Megamart drops discount tag owing to tax burden

Sanjay Lalbhai’s Megamart, an apparel company owned

by Arvind is dropping its discount strategy following a drop in profit margins owing to the excise duty. While, other deep discount chains, including The Loot, Koutons, Cantabil and Priknit struggle to remain aflot with a 12 per cent excise duty tax announced in FY-11 by Union Budget, low consumer sentiment, slow economy, high inflation and rising costs.

Megamart, tracking Rs 650 crores revenue this fiscal, saw its operating profit drop from 6 per cent to 2 per cent after the tax hit. Now, with a fresh strategy in place, revamped Megamart stores competing against Dubai-based Landmark Group’s Max Value Fashion and Reliance Trends will sport a value price tag without actually focussing on discount offers.

Megamart began factory outlets 15 years ago by selling brands such as Arrow, Flying Machine, Newport, Excalibur, which were either owned by Arvind or for which had India rights. It developed into a 225-store discount chain with over seven lakh sq. ft. retail space and added exclusive rights for international labels, including Cherokee and Jeffry Bean.

Many deep-discount chains that cropped up in the pre-recession phase have faced tough times during the slowdown and companies like Koutons, the Loot had to close stores and scaled down operations.