seen a dip in profits in the first quarter of this fiscal. This is due to rising input prices, mandatory excise duty and shrinking volumes. To get around it, most of them are devising strategies and hoping the festive season will help them improve their results. Cantabil Retail has posted a nearly two-fold decline in its net profit at Rs 2.59 crores for the quarter ended June 30, 2011, against a net profit of Rs 4.99 crores a year ago. Koutons Retail has posted a net loss of Rs 35.77 crores for the Q1 2011-12 against a profit of Rs 5.50 crores in the corresponding period last year. Brandhouse Retail posted 83 per cent dip in its Q1 profit at Rs 2.10 crores against Rs 3.86 crores in the corresponding period a year. Shoppers Stop’s volumes have fallen by five per cent.

According to an ICRA report the imposition of excise duty could distort the cost structure of many discount brands which will have to rework its strategies to stay afloat. According to Rohit Inamdar, Senior Vice-President, ICRA, the duty will hit the discount apparel brands, which, in a bid to capture a larger market share, adopted a steep discounting strategy, offering 50 -90 per cent discounts. Discount brands have three alternatives to maintain their cash inflows at earlier levels – increase MRP while maintaining discounts at the same levels, reduce discounts with the same MRP or completely reduce the MRP.

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