Extended discounts: The new mantra of retail brands

Discounts and sales seem to be the new tool of retail brands for right pricing their products and increasing sales. They seem to have understood the tough way that the price conscious Indian consumer will go where the value is. This means,

those who decide against taking a direct correction by bringing down prices to realistic levels, have to do indirectly do it through frequent discount sales.

“It’s the easiest route taken by brands without having to do much introspection and analysis on merchandise planning. The corrected prices do offer value to the customers,” says Amol Dhillon, VP-Strategic Planning, Aero Group, makers of the brand Woodland. Lalit Agarwal, chairman and MD of hypermarket company, V Mart Retail is of the opinion that retailers whose prices did not match with the requirements of consumers have experienced that their highly-priced products may not sell too much. Perhaps this is one reason why while last year many retailers either had to pre-pone their festival sales or extended them further to clear inventory. This year too there is an increase in the number of sales. Most apparel brands started off the sale season before the usual July 15 date and even now stores are stocking discounted items.

However, some brands say they give discount simply because that’s what the consumers want. Koutons Retail is the best example of a brand that is perennially on sale. “The reason for us to follow this is because we understand the consumer psyche who is attracted towards discounts. And this understanding I believe is the key to the success of Koutons Retail,” explains Balvinder Singh Ahluwalia, President, Koutons Retail. He feels discounts offer a route to the sellers to increase their sales while maintaining a decent profit margin. Some industry experts say each retailer wants more market share than the other and to grab a larger share they discount more.

However, Anurag Rajpal, VP Apparel Brands at Spencer’s Retail, does not seem to agree with the idea of prolonged discounts and sales, “We don’t believe in discounting our products beyond the industry practice. It should typically follow end-of-season sale, which happens twice a year. Only brands weak in their offering follow discounting across the year,” he opines.  Spencer’s Retail which has brands like BHPC, Ladybird and Ecko in its portfolio and whose USP has always been pricing the products right, opts for end-of-season sale to liquidate balance merchandise of last season and to jump start next season.

Dhillon contends the discount period hold an important place in today’s competitive retail sector. That’s because the retail space is limited and brands have to showcase and display their newest and best merchandise 4-6 times in a year. The discounts are a tool available to the retail brands to liquidate their slow moving and seasonal merchandise to make space for the new one. “With the market being highly competitive, brands need to achieve over and above their break even targets of per sq. ft. sales to sustain and this requires the slow merchandise needs to go even if it means selling below cost,” he explains. In fact, there are enormous opportunities for brands and the management to learn from the customer’s buying habits during discounts, insights on the slow moving items and inventory, merchandising mix management.

However, Devangshu Dutta, CEO of retail consulting firm Third Eyesight has a different take. He feels the main reason for extended sales is that while companies were opening stores earlier, their sales did not match expectations. Therefore, many either put on hold their expansion plans or shut down stores. So there was a lot of inventory in the pipeline, which was there for the planned growth that never happened. And that to an extent created further dependence on discount sales. Unless the fundamental issue of right-pricing is addressed, discounts will be present in the market.